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Forming a Real Estate Investment Trust - REIT

REIT can be a better way to go than a partnership if you have a whole bunch of friends who want a piece of action, and if the idea of the trust is not to just get a home and live in it, but get a rental house or an apartment building - something income producing. You form the trust and use everyone's money to buy something. You distribute the profits to all the investors. The benefits of the REIT are that: the trust doesn't have to pay taxes on the profits, only the investors do, just like in a partnership; and you can sell trust certificates to anyone cheap to raise more money.
www.sec.gov/answers/reits.html

Form a Partnership to buy a house

It can be a great idea to purchase a house with a partner. Especially if the house is like a split level or duplex, where each partner can live without bothering the other. If the house costs $100,000 your half will cost only $50,000. You divide the utilities, insurance and taxes in half as well, making your personal monthly share including everything only about $300/month!
There are two types of partnerships:
In a general partnership each person shares equally in the responsibilities, the decision making, and the maintenance, and is equally liable for any debts or incurred costs.
In a limited partnership one or more partners are in charge, and are personally liable for everything that goes wrong. The limited partners do nothing, pretty much, they just invest some money, and they are only liable for the amount of money they invested. An example of a limited partnership would be if you and your best friend buy a duplex, and your friend's grandpa invests $10,000 to help you out, but will not be participating in any lawn mowing.
Each partner is responsible for paying taxes on income received from the partnership.
The partnerships are governed by the Uniform Partnership Act (UPA).

Calculating NOI - Net Operating Income

What is NOI (Net Operating Income) and what do you need it for?

Suppose you found an investor who might lend you his private money to buy a house, but you're a poor starving student and only make $400/mo working part-time at Starbucks. The first thing he'll ask you when you tell him that you found a house you like is, "What is its NOI?" So here is how you calculate it for him to look intelligent:
Say this house has 4 bedrooms and you're going to live in one and rent the other 3 rooms to your friends for $400 each.
3 X 400 = 1,200 - that's your estimated gross monthly income. Muliply it by Vacancy Rate.

How to calculate Vacancy Rate

You plan to rent 3 rooms in your house, which means in a year, with zero vacancies you'd be renting 36 rooms. If you estimate that a couple of people might leave and it might take you a month to find another roommate for each room, you divide 2 by 36 = .0555 (or times 100 = 5.5% ) - this is your vacancy rate.
1,200 X .055 = 66 - estimated average vacancy in $ per month
To get back to the NOI:
Subtract the estimated vacancy, monthly tax, the estimated insurance (call insurance company and get a quote), the estimated utilities (call utility company to get an estimate or use information from a friend who owns a house in the area), and the maintenance/management cost (which probably won't be much, since you'll do it yourself, but you still need to take into consideration cleaning supplies, occasional repairs or replacements of things that break) and multiply it by 12 months:
( 1,200 - 66 - 100 - 60 - 200 - 40 ) X 12 = 734 X 12 = 8,808
Is this good? I'd say that it is a good NOI. If the house is in a move-in condition, the investor will be very interested in doing a deal with you. So, for example, if the house costs $100,000 and the investor lends your the money at 7% interest rate, your monthly payment to him would be $665. So not only you live there for free, but make a profit of $69/month.

After a year or two you can refinance for lower interest rate with a regular bank. All that income from the roommates is counted by a bank and is called a boarder income. That way you can remain a happy starving student working only a couple of days a week (but you should work for at least 2 years in the same line of work to have a bank be okay with your income).

Types of real estate ownership

Severalty is when property is owned by one person.
Joint Tenancy - Owned by two or more people, one title has their names on it, their shares are equal, and if one of them dies, the remaining owners own it all, not the heirs of the dead owner. (This is a way for a grandparent to put the grandchild's name on the property, so that if the grandparent dies, there are no inheritance issues, delays or taxes, if the property is paid off.)
Tenancy in Common - Owned by two or more people, shares can be unequal, and every owner has a separate title and can leave his share to his heirs.
Tenancy by the Entirety - Owned by a married couple, there is only one title with both of their names, and each owns 100% of the property, and if one spouse dies the other owns it in severalty.
Community Property - in community states the husband and wife are equal partners, and if one spouse dies, the other spouse automatically owns a half of the estate, and the other half goes to the heirs of the deceased.
Separate Property - property owned by a spouse before marriage or received as a gift or inheritance during the marriage. It can be sold without the other spouse's signature, but when it is being listed, it still needs both spouses' signatures.
Condominium ownership blends severalty and tenancy in common. The unit is owned in severalty, and the common areas are shared.
Cooperative - A corporation holds the title, and the purchasers get shares of stock in the corporation and the proprietary lease. The tenants do not own actual real estate, like the condo owners.
Time Share - Interval ownership. The buyer does not own the real estate. The developer retains the ownership.