We have created an investment plan for them to buy shares of a property, against what we put down for an initial down payment, so it accelerates there returns.

Your reporting on your federal return shows whatever recognized gain is recognized. 

For example, in this case it could be that this is a great investment for you because the rental return you'd make from putting in this much cash into a purchase works (for you!)

Quote from @Sam Lewis: I understand the benefits behind hard money lending, its guarenteed return from your cash... however, what cases would a hard money lender trust someone they don't know/barely know?

It's crucial to evaluate how the deal performs with the new mortgage:Updated Financials After Refinancing: Market Value: $459,000 Mortgage Amount (80% LTV): $367,200 Equity: $91,800 Interest Rate: 5% (30-Year Amortization) Assuming after 12months the rate will drop to 5%Monthly Expenses: Mortgage Payment (5% Interest): $1,971 (Now you are paying interest and principals) Property Tax: $260 (assuming has been increased with a 4% from last year) Utilities: $361 Insurance: $104 (+4% Adjustment) Vacancy: $166 (now after 12 months we can assume we have some vacancy at 5% factor on annual rent) Repairs & Maintenance: $166 (now after 12 months we can assume we have repairs at 5% factor on annual rent) Total Monthly Expenses: $3,028Rent Income after 12 months assuming annual rent increase at 5% : $3,323Cash Flow: $295$ per month 😊Long-Term Gains: $5,418 Principal Paydown year 2 (this will increase each as you pay off your mortgage $36,720 Property Appreciation (assuming 8% per year) $3,540 Cash Flow (this will increase as rents rise)Total Annual Return on Investment: $45,678 with just $ $22,789 remaining in the deal.

I would look into different markets that have strong appreciation and cashflow where your CoC returns are not negative every month.

I've researched local markets and don't think Ill have any issues finding a renter at about a 10% return after taxes and insurance. 

Given appreciation is typically where you are making most of your return in any real estate, having this additional appreciation helps create much higher returns.Additionally, my single family tenants, typically stay a couple years longer than my duplex tenants.  

Change the locks so he can't return.

All of these factors can lead you well into double digit and even triple digit net-worth returns on investment (NROI).