What do I own with a direct title security?

Legally you own an LLC; the LLC owns the deed

Our direct title security page describes the structure: you own the property through a single-member LLC, and each offering is tied to a specific property with a physical address, title ownership and a registered CUSIP number. There are no co-owners in the entity.

The properties are single-family rentals sourced between $250,000 and $500,000, triple-net leased, with fixed monthly income paid to you during the lease term and a professional property manager handling leasing, maintenance and tenants.

You receive a private placement memorandum, a customized supplement for the property and a subscription agreement. Read the supplement as you would a purchase contract, because it describes the one asset you are buying.

For tax purposes the LLC disappears and you own the real estate

Under Reg. Section 301.7701-3(b)(1), a domestic eligible entity with a single owner is 'disregarded as an entity separate from its owner' unless it elects otherwise. Reg. Section 301.7701-2(a) adds that a disregarded entity's activities are treated 'in the same manner as a sole proprietorship, branch, or division of the owner.'

So the IRS sees you, not the LLC, holding the deed. Fee ownership is listed as real property in Reg. Section 1.1031(a)-3(a)(5), and that is the footing for treating the purchase as like-kind replacement property.

Two things would knock that footing out: an election to treat the LLC as a corporation, or a second member, which makes a domestic LLC a partnership by default under paragraph (b)(1)(i). Keep yourself, the same taxpayer that sold, as the only member; see the same-taxpayer rule.

It is a security because of how it is sold, not because of what it holds

A CUSIP is the identifier the securities markets use; the SEC's Investor.gov glossary explains that 'a CUSIP number identifies most financial instruments.' Its presence means the interest is packaged and offered through securities channels, with a memorandum and subscription paperwork.

That packaging does not change the tax result above, which turns on the entity being disregarded and the LLC holding fee title. It does mean the offering documents, not a listing sheet, are where the property's terms, fees and risks are disclosed.

Compare a DST: under Rev. Rul. 2004-86 you own a beneficial interest in a trust whose trustee may not sell and buy new property, renegotiate the lease or refinance the loan. What you own in a DST covers that side.

Worked example: one exchange into three LLCs

Hypothetical. You sell a paid-off rental and have $1,050,000 with your intermediary. You identify three direct title securities at $350,000 each, each a separate single-member LLC holding one house.

After closing you are the sole member of three LLCs. For tax purposes you own three houses directly, report the exchange on Form 8824, and depreciate each house on your own return. You can later sell one, refinance another and keep the third, because no co-owner or trustee has to agree.

Each property stands alone, so a vacancy or repair in one house is yours alone too. Run your own numbers with your CPA.

What owning it lets you do, and what it leaves with you

Our page lists the controls: decide when to sell, refinance for liquidity, or transition into a 721 exchange, with no co-owners and no exit constraints; the 721 UPREIT route from a DST explains what a 721 contribution involves. If your exchange has debt to replace, our page describes custom financing that satisfies the requirement without traditional lenders or personal liability.

Control also means the decisions are yours to make well. A single house concentrates tenant and market risk, and income depends on that lease. The direct title security case study shows one owner's use of the structure.