The market I am zeroing in on is San Antonio due to its good cash flow and very favorable long term growth prospects.

As an individual, you get standard deductions and personal exemptions in addition to your business write-offs and the first (for MFJ) $18,000 is taxed at 10%.In a C-Corp, you lose the favorable treatment for capital gains.  

I wholeheartedly agree, though I still dont necessarily see the math working in favor or holding the asset as oppossed to selling and reinvesting in potentially a more attractive asset.  

It could probably also make sense to reduce the investor's equity to some extent after return of capital, so not remove them, but tilt the balance a little more in the sponsor's favor (and I only thought of this because it was mentioned in a podcast if I recall)But if you're leaving the investor in the deal indefinitely as you suggest, is it acceptable to not talk specifically about return of capital at all in a situation where there is no preferred return?

I always favored the idea of "home" classes or online, but I tend to feel like I'm missing out on something.

If you can show the private lender that you can do this deal, they may be favorably inclined to do future deals with you as well.

I'd look into this option before any sort of commercial loan (which isn't going to have as favorable of terms). 

Should I sell it and use the proceeds as a down payment on our next home (and start my RE investing career with a different purchase on more favorable terms)?

@Joddie PartchThis is one of those things that is "quite probably" safe, but could potentially be viewed as a self-dealing situation.The partnership is not a disqualified party to your plan based on the information you have provided.You already have an existing relationship with the partnership, so there is no assumption that you are personally gaining their accounting business as a result of loaning them money.I would assume that you will provide accounting services associated with the partnership's investment in this commercial property, but there should not be any issue with that so long as there is no favor or benefit conferred in either direction due to the fact that your plan would be lending to them.  

But if it's purely a cashflow investment you're looking at, I would keep looking or offer a price where the numbers are more in your favor.