Chapter 7: Forms of Real Estate Ownership

Concurrent estates

*   Tenancy in severalty

*   Tenancy in common

*   Rights with survivorship

*   Tenancy by the entirety

*   Joint Tenancy (four unities)

*   Time

*   Title (document)

*   Interest

*   Possession

Forms of Equity Ownership

*   Issues in selecting ownership form

*   Tax consequences

*   Liability consequences

*   Control

*   Simplicity of creation

Types of Equity Ownership

*   Individual (sole proprietorship)

*   Advantages

*   Absolute control

*   Simple

*   Disadvantages

*   Unlimited liability

General Partnership

*   Advantages

*   Relatively good control

*   Relatively simple

*   Disadvantages

*   Unlimited liability (jointly and severally liable)

Limited Partnership

*   One or more general partners and one or more limited partners

*   Advantages

*   Limited liability

*   Like individual and partnership forms, pass through of profits and losses

*   Disadvantages

*   Lack of control

*   Lack of easy marketability

*   IRS -- corporate association tests

*   Continuity of life? -- defeated by limited life

*   Limited liability? -- defeated by a general partner with unlimited liability

*   Control?-- defeated by prohibition of limited partners' management

Ordinary Corporation

*   Advantages

*   Limited liability

*   Marketability of interest

*   Disadvantages

*   Inability to pass through profits and losses

*   Double taxation

Subchapter S Corporations

*   Advantages

*   Limited liability

*   Like individual and partnership forms, pass through of profits and losses

*   Relatively good control

*   Disadvantages

*   Limitation on passive income

*   Limitation on number of investors

Limited Liability Companies

*   Hybrid between corporation and partnership

*   At Federal level treated as partnership for taxes

*   In PA treated like a subchapter S corporation for taxes if it meets the requirements of an S corporation. Otherwise it is taxed as a corporation.

*   Advantages same as S Corporation

Land Trusts

*   Advantages

*   Limited liability

*   Ownership anonymity assured

*   Disadvantages

*   Unavailable in some states

*   Complicated to create

REIT

*   Advantages

*   Limited liability

*   Taxation only on distribution

*   Disadvantages

*   No pass through of losses

*   Complexity

REIT Requirements and Types

*   Requirements

*   100 or more investors at all time

*   90% of net income must be distributed to stockholders

*   75% of assets must be in cash, real estate interests, or government securities

*   Types of REITs

*   Equity trust

*   Mortgage trust

*   Hybrid trust

*   Specialty trust

Joint Venture -- Not for Ongoing Concerns

Condominium

*   Fee ownership of inside of unit

*   Common ownership of common areas

*   Individual units can be mortgaged

Cooperative

*   Corporate ownership of inside of units as well as all common areas

*   Proprietary lease for each unit