I actually think the "proper" way is to report it directly on each individual return, with no Partnership return (unless perhaps the property is purchased in the name of the Partnership or LLC).
"For example, co-ownership of property maintained and rented or leased is not a partnership unless the co-owners provide services to the tenants."
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With that being said, I DO think that an official Partnership would encourage them to formally write an agreement between them, which is highly recommended. It is also more likely to reduce errors by filing one rental return (on Form 1065) rather than two separate returns (each reporting 50% of the rental on their Individual tax returns).
