In short
A direct title security puts a leased property in your own single-member LLC as 1031 replacement. What you own, how it differs from a DST, and your exits.
A direct title security is a single leased property, bought with your 1031 proceeds and deeded to a single-member LLC that you own. It is packaged and sold like a security, with a private placement memorandum and a CUSIP number, but what you hold at the end is a deed, not a share of a trust. That is the whole difference from a DST, and it drives everything else: you decide when to sell, refinance or exchange again. Here is the plain-words version; the product page is at direct title security solutions.
What you own: a deed in your own LLC
The firm’s page describes the structure as ownership “through a single-member LLC,” tied to “a specific property with a physical address, title ownership, and registered CUSIP number.” The properties are single-family rentals the firm sources “between $250,000 and $500,000” in metro areas, leased on a triple-net basis so that the tenant’s rent arrives as fixed monthly income for the lease term, with a professional property manager handling leasing and maintenance. You retain full decision-making authority over the asset. Our page on what you own in a direct title security goes through the deed, lease and management agreement.
Because the property is sold as a security, the firm’s page says each one comes with “a detailed offering package, including a Private Placement Memorandum (PPM), customized supplement, and subscription agreement.” The supplement is where the specific property, lease and price are described; the PPM carries the risk factors and the terms common to the program. The accredited investor tests are the same ones covered in our accredited investor explainer.
Why a single-member LLC still counts as you
For federal tax purposes a domestic LLC with one owner that has not elected otherwise is “disregarded as an entity separate from its owner” under Reg. section 301.7701-3(b)(1)(ii). The IRS looks through the LLC and sees you holding the real property. That matters for two reasons. First, section 1031(a)(1) requires real property exchanged for real property, and Reg. section 1.1031(a)-3 lists fee ownership first among the interests that qualify; a deed held through a disregarded LLC is fee ownership by you. Second, the same-taxpayer rule is satisfied, because the person who sold and the person who buys are the same for tax purposes. See the like-kind question for direct title securities.
Add a second member and the default classification flips to a partnership, and a partnership interest is not real property. Keep the LLC single-member for the life of the exchange.
How it differs from a DST
A DST interest qualifies for section 1031 because Rev. Rul. 2004-86 treats a beneficial interest in a properly restricted trust as an interest in real property. The restriction is the price: the trustee may not renegotiate the loan, may not re-lease except on the tenant’s insolvency, may not take new capital and may not reinvest sale proceeds. You own a share of something you cannot steer.
With a direct title security there is no trustee and no co-owner. The product page puts it as “no co-owners, no exit constraints.” You can refinance when it suits you, re-lease at the end of the term, sell when you choose, or exchange again. The cost of that control is concentration: one house, one tenant, one market, with no portfolio behind it. Our comparison, DST versus direct title security, lays the two side by side.
A hypothetical shows how the two often combine. With $1,000,000 of exchange proceeds you might identify, under the three-property rule, one direct title property at $450,000 and two DST interests totaling $550,000. The house gives you a deed and an exit on your own schedule; the DSTs give diversification and a backup that can close in days. Run your own numbers with your CPA.
Debt, if you need it
If you paid off a mortgage at your sale, the replacement must carry equal debt or you must add cash. The firm’s page says it will “guide you through flexible financing strategies that satisfy IRS requirements, without requiring you to deal with traditional lenders,” and that the financing involves no personal liability. The mechanics are covered at direct title security financing.
Exits: sell, refinance, exchange again, or 721
Because you hold the deed, every exit a landlord has is open to you. Sell and pay the tax. Refinance and keep the property; borrowed money is not income. Exchange again into another property or a DST, carrying the basis forward. Or, as the product page notes, “transition into a 721 exchange”: contribute the property to an operating partnership for units under section 721(a), which recognizes no gain on a contribution of property to a partnership in exchange for a partnership interest. The caution on that last path is that partnership units are not real property, so after a 721 contribution there is no further 1031; see UPREIT: no more 1031.
What to do now
- Decide whether control or diversification matters more for this slice of your proceeds; the answer often is both, in different proportions.
- Confirm your LLC will be single-member and in your name as the seller, before day 45.
- Read the PPM supplement for the specific house: lease term, rent, tenant, and management fee. Then start your exchange plan.
