Exchange rental property for real-estate fund?

Question

Hello! I am excited to join this forum and thank you in advance for reading my question...

I currently own an investment property (a condo) in Seattle, which I have rented out for the past 9 years. I would like to sell that property, and buy into a real-estate fund (I am already a partner of the fund, but would like to increase my ownership). The Fund has been organized to invest indirectly in multifamily housing properties through the acquisition of interests in special purpose LLCs and other holding vehicles.

Would this qualify for a 1031 Exchange?

Many Thanks,

Joe

Account Closed · Answer

it doesn’t sound like it will qualify for 1031, the best person to ask is the managing partner of the LLC.

Dave Foster · Answer

@Joseph Shaggs, I don't think this one will work for you. The TIC that others have referred to stands for tenants in common. It's normally known as a way of two or more people holding property where they are each the deeded owners of a% of a piece of property. The key that qualifies property for 1031 treatment is the actual sale of real estate and purchase of actual real estate.

This is where the fund will not be available because you are probably not purchasing a tenant in common interest in the real estate itself. You are purchasing an interest in a company that owns real estate.

Over the last 15 years special products have been codified by the IRS to be 1031 compliant but fit the category or fractional passive investment. These specific products are called either Delaware Statutory trusts or Tenants in Common (TIC) products.

These can be a very powerful secure part of your portfolio. Their returns are typically lower than the amounts promised by an LLP syndication but they do retain their tax deferred status.

Joseph Shaggs · Answer

Many thanks to everyone for helping. It sounds like I'm out-of-luck on this one, but I'll dig deeper into suggested links. Thank you!

Peter M. · Answer

Probably not as this would be considered shares or stock. Here is a good website but as always talk to some 1031 companies and see what they could do for you.

http://www.1031exchange.com/faq/

Joseph Shaggs · Answer

Hi @Joshua Wright,

I am not familiar with a TIC. Is it the following? https://www.investopedia.com/terms/t/tenancy_in_co...

I do not own any specific part of these properties. The properties are owned by the partnership, and my share is pro-rata of my ownership percentage of the partnership. So if we have $100 of profit and I own 1% then I get $1 at the end of the year. Also, I can leave my share of ownership to any beneficiary. But the ownership in these properties is indirect. The partnership owns a piece of an LLC, which itself owns the properties (or there maybe even more more layer between the partnership and the properties, I would have to check if it is material to this conversation). Also it's not one property but a basket of properties.

Thoughts?

Exchange rental property for real-estate fund?

Exchange rental property for real-estate fund?

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