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The Lifecycle of a Real Estate Investor

This webinar walked through a “lifecycle” path many real estate investors follow—starting with direct ownership and gradually moving into more institutional, more passive structures—while highlighting where tax deferral, leverage, liquidity, and governance constraints tend to drive the next step.

1) Early stage: Direct ownership (single-family rentals)

Louis framed direct rentals as the entry point because investors can benefit from:

• Depreciation (often sheltering current income even when cashflow is positive),
• Interest deductions (when leveraged),
• And the ability to build wealth through amortization and appreciation.

Fact-check note: The general tax advantages of depreciation and deductible operating expenses/interest for investment real estate are consistent with how rental real estate is taxed under federal rules (subject to passive activity limits and at-risk rules).

2) Moving “more passive”: Net-lease (triple-net) properties

The next stage described was the move into net leases (often “triple net”), where the tenant generally pays operating expenses, taxes, insurance, and maintenance—reducing day-to-day management burdens.

Louis also discussed financing conventions in this space (including CMBS-style lending), emphasizing that leverage can amplify returns but creates refinancing/maturity risk.

3) Fractional ownership era: TICs (tenant-in-common) for 1031 exchangers

Louis outlined how TIC structures became popular after IRS guidance that provided a framework for TIC interests to be treated in a way that can work with Section 1031 exchanges—making it easier for smaller investors to access larger institutional properties.

Fact-check: The IRS issued Revenue Procedure 2002-22 to give guidance/safe-harbor-style considerations for TIC arrangements used in Section 1031 contexts.

• IRS Rev. Proc. 2002-22 (PDF): https://www.irs.gov/pub/irs-drop/rp-02-22.pdf

4) DSTs become the mainstream “passive 1031” vehicle

Louis positioned Delaware Statutory Trusts (DSTs) as a successor to TICs, primarily because DSTs avoid certain governance problems (e.g., requiring many investors to vote or consent).

He described typical DST investor experience features:

• Passive ownership profile
• Regular distributions (often monthly)
• Investor reporting portals

He also emphasized DST structural constraints—commonly described in the industry as restrictions that limit what the trustee/sponsor can do (e.g., raising new capital, renegotiating certain leases, refinancing, etc.), which is why DSTs often need to sell when the loan matures.

Fact-check: IRS guidance commonly associated with DSTs in 1031 exchange contexts is Revenue Ruling 2004-86.

• IRS Rev. Rul. 2004-86 (PDF): https://www.irs.gov/pub/irs-drop/rr-04-86.pdf

5) The “gotcha” DST investors face: maturity forces a sale

A key planning point was that DSTs are commonly structured with a finite life and a loan maturity window (often cited around 7–10 years in many offerings), which can force a sale even if the investor would prefer to keep holding the property.

Louis noted Capital Square often sold DST assets earlier than maturity historically (frequently cited as under 5 years in his remarks), but the general planning issue remains: maturity risk can dictate timing.

6) UpREIT path (DST → OP units → REIT exposure) under Section 721 concepts

Louis described an “UpREIT-style” path where investors contribute property interests into a REIT’s operating partnership (OP) for OP units, aiming for:

• Diversification into a portfolio rather than one property,
• Continued cashflow,
• Potential future liquidity paths (often limited, especially for non-traded REIT structures),
• And a structure that can reduce the “forced-sale at DST maturity” problem.

Fact-check: The nonrecognition concept Louis referenced aligns with the general rule under IRC Section 721 (contribution of property to a partnership in exchange for a partnership interest).

• Cornell LII – 26 U.S. Code § 721: https://www.law.cornell.edu/uscode/text/26/721
• U.S. House (official code display) – 26 USC § 721: https://uscode.house.gov/view.xhtml?edition=prelim&num=0&req=granuleid%3AUSC-prelim-title26-section721

7) Qualified Opportunity Zone Funds (QOZFs): deferral + potential exclusion mechanics

Louis described QOZ funds as a way to invest capital gains from many asset types (not just real estate) for potential tax benefits, and he stated that recent legislation (referenced in the webinar as the “One Big, Beautiful Bill”) made the program “permanent.”

