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FRACTIONAL REAL ESTATE INVESTING

Educational guide to fractional ownership structures including TIC and DST interests

Category: Guides

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Fractional real estate investing generally allows multiple investors to own a share of a single property rather than each needing to buy a whole property outright. This is a general educational overview of the more common fractional structures available to Las Vegas area investors. It is not investment advice, and any specific structure should be reviewed with a financial advisor.

Tenancy in Common Ownership

A tenancy in common interest, generally called a TIC, generally gives each investor direct fractional ownership of the real property itself, recorded on title alongside the other co owners, rather than ownership of a company or trust that owns the property. Because a TIC interest generally represents direct ownership of real property, it can generally qualify as like kind property for a 1031 exchange, subject to specific IRS requirements around the number of co owners and how decisions are generally made.

Delaware Statutory Trusts

A Delaware statutory trust, generally called a DST, generally holds title to the property through a trust structure, with investors generally owning a beneficial interest in the trust rather than being named directly on the property's title. Under IRS guidance, a DST interest can generally also qualify as like kind property for a 1031 exchange, and DST offerings generally involve fewer day to day decisions for the investor than a TIC, since the trust structure generally centralizes management with a licensed sponsor.

Fractional Interests That Generally Do Not Qualify for 1031 Treatment

Syndications and crowdfunding platforms generally structure fractional ownership through a partnership or LLC membership interest, which generally does not qualify as like kind real property under current 1031 rules, even though the underlying asset is real estate. Las Vegas investors specifically seeking 1031 eligibility should generally understand this distinction before assuming any fractional real estate offering will work for an exchange.

Securities Considerations

TIC and DST interests, along with syndication and crowdfunding interests, may be securities under federal law, and this site does not sell securities. We provide introductions to licensed providers only, and any fractional real estate offering should generally be reviewed with a licensed securities professional as well as a tax advisor before an investor commits capital, particularly when 1031 exchange proceeds are involved and deadlines are running.

Number of Co-Owners and Decision Making Rules

A TIC structure used for 1031 purposes generally is limited to a set number of co owners under IRS guidance, and decisions about the property, such as leasing or a future sale, generally require a level of agreement among the co owners that can generally be more involved than decision making in a DST, where a single sponsor generally makes most operating decisions on behalf of the beneficial owners. A Las Vegas exchange buyer weighing a TIC against a DST generally should understand this difference in governance before choosing between the two.

Minimum Investment and Diversification

Fractional structures such as TIC and DST offerings generally allow an investor to deploy exchange proceeds into a smaller slice of a larger, often institutional grade property than they could generally acquire outright, which can generally support diversification across more than one replacement property within a single exchange, subject to the applicable identification rules. This diversification potential is one of the reasons some Las Vegas exchange buyers generally consider fractional structures instead of concentrating all of their exchange proceeds into a single wholly owned replacement property.

Matching Fractional Ownership to Exchange Timing

Because both a TIC and a DST are generally already assembled and ready for acquisition by the time they are offered to exchange buyers, unlike a wholly owned property that may need to be sourced from scratch, fractional interests can generally help a Las Vegas investor meet the forty five day identification deadline when a suitable wholly owned replacement has not yet been found. This timing advantage is one of the practical reasons fractional structures are generally considered as a backup or complement to a primary identification strategy, and it should generally be discussed early with a tax advisor and, where applicable, a licensed securities professional.

Frequently Asked Questions

FRACTIONAL REAL ESTATE INVESTING FAQS

What is the difference between a TIC and a DST?

Generally a TIC gives the investor direct fractional ownership recorded on title, while a DST gives the investor a beneficial interest in a trust that holds title to the property.

Do TIC and DST interests generally qualify for a 1031 exchange?

Generally yes, both structures can generally qualify as like kind real property for 1031 purposes, subject to specific IRS requirements.

Do syndication and crowdfunding interests generally qualify for a 1031 exchange?

Generally no, because those structures generally involve a partnership or LLC membership interest rather than direct or fractional ownership of the real property.

Are TIC and DST interests generally securities?

They may be securities under federal law, and this site does not sell securities. We provide introductions to licensed providers only.

Should a fractional real estate offering be reviewed before committing 1031 exchange proceeds?

Generally yes, with both a tax advisor and a licensed securities professional before any capital or exchange proceeds are committed.

Can an investor split exchange proceeds across more than one fractional interest?

Generally yes, subject to the applicable 1031 identification rules, which is one reason some exchange buyers generally use fractional interests to diversify a single exchange across more than one property.

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