How to Invest in Real Estate: A Washington DC Metro Overview

Real estate investing covers a wide range of structures, from buying a single rental house directly to purchasing shares of a publicly traded real estate investment trust. Each path carries a different level of control, liquidity, minimum investment size, and tax treatment. For investors in the Washington DC metro area weighing their options, understanding these differences up front helps avoid a mismatch between investment goals and the structure ultimately chosen.

Direct Ownership of Rental Property

The most straightforward approach is purchasing a property directly, whether a single-family rental in Prince George's County, a small multifamily building in the District, or a retail strip in Northern Virginia. Direct ownership provides full control over management, financing, and disposition decisions, and it is the only structure among those discussed here that unambiguously qualifies for a 1031 exchange without further analysis, since the investor holds direct title to real property.

Real Estate Investment Trusts

A real estate investment trust, or REIT, is a company that owns and typically operates income producing real estate, with shares that trade like stock, either on a public exchange or through a non-traded offering. REIT shares are considered securities, not direct interests in real property, so selling REIT shares does not generate proceeds eligible for a 1031 exchange. REIT investing offers strong liquidity for publicly traded shares and broad diversification without the management responsibilities of direct ownership.

Delaware Statutory Trusts

A Delaware Statutory Trust, or DST, holds title to real property on behalf of multiple investors, each owning a beneficial interest in the trust. Under Revenue Ruling 2004-86, a properly structured DST interest can qualify as like-kind real property for purposes of a 1031 exchange, which distinguishes it from REIT shares. DST interests are typically offered only to accredited investors and are securities, so they are sold through licensed broker-dealers rather than directly by a qualified intermediary.

Tenant in Common Ownership

A tenant in common, or TIC, structure allows multiple investors to hold direct, undivided fractional interests in a single property, sharing ownership rather than pooling funds into a separate legal entity. A TIC interest that meets the requirements of Revenue Procedure 2002-22 can also qualify for a 1031 exchange, since each investor holds a direct real property interest rather than an interest in an entity.

Real Estate Syndications

A real estate syndication pools investor capital into a single-purpose limited liability company or limited partnership that acquires and operates a property. Investors receive an equity interest in the entity, not a direct interest in the underlying real property. Because a partnership or LLC membership interest is explicitly excluded from 1031 treatment under Section 1031(a)(2), proceeds from selling a syndication interest generally do not qualify for a 1031 exchange, a distinction that surprises some first-time syndication investors.

Real Estate Crowdfunding Platforms

Crowdfunding platforms allow investors to contribute smaller amounts of capital, often into a pooled fund or an individual deal, through an online offering. Depending on the structure, a crowdfunding investment is typically an equity interest in an entity, similar to a syndication, or a debt interest earning fixed returns. Neither structure generally qualifies for a 1031 exchange, since the investor is not acquiring direct title to real property.

• Direct ownership: full control, direct real property title, unambiguous 1031 eligibility
• Publicly traded REIT shares: high liquidity, broad diversification, does not qualify for 1031 exchange
• DST interests: passive real property ownership, generally 1031 eligible, typically accredited investors only
• TIC interests: direct fractional real property ownership, generally 1031 eligible, more active management involvement than a DST
• Syndications and crowdfunding: equity or debt interests in an entity, generally not 1031 eligible

Matching the Structure to the Goal

An investor primarily seeking hands-on control and long-term tax deferral through repeated exchanges typically gravitates toward direct ownership, TIC interests, or DST interests. An investor primarily seeking liquidity, diversification, and minimal management responsibility, without concern for preserving 1031 eligibility, may find REIT shares, syndications, or crowdfunding platforms better suited to that goal.

Getting Started in the DC Metro Market

New investors often begin by researching submarkets across the District, Maryland, and Virginia, since rental demand, price appreciation, and property tax structures vary meaningfully by jurisdiction. Building a relationship with a lender familiar with investment property financing, and a tax advisor familiar with the differences described above, before making a first purchase helps avoid structural mistakes that are difficult to unwind later.

Frequently Asked Questions

Can proceeds from selling REIT shares be used in a 1031 exchange?

No. REIT shares are securities representing an interest in a company, not direct interests in real property, so a REIT share sale does not generate proceeds eligible for 1031 treatment.

Are DST and TIC investments open to any investor?

DST interests are securities typically marketed only to accredited investors through licensed broker-dealers. TIC structures can vary in their investor qualification requirements depending on how the specific offering is structured. Investors should confirm eligibility requirements with a licensed provider before committing capital.

Why does a syndication interest not qualify for a 1031 exchange?

Section 1031(a)(2) of the Internal Revenue Code explicitly excludes partnership interests from like-kind exchange treatment. Because a syndication investor typically holds an equity interest in an LLC or limited partnership rather than direct title to real property, the interest does not meet the like-kind real property requirement.

This article provides educational content only. It does not constitute tax, legal, or investment advice. Section 1031 defers federal income tax on qualifying real property and does not remove Washington DC transfer or recordation tax obligations. Consult a qualified tax advisor or attorney before acting on any exchange timeline.

DST or TIC interests may be securities. We do not sell securities. We provide introductions to licensed providers only.