He is not receiving any compensation, except for profits over $25k, correct? 

I'm not really an investor, but do own one single-family house in a great inner east-side neighborhood that was my primary residence - I now rent it out and receive some positive cash flow.  

Well, you can always sell a partial on any of the notes in your portfolio using and assignment of receivables contract.

., former employer 401k) to a solo 401k are not reported on Form 5498, but rather on Form 5500-EZ, but only if the air market value of the solo 401k exceeds $250K as of the end of the plan year (generally 12/31);When funds are rolled over or transferred from an IRA or 401k to a self-directed IRA, the amount deposited into the self-directed IRA is reported on Form 5498 by the receiving self-directed IRA custodian by May of the year following the rollover/transfer.Rollovers (provided the 60 day rollover window is satisfied) from an IRA to a Solo 401k or self-directed IRA are reported on lines 15a and 15b of Form 1040;Pre-tax IRA contributions on reported on line 32 of Form 1040;Pre-tax solo 401k contributions are reported on line 28 of Form 1040;Roth solo 401k funds are subject to RMDs;A Roth 401k may be transferred to a Roth IRA (Note that from a planning perspective, it may be advantageous to transfer Roth Solo 401k funds to a Roth IRA before turning age 70 ½ in order to escape the Roth RMD requirement applicable to Roth 401k contributions including Roth Solo 401k contributions and earnings.)

I would take that $40k and identify an area that is up and coming, near a college, university or employment draw, and purchase a small condo as a rental. 1 Bedrooms or studios make excellent rental investments. 

I've given him an offer but we wants a kick out clause in the event he receives a better offer during the option period.

I have excellent credit, make about 75k/year with no OT, no other debt than my truck payment, and I have about 50k to put down.  

how do I setup and llc to receive private loans to flip properties?

I have my property listed on websites and have received applications (with background/credit checks), along with many requests to view the property.

@David Bokman Makes an excellent point.