My situation is perhaps a little different, in that I'm in a position to sell my only rental property, which was my first home (tri-level townhouse), to avoid having to pay capital gains on it. 

The goal is to make decisions that give you the greatest percentage chance of success. 

If your rentals rise to the level of a trade or business per IRC 162 (which, most do) you qualify for both. 

And let me tell you, I'm the guy who also charges a touch under top of market myself and do this stuff because I like it, not because I think it's the greatest investment ever and I think I'm going to retire a jillionaire in a year.

For me, it depends on your experience level. 

Find your own comfort level.

@Pierre Luc leblondUnder federal law, nonresident investors in a Partnership must have tax withheld at the entity level.

In short:One partner is your 401k and the other partner is the other investor.This could be accomplished via an LLC (i.e. one member is your 401k and the other member is the other investor).This means that partnership will have to file partnership tax returns (1065 at the federal level) and issue k-1's to the partners (e.g. one would be issued to your 401k under the ein of the 401k).The terms of the agreement (including the payment flows you mention) would be negotiated and documented in the operating agreement where you sign as the trustee of the 401k.The standard rules regarding investing in real estate apply (i.e. you can't use the property for personal use, you can't work on the property, etc.). 

With the example you have above are you saying a better way is to just forego real estate ground-level work and just become a money lender?

The level of detail you wanted to see is a matter of preference, but that will also entail more effort and time.