How to Invest in Real Estate

Direct ownership means you hold title to the real property yourself, giving you full decision-making authority over leasing, financing, and management. A Delaware Statutory Trust holds title on behalf of many investors, each of whom owns a beneficial interest that the Internal Revenue Service, under Revenue Ruling 2004-86, treats as a direct interest in real property for 1031 purposes, provided the trust follows specific operating restrictions. Both structures can qualify as replacement property, but DST investors give up day-to-day control in exchange for professional management and passive income.

A real estate investment trust is a corporation or trust that owns real estate on behalf of shareholders, and when you buy REIT shares you are buying an equity interest in that entity, not a direct interest in the underlying real property. Section 1031 requires that both the relinquished and replacement property be real property interests, so an interest in an entity that owns real estate, no matter how real-estate-heavy that entity's balance sheet is, does not satisfy the requirement.

Both can qualify as like-kind replacement property, but they are structured differently. A tenancy-in-common interest gives you direct, undivided fractional ownership of the real property itself alongside other co-owners, following the guidelines in Revenue Procedure 2002-22, and typically requires unanimous consent among co-owners for major decisions. A DST interest is a beneficial interest in a trust that owns the property, generally with more restrictions on what the trust's sponsor can do but less consent burden on individual investors.

Yes, through a self-directed IRA or similar retirement vehicle, you can hold direct real estate, DST interests, or TIC interests, though the 1031 exchange mechanics are separate from, and generally unnecessary within, a tax-advantaged retirement account since those accounts already grow tax-deferred or tax-free. A 1031 exchange is specifically a tool for real estate held outside of retirement accounts where you would otherwise owe capital gains tax on a sale.

Review the offering documents to see how the investment is structured, specifically whether you receive a direct or beneficial ownership interest in real property, as with a DST or TIC, or a membership or partnership interest in an entity that owns the property, as with most syndications and funds. If it is not clear from the documents, ask the sponsor directly whether the investment is intended to be 1031 eligible, since sponsors offering DST or TIC structures typically market that fact explicitly. DST and TIC interests, along with syndication and crowdfunding interests, may be treated as securities under federal and state law. We do not sell securities and do not act as a broker-dealer or investment adviser; we introduce investors to licensed, independent providers who handle those offerings directly.