How are deals like this usually structured? 

The seller will always retain the equity and would receive annual distributions - and could structure the agreement with an exit strategy that makes them comfortable. 

I have been working on creating more passive RE opportunities and have come across a unique equity financing structure.

None of the walls I'm shifting around are structural so no issue there but from a leasable / liability stand point what are your thoughts?

It works just fine if the operator knows what theyre doing and structures it correctly.

Also I feel buy and holds are harder to structure partnerships as its not that much money when split in between two people.

Quote from @John Keane: @Jay HinrichsGot it, I will definitely re-evaluate my profit split structure after what I have learned here. 

70/30 investor fund structure to make this deal go.

The Yale Law Journal article, "Zoned Out: How Zoning Law Undermines Family Law’s Functional Turn," highlights this issue, noting that while family law has evolved to recognize diverse family structures, zoning laws have lagged behind, potentially hindering innovative housing solutions like co-living.Challenges for Co-Living InvestorsFor real estate investors interested in co-living, these restrictive definitions can lead to:Legal Barriers: Difficulty obtaining permits or approvals for co-living spaces due to non-compliance with traditional family definitions in zoning codes.Operational Challenges: Potential fines or legal disputes arising from housing arrangements that don't conform to local zoning definitions of a household.Market Limitations: Reduced ability to meet the growing demand for affordable, shared housing solutions.Advocacy for ReformThe Bloomberg article, "Why Are Zoning Laws Defining What Constitutes a Family?"

Assets identified in this study include:Standard windows and doorsInterior ceilings and wallsBasic plumbing and electrical systemsBuilding structural elementsBasic HVAC componentsThis engineering-based cost segregation study included the following methodology:Physical Inspection through a site visitDocumentation review including architectural plans, accounting records and construction documentsA cost analysis which utilizes engineering principles in order to allocate costs to their applicable asset classificationsCalculation of the depreciation schedule using MACRSAs a reminder, bonus depreciation started to phase out in 2023.