How to start a reit
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Draft a partnership agreement between you and the partners with whom you will be forming the REIT. Stipulate the breakdown in financial contributions, ownership and management responsibilities between you and your partners. A partnership agreement will help avoid costly disputes in the future.
Structure your investment partnership as a management company, which is a specific type of limited liability company. You cannot legally structure your investment partnership as a REIT until you have at least 100 investors, so many start-up REITs are initially structured as management companies. File a certificate of incorporation with the secretary of state in the jurisdiction where the REIT will be located. You will likely have to pay a filing fee, depending upon the jurisdiction.
Draft a private placement memorandum for your REIT. The PPM is the key tool you will use to solicit funds from investors.
Include information on your REIT’s strategy, what types of properties you will invest in and the investment track records of you and your partners.
Distribute the PPM to potential investors. Most investors will want to meet with you and your partners after reviewing the PPM. Be prepared to discuss your background and how your REIT differs from other REITs in the market.
Once you have obtained investment commitments from 100 investors, change the structure of your partnership from a management company to a REIT. Amend your previously filed certificate of incorporation with the secretary of state; there is generally no fee for doing this.
File Form 1120 with the Internal Revenue Service, which will allow you to avoid paying corporate taxes on the REIT's earnings. You must pay out at least 90 percent of the REIT's earnings in the form of dividends to maintain tax-free status.Source: ehow.com