You can fractionally invest in larger projects such as the following.
Delaware Statutory Trusts (DSTs)
A DST is a legal entity created as a trust. DST investors own a pro rata interest in the trust. They are beneficiaries with the right to receive monetary distributions from trust operations, either from rental income or the eventual property sale.
A DST co-ownership system allows investors to benefit from property investment gains without property management responsibilities. DSTs can also be used in a 1031 exchange.
For the purpose of completing a 1031 exchange, IRS Revenue Ruling 2004-86 opened the way for eligible DST investments to qualify as the replacement property in a 1031 exchange. This revenue ruling states that a beneficial interest in a DST that owns real estate can be considered a “direct interest in real estate.” As a result, owning interest in a DST that owns real estate equates to holding title on real estate in the eyes of the IRS.
Because of this ruling, DSTs have become one of the most common ownership structures used by smaller investors to own investment-grade real estate.
Tenants in Common (TIC)
A TIC is a co-ownership agreement under which multiple investors pool their funds and agree to own one joint property. Each contributor owns an undivided, fractional interest in an entire property, and they participate in a proportionate share of the net income, tax shelters and growth.
Each investor receives a separate property deed and title insurance for their percentage interest in the property. They have all the same rights and privileges as a single owner.
In a TIC arrangement, co-owners have the right to isolate or transfer their ownership interest in the property without obtaining consent from the other co-owners. This is one of the distinguishing features that sets TICs apart from other arrangements. TIC investments are also eligible for a 1031 exchange.
Real Estate Investment Trusts (REITs)
A REIT is a company that operates, owns or finances income-producing real estate. Investors pool their funds into a REIT to purchase assets, and each investor owns a share or shares in the REIT. Shareholders collect income dividends from the money the real estate properties generate.
There are two types of REITs:
- Public REITs: Publicly traded REITs are liquid investments you can buy and sell like stocks. These REITs must register with the Securities and Exchange Commission (SEC).
- Private REITs: Private REITs are not on any stock exchange, and they’re exempt from SEC registration. A private REIT is typically only available to accredited institutional investors.
Qualified Opportunity Funds (QOFs)
A QOF is used for investments in IRS-designated opportunity zones, which are economically disadvantaged or distressed areas. You can defer capital gains tax on this type of investment. What’s more, you become eligible for a step-up in basis after holding the investment for five years and a 15% step-up in basis after holding the investment for seven years.
Individual Retirement Account (IRA) Qualified Investments
Our platform offers several investment options you can invest in with your IRA. With a self-directed IRA, your investments are up to you, within the bounds of the IRS rules and guidelines. Check with your tax professional for guidance about your specific tax situation.
The IRS prohibits certain IRA investments, including collectibles (such as artwork, stamps, rugs, antiques, and gems), certain coins and life insurance. See IRS Publication 590 for more information about prohibited investments.