1031 Real Estate Crowdfunding Review
It’s possible to defer the payment of capital gains taxes by using 1031 Crowdfunding to transfer ownership (in part or in full) of an existing property to a new one. Additionally, prospective 1031 exchange investors who don’t own real estate may participate.
This review will go over 1031 Crowdfunding to see if it really is the best real estate crowdfunding platform out there.
You’ll learn whether real estate is the right online business for you.
1031 Crowdfunding is a course that teaches you about real estate investing.
If you’ve read my other articles on real estate investing, you’ll know there are 3 primary ways to invest:
Wholesaling, buy-and-hold, and flipping.
While each has pros and cons, there is a ton of potential for success in investing in real estate.
Real estate has created some of the largest fortunes in world history.
That being said, you should take some time to seriously think about something:
Is now the best time for YOU to get into real estate investing?
Because despite the potential upside, investing in properties or land takes a lot of capital, and is very labor intensive.
That means if you:
- Have less than 3 hours per day, OR
- Aren’t sitting on $20K+ in disposable income
This may not be the best time for you to start investing in physical real estate.
Don’t get me wrong, real estate investing can be an amazing way to protect your assets while generating cash – but there’s a time and a place for it.
But there’s good news!
All you need is a system to generate the cash (& free time) you need to be ready for real estate investing.
My preferred method of getting there is by becoming a Digital Landlord
It takes the benefits of real estate investing, but removes many of the barriers (& annoyances), like::
- Small cash flow on properties
- Having to take out debt
- Dealing with repairs and upkeep
- Dealing with tenants
The cool part is that the income is mostly recurring (AKA semi-passive).
You could make anywhere from $2,000-$10,000+ per month doing it.
You can build it as big (or small) as you feel like, without the annoyances I listed above.
If that sounds interesting, you might consider becoming a Digital Landlord.
Then, you can take the profits and start investing in physical real estate a year or two from now.
If you wanna see what 1031 Crowdfunding looks like on the inside, keep reading.
What Is 1031 Crowdfunding?
1031 Crowdfunding isn’t like the vast majority of other forms of crowdsourcing. An IRS-approved 1031 exchange is a program that enables investors to defer taxes on real estate profits while making use of some of the crowdfunding features, such as online access to high-quality commercial real estate investments and shared ownership with other investors.
1031 Crowdfunding is a platform that allows investors to buy and own commercial properties that have been pre-vetted by real estate specialists and pre-qualified to meet the IRS standards for a 1031 exchange.
A 1031 exchange enables real estate investors to defer tax liabilities on the sale of an investment property by reinvesting the real estate funds to purchase a new property. The underlying concept is that if the investor does not get any proceeds from the sale, there is no income to tax.
Taxes can be postponed forever if no monetary benefit is received. As a result, a 1031 exchange is one of the finest tax advantages available to real estate investors. However, it’s complicated by IRS laws, and if you don’t do everything correctly while completing a 1031 exchange, you will not be eligible for the tax benefit.
This is where 1031 Crowdfunding comes into play. Investors on its platform have access to a ready supply of exchange-qualified real estate that can be purchased fast. This minimizes the possibility of:
- Not being able to discover a suitable property to buy.
- The deadlines that investors must follow to qualify for the 1031 exchange tax benefits are missing.
Is 1031 A Good Investment?
Assume you sell a property for $250,000 with a $150,000 initial investment. With $100,000, you can either pay approximately 53.8% in taxes (typically federal tax of 15% to 20% plus state tax of 10% to 12%, depreciation recapture tax of 25%, and investment income tax (i.e., Obamacare) of 3.8 percent), or you can do a 1031 exchange and invest your $250,000 in a like-kind property and defer the tax until you sell the new property. Instead of paying $53,800 in taxes and having less than $200,000 to invest, you can invest the entire $250,000.
That’s the appeal of a 1031 exchange. But here’s the catch: you must identify the property you intend to buy within 45 days of selling, and you must close on the new property acquisition within 180 days of selling the first. Getting the timing perfect with real estate investments can be difficult. You have to pay the tax if you don’t satisfy those deadlines. In essence, your investment is susceptible to “closure risk,” a costly bet that disqualifies many well-intentioned investors who undertake 1031 swaps.
Your closing risk is eliminated with 1031 Crowdfunding since you and other investors purchase an ownership percentage of an already qualifying property. You may close on the swapped property in three to five days because it has already been pre-funded.
Completing a 1031 exchange depends on the investor’s ownership structure inside the investment rather than how the money is raised. Investors obtain an ownership interest in the underlying real estate asset through a Delaware statutory trust (DST) without having to participate actively in the property’s acquisition, management, or sale.
Types Of Investment Opportunities At 1031 Crowdfunding
The portal solely offers real estate investments, especially those exchanged on 1031 exchanges instead of those sold. Sales are taxed, not exchanges.
