The way to evaluate that is split testing. 

With a combined 40k we plan on getting another rental in the area and splitting it 50/50.

The costs of the appraisals shall be split equally between OWNER and HOLDER.

He's an investor and talked about "partnering: with his company he would loan the investor the money to purchase the house and then when the home sells he would split the profit with you. 

He can find a hard money lender (maybe) that will only charge him a high interest rate but that would be far less than having to split the profits.So before I would completely write off suggesting you just hire the contractor, I think it depends on what else they bring to the table that you possibly do not. 

I've been following this BP community for a year now as a free member and I think that this place rocks!!!

A little shove and that rock hovering on the edge of a cliff has it's potential energy transformed into actual kinetic energy. 

If the drawing is to scale, it appears the room is larger than the kitchen.You're saying old exterior walls, are they sheet rocked on the other sides as an interior wall?

We will split profits 50/50.My question for anyone who has/had this type of arrangement is what is the best way to structure the business?

If you are doing a 50/50 split or some other profit splitting with them, I would set up an LLC and run everything through that.