I am planning to start a real estate investment co.  I will buy,
possibly renovate & flip properties for profit.  For the start up
capital I have friends & family who are interested in providing money
that they would get a return on.
1.  I would like info on customary financial return/interest given to
the investors in this situation.
2.  I am interested in knowing whether it makes sense to become an
LLC, etc., or if there are contracts that you could advise me to
complete for this venture & they would suffice.
3.  Are there other people who are doing this that I can model my
venture after (the goal is to make $500,000 in the next 2 yrs)?  I
would love to also be able to find their marketing materials, etc.
I am happy to provide clarification on anything in the question.  I
have priced the question for answers solely to these general
questions, but would be glad to TIP extensively for an answer with
great, practical advisement!
Thanks.  I have spent so much time trying to find these answers myself.  I give!

I was once invited to be one of about 100 partners in an early cell
phone system in Boston, Mass. After studying the prospectus I
concluded that my liability could include all the initial investment
and more. I think the organizers planned to invest very little of
their own money, but pay themselves big salaries, even if they bungled
badly. Since the parteners were scattered all over the USA, there was
little chance we could get together opposing officers so we could vote
the rascals out.
 The concensus is partnerships are not the way to go, so it appears to
me that you need to form a corporation and issue stock according to
how much each friend and relative invests.

Thank you!  I really appreciate your input.  I hope someone answers my
question, too!

I am assuming that the family and friends are providing enough funds
for you to borrow the balance from the bank, and you are not asking
them to fund the entire purchase.  If that is indeed the case, then
they should be given a pretty high rate, in the range of 9-10%. 
Because if that happens you are asking them to take on all the risk. 
The bank is going to have the first lein on the property, so if things
go down the tube, they will get their money first.  I am assuming you
are putting in a lesser amount as equity.
2.An LLC would be good entity to protect the owners from liabilities. 
In case someone got hurt while on your property, such as a tenant. It
will be difficult to protect yourself from creditors with an LLC. 
That is because lenders will not lend to an startup LLC without a
personal guarantee.  But LLCs are easy to setup and create a level of
protection.  It can also be a tool for down the road, if the LLC has
equity, it can be protected from creditors that come after you as an
individual.  That way they cant get the assets of the LLC because of
your debt.  That gets a bit more complicated and you will need an
attourney to setup.
3.Yes, lots of people in the real estate business.  http://www.homevestors.com/
This is the one that has the buy the ugly house signs.  I guess that
they want someone that hates their house and can't wait to sell.
My expereince;  It is difficult to buy and flip real estate and make
money.  Unless you are in an area that is appreciating well.  For one,
broker fees will eat up lots of the profit.  Renovation is costly and
time consuming.    Takes a lot longer than you think it should. 
Something that you should consider is to buy, fix up and rent.  I know
it sounds boring, but slow and steady wins the race.  Another thing to
think about, you might make your friends and family members of the
LLC.  That way they would be owners.  The funds that the owner puts in
does not draw any interest, but you could pay dividends.  My strongest
advice, think long term, don't go for the quick buck.