An exchange occurs when a property owner or investor decides to acquire replacement property in a short amount of time after selling their old property. If you sell your original property, capital gains taxes on gains exceeding $250,000 (single person) or $500,000 (married couple) on a primary home can be over 30% when both state and federal taxes are considered. The amount can be even higher for a property not considered an owner’s primary residence. You are not subject to capital gains tax on a house sale if you exchange the original property’s value for the new property’s value rather than cash out.
To qualify, an exchange must meet the IRS criteria of either (a) property held for investment or (b) property held for productive use in a business or trade. However, a one-to-one exchange or swap is not required for a transaction to qualify.
According to IRS regulations, you can sell three different properties, each worth one-third of the value of the property you then buy, and this counts as an exchange. Selling one high-value property and buying two or three smaller ones works as well, as long as they’re of the same “like” kind.
Only accredited investors are the ones who can participate in 1031 Crowdfunding.
What Do You Gain If You Invest In 1031 Crowdfunding?
1031 Crowdfunding allows you to purchase a DST beneficial interest. The DST runs the exchanges while owning stock in various real estate properties. This implies you don’t have to be involved in the day-to-day responsibilities of actively managing real estate. In the course of like-kind exchanges, investors sometimes encounter difficulties due to the time it takes.
Within 45 days of selling your original property, you must locate and inform the seller or seller’s agent of a suitable replacement property. If you don’t complete the replacement property purchase within 180 days, you’ll owe a penalty. By sending out the relevant notifications and ensuring that purchases are completed on time, 1031 Crowdfunding alleviates some of the stress involved with achieving these requirements.
The IRS permits this type of investment for both cash and 1031 exchange participants. Any investor that chooses to invest through a DST is referred to as a cash investor. Through their platform and the usage of a DST, 1031 Crowdfunding enables these investors to become 1031 exchange investors.
How Does 1031 Crowdfunding Generate Revenue?
For a DST, 1031 Crowdfunding fees are on the higher end of the spectrum compared to other crowdfunding platforms. The increased initial investment threshold creates a higher entrance threshold of $25,000.
- 3.5% acquisition fee
- 3.5% disposition fee
- 1% financing fee
- The property management fee is 4% of the gross rent
- The fee for refinancing is 1%
Cashflow And Potential Returns
As opposed to more short-term investments like real estate or other forms of crowdfunding, a 1031 exchange is more long-term. 1031 Crowdfunding offers many debt-holding durations for many of its deals. On the other hand, some are just 5-7 years old.
A closer look at the sample deals on 1031 Crowdfunding reveals an average expected cash flow of 5 to 7 percent.
Minimum Investment At 1031 Crowdfunding Investment
The minimum investment required to participate in offerings ranges from $25,000 to $100,000, depending on the investment. Non-1031 offerings require a $500 minimum commitment.
What Are The Fees Associated With 1031 Crowdfunding?
When a third-party DST is purchased, the sponsor receives a fee. On average, fees comprise a 2% purchase charge, an annual asset management fee of 25 to 100 basis points, and a commission based on asset growth. There is also no crowdfunding or third-party sponsor gain from asset appreciation.
When considering a 1031 exchange, you might expect to pay between 8% and 17% of the purchase price, depending on the agreement and your circumstances. You must sum up all expenses and decide whether it’s more cost-effective to go through the hassle or pay the tax. You must, for example, continue to use an IRS-approved 1031 exchange trustee—and pay for the services of an intermediary.
Because the qualified intermediary must be an unaffiliated third party whose sole purpose is administering the 1031 property exchange, a crowdfunding site cannot act as your intermediary and sell the goods. The fees charged by qualified intermediaries vary, but most sources estimate that a usual deferred 1031 exchange costs between $600 and $1,200.
Can You Lose Money With Real Estate Crowdfunding?
Investors in crowdfunded real estate ventures risk losing their money if the platform fails. Investors need to keep an eye on the changing nature of investment security since investors are aware of the danger.
Is Crowdfunding A Safe Investment?
The following are the primary risks of investment-based crowdfunding:
- The company in which you invest may fail. Because many new firms fail in their first few years, you may lose all of your money.
- The return cannot be guaranteed.
- It may be challenging to sell the shares.
- The crowdfunding platform itself could fail.
Thus, before making an investment decision, conduct your own due diligence or ask for legal or tax advice.
What Is A 1031 Fund?
The term “1031 exchange” comes from Section 1031 of the United States Internal Revenue Code. It allows you to avoid paying capital gains taxes when you sell an investment property and reinvest the proceeds within a certain timeframe in a property of equal or greater value.
Can You Make Money With 1031 Crowdfunding?
Yes, you can make money by owning real estate with 1031 Crowdfunding.
There’s a lot that comes along with real estate that many people struggle with.
Now, don’t get the wrong idea…
It’s not impossible to make money with real estate, but if you’re gonna put in the amount of grueling work to do this business (which, trust me, isn’t easy), you might as well bring in some REAL money while you’re learning the ropes.
The program that helped skyrocket many online businesses to over $40,000+ per month is so simple that making money really does become second nature.
Is 1031 Crowdfunding Legit?
1031 Crowdfunding is legit and has already raised billions of combined real estate transactions.
But, when it comes to building a business, you have plenty of options.
