Hi Otis, when partnering on real estate, it’s important to set clear roles, contributions, and profit splits upfront.

Quote from @John O'Leary: Are you just renting by the room or are you using Pad Split? 

So this might also complicate matters significantly as I would probably need to add both an additional well and an additional septic in order to truly split these into two separate properties. 

I do partnerships many different ways, some I split the equity on the sale; I'll bring the deal, and partner with the person investing because I brought the deal to them. 20/80, 10/90, 40/50, etc..

How should this be handled: tenant pays, landlord pays or split costs and why?

There are definitely multiple options and some will allow for a set amount of personal transactions per year to waive commission splits.

With that in mind, which approach do you think works best:1.Use property management software (PMS) as an intermediary to automate payments and fee splits while reducing legal risk and simplifying operations?

For a partnership where you're providing all labor and the broker is funding the deal, a fair split typically ranges from 30-50% for you and 50-70% for the broker, depending on the value and complexity of your labor versus the financial risk they're taking.

I will split a giant master room into two smaller rooms and will convert the living room to get the additional three rooms.

I have one personally and I have found its better to rent the whole property vs. splitting it off and having a separate tenant with a separate lease.