Investing Guides

How To Invest In Real Estate

Investors in and around Dallas, TX generally choose among several structures when putting capital into real estate, and the structure chosen has a direct effect on whether a future 1031 exchange remains available. Direct ownership, where an investor holds title to a specific property such as a retail building or a small apartment complex, is the clearest path to 1031 eligibility, since Section 1031 applies to real property held for investment or business use. Tenancy in common ownership, generally structured under the guidelines in Revenue Procedure 2002 22, allows multiple investors to each hold an undivided fractional interest in a single property, and that fractional interest is generally treated as direct real property ownership for exchange purposes. A Delaware Statutory Trust, generally structured under the guidance in Revenue Ruling 2004 86, allows investors to hold a beneficial interest in a trust that owns real property, and that beneficial interest is generally treated as real property for 1031 purposes when specific trust restrictions are followed. By contrast, an interest in a real estate limited partnership or a limited liability company taxed as a partnership, commonly used in syndications, is generally treated as personal property under Section 1031(a)(2)(D) and generally does not qualify as replacement or relinquished property in an exchange, even though the underlying asset is real estate. Real estate investment trust shares and most crowdfunding platform interests are also generally structured as securities rather than direct real property and generally do not qualify. This page is general education, not investment or tax advice, and any DST or TIC interest is a security or securities adjacent interest that should only be acquired through a licensed provider after independent legal and tax review.