@Jay DeckerThe great thing is that you live within Washington State which does not have a state income tax.You may be required to file a non-resident return with Ohio and Iowa.

Unfortunately you're not paying him enough (and he's not charging himself enough) to stay on your project all the time so he has to create supplemental income.

Basically, interested in partnering up with income producing properties. 

I would much rather pay tax on just the interest income rather than on a distribution of that amount, that I've already previously paid income tax on.But, when getting funding for deals, from either hard money lenders or other lenders, will having that loan on the books create a roadblock that could make getting funding more difficult, potentially costing me deals?

Also you can consider REITS or syndications for the passive income.  

My issue is that I come from a low income background and have fought my *** off, pardon my language to get to where I am now and comfortable.

When renting to travel nurses for 3 month periods, are rent payments considered earned or passive income

Develop a long-term investment strategy based on rental income, property appreciation, and realistic expectations.Good luck!

It is costly to live in one of the finest climates in the world (assuming you were not lucky enough to get the small number of lower income units - like winning the lottery).  

What will it cost to make those income streams happen?