Fractional Investing

Fractional real estate investing allows an investor in Fort Worth, Texas to own a partial interest in a property rather than the entire asset, and the specific legal structure used for the fractional ownership determines whether that interest can be used in a 1031 exchange. Tenancy in common ownership, often abbreviated TIC, is the most common structure that preserves 1031 eligibility, since each co owner holds an undivided direct interest in the real property itself, similar to owning the whole property but sharing the interest with other investors. The IRS outlined specific requirements for tenancy in common arrangements in Revenue Procedure 2002 22, including a limit of thirty five investors per property and restrictions on how the co owners can act collectively, to distinguish a true TIC interest from what would otherwise be treated as a business entity interest.

Delaware Statutory Trusts offer another form of fractional ownership that qualifies for 1031 purposes, allowing investors to hold a beneficial interest in a trust that owns one or more properties, often with a lower minimum investment than a direct TIC interest and less involvement in property level decisions. Both TIC and DST structures let a Fort Worth investor diversify a 1031 exchange across multiple properties or asset classes rather than concentrating the entire exchange value into a single replacement property, which can be useful for an investor exchanging out of one large asset and wanting to spread the proceeds across several smaller fractional interests.

Not every fractional ownership arrangement preserves 1031 eligibility. Fractional interests structured as shares in a corporation, units in a fund, or membership interests in a standard LLC generally do not qualify as direct interests in real property, even if the fund's only holding is real estate. Because TIC and DST interests are also frequently offered as securities, any specific fractional investment opportunity should be evaluated with a licensed provider, and we do not sell securities ourselves. We provide introductions to licensed providers who can discuss specific fractional ownership offerings.