Fact-check and clarification:

• The IRS describes Opportunity Zones as a tool to defer tax on eligible gains through investment in Qualified Opportunity Funds, and rules are grounded in IRC § 1400Z-2.
  • IRS Opportunity Zones landing page: https://www.irs.gov/credits-deductions/businesses/opportunity-zones
  • IRS Opportunity Zones FAQ (updated): https://www.irs.gov/credits-deductions/opportunity-zones-frequently-asked-questions
  • Cornell LII – 26 U.S. Code § 1400Z-2: https://www.law.cornell.edu/uscode/text/26/1400Z-2
• On the “permanent” point: some post-2025 commentary characterizes the program as made permanent with rolling redesignations/updates, but the precise meaning depends on the enacted statutory language and amendments. One summary describing “rolling” redesignation mechanics:
  • Faegre Drinker analysis: https://www.faegredrinker.com/en/insights/publications/2025/7/new-law-extends-and-amends-qualified-opportunity-zone-tax-incentives

8) Fees, distribution channels, and advisor compensation (contextual—varies by deal)

Louis discussed common industry economics for these products (e.g., higher upfront costs/commissions in broker-dealer channels vs. AUM-style RIA fees), plus additional product options like preferred equity structures for income-oriented investors.

Important caveat: These economics can vary widely by sponsor, deal, share class, and channel; they should be confirmed in the specific offering documents and Form ADV/disclosures.

9) Self-directed IRAs and UBTI/UDFI caution

In Q&A, Louis cautioned that certain real estate partnership-style investments inside retirement accounts can trigger UBTI/UDFI (especially where leverage/debt-financed income exists).

Fact-check: IRS guidance discusses unrelated business income and debt-financed income under IRC concepts (including § 514 for debt-financed property).

• IRS – Unrelated business income from debt-financed property (IRC § 514): https://www.irs.gov/charities-non-profits/unrelated-business-income-from-debt-financed-property-under-irc-section-514

External Fact-Check Sources (Full URLs)

DST / TIC / 1031 structure

• IRS Revenue Ruling 2004-86 (DST / 1031-related ruling): https://www.irs.gov/pub/irs-drop/rr-04-86.pdf
• IRS Revenue Procedure 2002-22 (TIC guidance for 1031 contexts): https://www.irs.gov/pub/irs-drop/rp-02-22.pdf

UpREIT / partnership contribution concept

• Cornell LII – 26 U.S. Code § 721: https://www.law.cornell.edu/uscode/text/26/721
• U.S. House – 26 USC § 721: https://uscode.house.gov/view.xhtml?edition=prelim&num=0&req=granuleid%3AUSC-prelim-title26-section721

Opportunity Zones

• IRS Opportunity Zones overview: https://www.irs.gov/credits-deductions/businesses/opportunity-zones
• IRS Opportunity Zones FAQ: https://www.irs.gov/credits-deductions/opportunity-zones-frequently-asked-questions
• Cornell LII – 26 U.S. Code § 1400Z-2: https://www.law.cornell.edu/uscode/text/26/1400Z-2
• Treasury press release on OZ regs (background/reg framework): https://home.treasury.gov/news/press-releases/sm864
• Example legal/industry summary of post-2025 OZ changes: https://www.faegredrinker.com/en/insights/publications/2025/7/new-law-extends-and-amends-qualified-opportunity-zone-tax-incentives

UBTI/UDFI

• IRS – Debt-financed income / unrelated business income (IRC § 514): https://www.irs.gov/charities-non-profits/unrelated-business-income-from-debt-financed-property-under-irc-section-514

Capital Square (firm claims referenced in the webinar)

• Capital Square “About” (AUM / DST sponsor positioning): https://capitalsq.com/about/
• Capital Square Opportunity Zone Funds page: https://capitalsq.com/real-estate-investment/opportunity-zone-funds/