If it was, there could have been tax deductions for the contributions, tax-deferred growth, and/or zero taxes on the back end.)If you're renting, real estate generates rents (ordinary tax rates), unrecaptured section 1250 gains (up to 25%), and capital gains. 

Be sure you meet the material participant / real estate professional test per the IRS, however assuming such, you could expense as much "business related expenses" as possible to offset your ordinary income (consult with your CPA first!).

Lets say for $50/hour per man.LLC1would pay ordinary income on its profit.LLC2 would pay ordinary income and self employment tax on its profit.

**Don't let this happen**You can deduct plenty, but it needs to be "through the course of your business" and the expenses needs to be "ordinary and necessary."

Sure, but all that time, my cash was tied up in these 2 properties and I'm not taking into account anything out of the ordinary like capex repairs, etc.  

Flipping does Not qualify for cap gains treatment, it's ordinary income subject also to unemployment taxes.  

He will claim the interest received and it's taxed at ordinary income rates.  

My lease states "Landlord may deduct from the Security Deposit, Any unpaid rents, court fees, locksmith fee if keys not returned, utility bills, late charges, court costs, damages due to breach of this agreement, and damages to the premises by Tenant, their family, agents, employees, or social guests in excess of ordinary wear and tear."

That would be self-employment income taxed at your marginal ordinary income tax rate, plus ~15.3% self-employment tax.    

Is there a more advantageous way to lend the money and have gains be treated as capital gains versus ordinary income.My goal is to continue to invest with this developer for years to come and roll over the funds, but not sure where I should start to come up with a better solution than ordinary income via a 1099.