The misconception comes from the execution and not the concept.

So much simpler.

William OrrockAbsolutely agree with @Clayton Mobley - in simpler words: KEEP AWAY FROM THESE OFFERINGS, look for rates of returns between 8% to 14% (This would summarize more your research for a good and more credible investments)

It's legal, and simple,  and may not even be a new concept to you, but having been an agent for 9 years was never told how or why to do it.   

I toured a foreclosed property in my area that is a 3 bed 2 bath, large, open concept house.

I find that record keeping is simpler this way. 

I'd do some major soul searching before taking less favorable terms on a larger loan amount when one of the lenders is concerned about ability to make the payments - particularly when you're only getting the larger line from an interest only lender if they're looking at your ability to make draw period payments and not repayment period payments which will be roughly twice a large.Sorry I don't have a simpler answer, but I hope my rambling is helpful.

First you file plans for the overall concept for the city to review.

Next you are mixing up a lot of legal concepts that are not usually compatible. 

The value of a 10x10 room in my area is like $600/mo plus utilities and a room 50% bigger 12x12 is worth $650 plus utilities, so lots of little but decent sized private rooms are better than fancy big open concept houses in terms of revenue.