When it comes to private equity real estate, accredited investors have a variety of ways to structure their investments. The right structure can make a significant difference, impacting your tax strategy, liability protection, estate planning, and how much control you maintain. Whether you’re utilizing retirement funds, rolling over proceeds from a sale, or forming a family entity, selecting the best structure can help align your investment with your long-term financial goals.
Here are six popular ways accredited investors can invest in private real estate:
1. 1031 Exchange
A 1031 Exchange allows you to defer paying capital gains taxes when you sell an investment property, provided you reinvest the proceeds into another qualifying property.
Why it’s beneficial:
- Defers capital gains taxes
- Allows for capital preservation for reinvestment
- Offers opportunities for strategic upgrades between assets
Important Consideration:
To use a 1031 Exchange, investors must identify a replacement property within 45 days and close on it within 180 days, with the help of a qualified intermediary.
2. Self-Directed IRA (SDIRA)
A Self-Directed IRA gives investors the ability to use their retirement funds to invest in alternative assets, including private equity real estate, while still benefiting from the tax advantages of an IRA.
Why it’s beneficial:
- Tax-advantaged growth
- Ability to diversify a retirement portfolio with real estate
- Access to a broader range of investment opportunities beyond traditional stocks and bonds
Important Consideration:
Investing through an SDIRA involves strict IRS rules, and not all custodians support real estate investments. It’s crucial to work with a qualified provider to ensure compliance.
3. Individual Account
This is the simplest approach, where you invest directly in your own name, without additional legal structures.
Why it’s beneficial:
- Simple setup with full control
- Direct access to investment materials and performance updates
- Ideal for after-tax capital investments
Important Consideration:
All gains, losses, and income are taxed in the year they’re realized based on your individual tax situation.
4. Joint Account
Joint accounts allow two individuals—often spouses or business partners—to co-invest and share ownership of a real estate asset.
Why it’s beneficial:
- Shared access to investment updates and reports
- Streamlined reporting for co-invested capital
- Ideal for couples or business partners with similar investment goals
Important Consideration:
Joint account structures should clearly define ownership percentages, tax treatment, and succession planning in case of life events like death or divorce.
5. LLC (Limited Liability Company)
Forming an LLC can offer high-net-worth investors liability protection, centralized control, and flexibility for managing multiple real estate investments.
Why it’s beneficial:
- Provides liability protection
- Centralized management of various investments
- Administrative and estate planning advantages
Important Consideration:
LLCs must be formed at the state level, and require ongoing maintenance. It’s essential to consult with legal and tax professionals before using this structure.
6. Trust
Trusts are ideal for investors who are focused on legacy planning, tax strategy, or wealth protection for future generations.
Why it’s beneficial:
- Supports estate and tax planning goals
- Helps protect assets for future generations
- Streamlines wealth transfer
Important Consideration:
The choice between a revocable and irrevocable trust has different implications, so it’s crucial to work with an estate planning professional to ensure the structure aligns with your goals.
Choosing the Right Investment Structure
Each investor’s financial situation is unique, so choosing the best structure depends on various factors like your timeline, tax considerations, source of capital, and long-term objectives. Whether your goal is liability protection, tax deferral, or estate planning, selecting the right structure will help you implement your strategy effectively.
How We Help
At First National Realty Partners, we assist accredited investors in participating in top-tier commercial real estate opportunities that suit their needs. We support a variety of investment structures, including:
- 1031 Exchanges
- Self-Directed IRAs
- Individual, Joint, and LLC Accounts
- Trust-Based Investments
Our Investor Relations team works closely with you—and your financial professionals—to ensure your investment is structured to meet your goals from the start.
