Guides

Passive Real Estate Income

Passive income generally means income that requires minimal ongoing time or active management from the investor, and real estate offers several structures that generally sit on a spectrum from lightly active to fully passive. A single tenant net leased property, where the tenant generally pays real estate taxes, insurance, and maintenance directly, generally requires less landlord involvement than a typical multifamily property, but the owner still generally holds legal title, arranges financing, and makes occasional decisions, so it is generally lightly active rather than fully passive. A Delaware Statutory Trust, or DST, generally offers a more fully passive structure, since a professional sponsor generally manages the underlying property, handles tenant relationships, and distributes income to investors who hold a beneficial interest without day to day decision making responsibility, and a properly structured DST interest generally still qualifies as like-kind real property for a 1031 exchange. A tenant in common, or TIC, structure sits between these, since TIC owners generally hold a direct co-ownership deed interest and may retain some voting rights on major decisions, even though day to day management is often still handled by a professional operator. Publicly traded real estate investment trusts, or REITs, generally offer the most liquid and passive access to real estate income, since shares can generally be bought and sold like stock and the REIT's management team generally runs all underlying operations, but REIT shares are generally securities in an entity rather than a direct interest in real property, so they generally do not qualify for 1031 exchange treatment. Syndications generally sit in a similar position for exchange purposes, since investors generally receive a passive membership or partnership interest managed entirely by the sponsor, but that interest generally does not qualify as like-kind property under Section 1031 because it is an interest in an entity rather than in the real estate itself. For San Diego, CA investors who are exchanging out of a management-intensive property, such as an older multifamily building requiring hands on landlord involvement, and who want the sale proceeds to generate passive income going forward while preserving 1031 deferral, a DST or a well structured TIC is generally the combination that satisfies both goals at once; because these interests may be securities, we do not sell securities and only provide introductions to licensed providers. We help investors evaluate how much active involvement they want to retain and match that preference against which structures actually preserve exchange eligibility. Educational content only. This is not tax, legal, or investment advice, and investors should confirm suitability with a licensed financial or tax professional before investing.