Real Estate Crowdfunding Explained

What This Includes

Real estate crowdfunding platforms allow investors to contribute relatively small amounts of capital toward a real estate project alongside many other investors, typically through an online platform that pools the money into an entity, most often a limited liability company or limited partnership, which then acquires and manages the underlying property. Crowdfunding lowered the barrier to entry for passive real estate investing by allowing smaller minimum investments than a traditional syndication, but the underlying legal structure is often very similar to a syndication.

Because most crowdfunding offerings pool investor capital into an entity interest rather than a direct real property interest, the resulting investment is generally treated the same way as a syndication interest for 1031 exchange purposes, meaning it typically does not qualify as like-kind replacement property under Internal Revenue Code Section 1031(a)(2), which excludes partnership interests. An investor looking to use 1031 exchange proceeds cannot simply assume that any crowdfunding investment will preserve tax deferral, and the specific legal structure of each platform's offerings needs to be checked before committing exchange funds.

Some platforms specifically offer Delaware Statutory Trust products designed and marketed for 1031 exchange investors, structured to comply with Revenue Ruling 2004-86 so the resulting interest is treated as a direct real property interest rather than an entity interest. These DST offerings sit alongside the platform's standard equity crowdfunding deals, and it is important to distinguish between the two, since only the properly structured DST product is generally exchange eligible, while the platform's typical equity offerings in an LLC or fund are not.

DST and TIC interests may be securities. We do not sell securities. We provide introductions to licensed providers only, whether the offering comes through a crowdfunding platform or a traditional sponsor, and any specific offering should be reviewed for both its tax treatment and its investment merits before committing capital. We help Albuquerque, NM investors identify which crowdfunding products, if any, actually preserve 1031 exchange eligibility.

What We Deliver

Explanation of typical crowdfunding platform structures and entity types

Identification of which crowdfunding offerings preserve 1031 exchange eligibility

Comparison of DST offerings against standard equity crowdfunding deals

Introduction to licensed providers for exchange eligible crowdfunded DST products

Review of offering documents for structure and eligibility before commitment

Coordination with a Qualified Intermediary for crowdfunded replacement property

Explanation of the securities status of crowdfunding investments

Coordination with the investor's tax and financial advisors

Common Situations

An Albuquerque, NM investor found a crowdfunding platform and wants to know whether its offerings can be used with 1031 exchange proceeds.

An investor in Albuquerque, NM is comparing a crowdfunded DST offering against a traditionally sourced DST from a sponsor.

A property owner in Albuquerque, NM almost committed exchange proceeds to a standard crowdfunding equity deal before learning it would not qualify.

FAQs about Real Estate Crowdfunding Explained

Can I invest 1031 exchange proceeds through a crowdfunding platform?

Only if the specific offering is structured as a direct real property interest, such as a properly structured DST product, rather than the platform's typical LLC or fund based equity offering. We help Albuquerque, NM investors check the structure of specific offerings before investing exchange proceeds.

Why do most crowdfunding investments not qualify for a 1031 exchange?

Most crowdfunding offerings pool investor money into an LLC or limited partnership, and interests in that entity are generally excluded from like-kind treatment under Section 1031(a)(2). We help Albuquerque, NM investors identify this distinction before committing funds.

How do I know if a crowdfunding platform offers 1031 eligible products?

Some platforms specifically market Delaware Statutory Trust offerings alongside their standard equity deals, and these DST products are the ones structured to qualify. We help Albuquerque, NM investors confirm which specific offerings on a platform are exchange eligible.

Is real estate crowdfunding riskier than a traditional DST offering from a sponsor?

Risk depends on the specific platform, sponsor, and property, not simply on whether the investment was sourced online or through a traditional channel, and each offering should be evaluated on its own terms with a licensed provider. We help connect Albuquerque, NM investors with providers for that review.

Are crowdfunding investments considered securities?

Yes, crowdfunding offerings are generally treated as securities and are subject to relevant disclosure and, in many cases, investor accreditation requirements. We do not sell securities and provide introductions to licensed providers only.

What should I do before investing exchange proceeds through a crowdfunding platform?

Confirm the legal structure of the specific offering, verify it is designed for 1031 exchange investors rather than a standard equity deal, and review it with a licensed provider and your tax advisor before the identification deadline. We help Albuquerque, NM investors work through this process.

Compliance and Limits

Educational content only. Not tax, legal, or investment advice. Partnership and LLC interests are generally excluded from like-kind exchange treatment under Internal Revenue Code Section 1031(a)(2), while properly structured Delaware Statutory Trust interests are addressed in Revenue Ruling 2004-86. DST and TIC interests may be securities. We do not sell securities. We provide introductions to licensed providers only. Consult with a Qualified Intermediary, a licensed provider, and a qualified tax advisor before investing.