But there is a rule on 750 hours in real estate activities that they materially participate AND 50% or more of your material participation in all businesses, along with material participation (subject to a grouping election for rental real estate).

If you were to setup a self-directed IRA, it could not participate in your personal investment transaction in any way as that would violate IRS rules against self-dealing.Leave the IRA alone and perhaps distribute $3-5K if necessary to get your deal done. 

I am new to this, and want to ensure that any partner I take in participates in an equal amount to make the deal fair. 

The reality is that this property barely hits the 1% rule, factor in the relatively high NJ taxes and 100% leverage and cash flow is going to be almost impossible.Furthermore, you'll need to figure out how to deal with those tanks.

He lives across the country, and wouldn't be participating other than the money aspect.

It was not an easy thing to do, at all, and to this day we barely talk.About two months later, I got myself a new tenant.

You are barely covering expenses- and but for this month, not.

Try to make it abundantly clear who is in charge of the project and who is just participating passively and thus should be treated like a LP. 

After he pays for his health insurance, medicine, food, and utilities he barely can afford the $700 rent.

I'm also very new to REI with barely a week under my belt.