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Updated almost 8 years ago on . Most recent reply presented by

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Pearce G.
  • Investor
  • Hendersonville, NC
71
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138
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1031 and crowdfunding?

Pearce G.
  • Investor
  • Hendersonville, NC
Posted

Just listening to Noah Kagan on podcast #213.  He talked about parking his excess cash with a crowdfunding site like Peerstreet where he is in a 1st lien position.  Makes sense, but got me wondering if re-investing through a crowdfunding site could qualify for a 1031 exchange.  Let's say you sell a property for 100K and then re-invest all of it in a million dollar apartment development alongside other crowdfund investors.  Could that be your replacement property in a 1031 exchange?  I suspect the answer is no, because I don't see the crowdfunding sites promoting it...but I couldn't think of a reason why not.

Is there a reason why a crowdfunding site could not serve as a Qualified Intermediate?

Do 1031 exchanges prohibit syndication investments?

Most Popular Reply

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Dave Foster
  • Qualified Intermediary for 1031 Exchanges
  • St. Petersburg, FL
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Dave Foster
  • Qualified Intermediary for 1031 Exchanges
  • St. Petersburg, FL
Replied

@Pearce G., Crowd funding is the wild west right now.  There's no consistency between what any two "crowd funders" do or what it means to be a "crowd funder:" so you've got to look at each individual product.

To complete a 1031 the taxpayer has to take beneficial title to real estate.  If the crowd fund is set up to offer tenant in common interests in real estate then yes that could work as a 1031 replacement.  If it is set up that the client receives membership interest or shares in an entity that owns real estate then that would not qualify.

The exception (sort of) to this are specifically syndicated products that are sold as securities and set up so that client does receive a tenant in common interest in the underlying real estate asset. The most common of these is called a Delaware Statutory Trust. Another is the TIC or Tenant In Common.

A crowd funding site cannot both act as qualified intermediary and sell the product.  The QI must be an unrelated 3rd party whose only role is the administration of the 1031 process.

  • Dave Foster
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The 1031 Investor
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