Is it sufficient for my partner to pay Zakat on the profit, or must I also pay Zakat on the principal, knowing that I can reclaim my principal in cash at any time?

There is no harm in giving money to a friend for investment. There is no zakat (definition) on the rent earned from leasing properties unless each partner's share reaches the nisab (definition) on its own, or by adding other funds of the same type to it, and a full year has passed over it. As for rented houses, zakat is not obligatory on their value unless they are intended for trade by selling them.