Fractional Real Estate Investing

Fractional real estate investing lets several owners hold a piece of a single property or portfolio instead of one buyer owning it outright. The idea shows up in a few distinct legal forms, tenancy in common, Delaware Statutory Trusts, and crowdfunded LLC structures, and the differences between them matter more than the shared marketing label suggests, especially for an investor weighing a 1031 exchange.

A TIC arrangement gives each investor an individually deeded, undivided fractional interest in the property, recorded on title alongside the other co-owners. That direct deed is what makes TIC interests qualify as like-kind real property for 1031 purposes, but it also means each owner typically has to sign off on major decisions like refinancing or selling, which can create friction with a large group of co-owners.

A Delaware Statutory Trust holds title to the property, and investors hold a beneficial interest in the trust rather than a direct deed. IRS guidance specifically permits DST interests to qualify as like-kind real property for exchange purposes, provided the trust follows a defined set of operating restrictions, which is why DSTs became the more common fractional vehicle for 1031 investors relative to TICs over the last two decades: fewer co-owner decisions, a single trustee managing the asset, and a lower minimum investment in most offerings.

Online real estate platforms typically structure investor participation as an LLC membership interest tied to a specific deal or fund, similar to a syndication. That entity-level structure generally does not qualify as like-kind real property, so an investor moving 1031 proceeds onto a crowdfunding platform is usually recognizing the gain rather than deferring it, even though the platform markets itself as fractional real estate investing.

TIC minimums often run higher than DST minimums because TIC offerings are typically limited to a smaller number of co-owners by lender requirements, while a DST can be divided among many more investors at a lower entry point. Crowdfunding platforms often advertise the lowest minimums of the three, sometimes a few thousand dollars, but that lower entry point comes with the exchange-eligibility trade-off above. Liquidity is limited across all three structures; none trade on a public market, and exit generally depends on the sponsor's or trustee's disposition timeline.

For an investor in Aspen or the surrounding valley moving appreciated proceeds into a fractional interest, the exchange-eligibility question narrows the field before minimums or fees even enter the comparison. TIC and DST interests both preserve the deferral; most crowdfunded LLC interests do not. From there, the choice between TIC and DST typically comes down to how much co-owner involvement the investor wants and how many properties are available in each structure at the time of the exchange.