Keep in mind, I don’t get paid to promote any of the programs I review. I personally think real estate is a great business model, but you could end up leaving way too much money on the table.
Alternatives To 1031 Crowdfunding?
Yes, there are plenty of other business models to choose from if you want to pursue this making money online. Here are just a few:
Is 1031 Crowdfunding A Scam?
So, time for the $1,000,000 question – is 1031 Crowdfunding a scam?
No, not technically. You can 100% make money with this program, though it’s not nearly as simple as they make it seem.
As with most businesses, there is A LOT of work to be done upfront & no guarantee of you being successful.
Not to mention the profit margins are typically pretty small.
Don’t get me wrong, I’m a big proponent of front-loading work now, so you can reap the rewards later.
But if I’m gonna do that, I want the rewards to be HIGH and virtually guaranteed.
I’d rather put in that same 3 months of work (in my spare time) & build a handful of Digital Rental Properties that each produce $500-$2,000 checks every single month afterward (AKA recurring income).
And the cool part is that you can do it in a lot less time than 3-months (I personally did it in my first 2 weeks of being a Digital Landlord).
Unlike physical real estate, you can do it from anywhere in the world, so it’s a genuine “laptop-lifestyle” business.
All you need is an internet connection.
Some of my friends are Digital Landlords that run their 6-figure businesses from:
- Camping trips at national parks
- Beachfront in Hawaii
- On the road in a camper van (with a pet pig!)
They focus on living an enjoyable life first, and focus on income second. All thanks to this program.
They can take weeks or months off, and money keeps rolling in.
Living happily is the top priority.
If the thought of living perpetually at your dream vacation spot interests you, being a Digital Landlord might be for you!
What Is My Top Recommendation For Making Money Online In 2022?
I’ve personally tried all of the major online business models:
- I’ve sold fidget spinners through Amazon FBA
- I’ve dropshipped a toilet bowl putting green on Shopify
- I’ve sold women’s health supplements via Clickbank affiliate marketing
And I made money with all of them, so trust me when I say: there is no “perfect” business model.
It’s worth noting that I FULLY endorse real estate investing as a way to grow wealth, and that’s why I invest my own money in commercial and residential real estate.
That being said, my #1 recommendation for making real money online as a beginner is, hands-down: being a Digital Landlord.
Whether you’re a complete newbie, or you’ve been around the block before but have never had that “big win” to propel you forward, becoming a Digital Landlord is for you.
Time: If you’ve got a spare hour or two each day, you can do this. If you want to drop everything and go all-in, you can do this. More time obviously means faster results, but even putting in a few hours per day is enough to see real success.
And because of that flexibility, you don’t need to trade your time for money. Once the income starts, it’s recurring.
That means you can take a month off, travel the country, pursue a passion project, chill on the beach, or charter a boat across the world.
But you can only do that once you’ve created an income stream that doesn’t require YOU to be there all day, every day.
Real estate investing is a FULL-TIME JOB. If you stop finding deals, your money dries up.
Ownership & Control: Unless you’re buying your properties in cash, you don’t technically own the properties – the lender does.
If you miss a single payment, the property can be taken from you.
Why pour your soul into a business that could be taken away from you at the drop of a dime?
When you’re a Digital Landlord, you literally own all of the assets, which means you have ultimate control.
Ongoing costs: With real estate, profit margins are actually pretty slim. Real wealth is made in owning the assets, and owning A LOT of them.
Being a Digital Landlord, your profit margin is nearly 100%. Watch here to learn how.
Just a reminder: these Digital Rental Properties are worth (at a minimum) $500/mo in semi-passive income. And each time you create another one, your income increases, and the effort to create the next property decreases.
Best-case scenario, you have properties bringing in over $3,000+/mo on auto-pilot.
It’s Effectively Copy-Paste: Here’s my favorite part: once you have your first Digital Rental Property up, you can literally copy-paste another version of it and find another willing “renter” in a few days. DOUBLING your income doesn’t get much easier than that…
If you wanted to double your income with real estate investing, you would need twice as many properties, or double your profit margins on each property. And I can guarantee you, that’s a lot harder than a few clicks & a phone call.
Make Money Helping Real People: When you’re a Digital Landlord, you’re helping solve REAL problems that people are ASKING for help with:
Small local businesses around the world need one thing: customers. Without them, their business would fall apart. If you can provide those customers, they’re going to be really happy – and they’re going to pay you for it.
You’re helping a struggling mother or father put food on the table for their families, put their kids through college, or simply live life a little bit more comfortably.
Having this type of impact on the world is what will help you sleep soundly at night.
So, the rest is up to you. You could keep looking at other opportunities 1031 Crowdfunding, which might make you money.
You could keep researching and researching for the next few months (or few years), never making a concrete decision.
OR, you can look deep inside, think about those dreams, hopes, & desires, and make the decision to ACTUALLY make it happen, just like it has for thousands of other students before you.
Making a fortune while actually helping real people that need it.
If this sounds like you, click here to see how it all works.