I had someone PM me and ask for steps to setting up an investor/PML scenario between him and a family member. I decided to put my response up here in case there was some value for someone else. Remember, PMLs are usually someone you know so I've skipped due diligence of each other. I do not have available funds right now but here is my spin, feel free to add/correct...
Once you know how you are going to compensate your uncle it is pretty simple. If he is funding the purchase and rehab then I suggest an 8% apr preferred rate off top of gross profits, then he gets X percent of remaining net profits... 20-40%*** because he is taking the entire financial risk. You should cover carry costs like utilities, taxes, insurance, etc. Your uncle should be listed on insurance as mortgagee.
If you are funding the rehab portion then the 8% pref. rate and small equity share (10%?) might be in order.
If you are in there swinging a hammer, etc. you should be compensated for your time, either in an agreed hourly rate or reduced equity position for your uncle***. If an hourly rate, you'd take this pay off of gross profits but after his preferred rate is taken.
Gross profits - uncle's 8% preferred rate payout - your labor (if any) = net profits. Share the net profits based on your agreement.
Put together a spreadsheet with max purchase price, realistic rehab estimate, and ARV including three reasonable comparable sales. If you both decide to move ahead with the project as outlined then proceed with an offer.
Your uncle should be prepared to show the seller of a property that he has the funds to purchase (proof of funds). Realize that you are asking him to set money aside until you have an accepted offer... respect this point; if he wasn't holding it for your project he could be investing it elsewhere.
After you have an accepted offer you prepare a state & county specific mortgage and a promissory note. The mortgage is pretty boiler plate and should be due in full in about a year. The promissory note should spell out the rate, term (usually one year or less), and profit split agreement. The promissory note should reference "the mortgage of same date".
Sign both documents in a front of a notary a day or two before the purchase closing. Bring to title company at close so they can record the mortgage (promissory notes don't get recorded but give your uncle a signed copy of both). Have title company return original, recorded mortgage to your uncle.
When you sell the home, have the title company prepare a "Mortgage Disc" that your uncle will likely sign in front of a notary and then will get over to the title company. You'll tell title company how to split remaining proceeds between you and uncle, which of course will be dictated by your agreement and promissory note.
I hope this helps.
@Paul Jamgotch , I believe I was asked the same question. I am happy to see that it looks like our responses were compatible though you dove deeper into possible rates and splits than I did.