Investing Guides

Real Estate Crowdfunding Explained

Real estate crowdfunding platforms generally allow investors to contribute relatively small amounts of capital online toward a specific property or a pooled fund, and while these platforms have made real estate participation more accessible, the underlying legal structure matters significantly for investors near Dallas, TX who care about future 1031 exchange eligibility. Most crowdfunding platforms structure investor participation as an equity or debt interest in an LLC, a fund, or a real estate investment trust that the platform sponsors, meaning the investor generally owns an interest in that entity rather than a direct fractional interest in the underlying real property itself. Because Section 1031(a)(2)(D) generally excludes partnership, LLC, and similar entity interests from exchange eligibility, and because REIT shares are generally securities rather than direct real property, most crowdfunding interests generally cannot be used as replacement property in a 1031 exchange, and generally cannot themselves be exchanged out of using 1031 treatment either. A small number of platforms structure specific offerings as tenancy in common interests or Delaware Statutory Trust interests, which can preserve 1031 eligibility when properly structured under the relevant IRS guidance, but this is the exception rather than the general rule for typical crowdfunding platforms, and an investor should confirm the exact legal structure of any specific offering before assuming exchange eligibility. Crowdfunding offerings are generally securities requiring offering documents, and many are limited to accredited investors depending on the specific exemption used. This page is general education, not investment or legal advice.