I give 3 or 4 construction draws for 100% of the estimated rehab cost, but I give them in arrears of each stage of the construction, so the borrower must also have 25 - 33% of the cost of the rehab in reserves, as well as reserves to cover carrying costs.

I thought the guy was going to jump off the stage and slap the lady for not following instructions.

The payroll would be safer, the rental arrangement may have issues, if the rents paid from sales commissions became excessive for the value of the space rented, it would become clear that you were circumventing the law!

Then I told her that if I was able to find a good deal we could arrange a joint venture.

Great book by the way J, we feel we are ready to go and are in the final stages of locking down some private funding.

When we purchase a 120K property here, it will received full gut (studs out as you say) and when Humpy-Dumpty gets put together again, it will be with modern insulation levels, air sealing, Energy Star (tier II or III) Windows and Doors, LED lighting,    Since we are buy-n-hold types, if we sacrifice anything  due to budget constraints it will be trim level - something we can easily change later.We are at the painting stage of a full-gut, deep energy retrofit of a 1100 ft^2, 2-story attached unit {fire coded common wall} and are heating the entire unit with one 2000W electric baseboard at the moment (heat pump will not be commissioned until trim is complete).

The target profit was $30k making my max purchase price $99,620 (with the additional costs I included - staging costs @ $3k and hard money financing cost @ $11k). 

My understanding was that we had executed a new, legally valid lease, that this supersedes previous arrangements, and that it is clear that both are tenants with the right to live there and with a shared obligation to pay rent.

@Robert Delgado I am now a newbie (still in the research stage) from southern DE as well. 

IF you can find this arrangement (and that's a big if), why would they pay you 8% AND a salary?