only you can really know...it depends on your relationship and how sound the investment is
Sign a binding agreement for what will happen if you both decide to go your own ways after all.
Yes. This is more solid than a lease. Plus should you decide to move, generating positive revenue from rent is good too. A true win win scenario ...
Better check with a lawyer.
No. Imagine the headache when you guys fight. Never enter into business deals with friends unless you are prepared to fire that person.