Direct Title Security vs Buying Your Own NNN Property

Both are direct ownership, so the choice is about workload and price point rather than tax qualification

A direct title security, as Breakwater describes it, gives you 100% ownership of a specific property through a single-member LLC, with title ownership, a physical address and a registered CUSIP number, and you decide when to sell, refinance or move into a 721 exchange. Unlike a traditional DST, there are no co-investors and no sponsor-led exit.

For tax purposes the LLC adds nothing. Reg. section 301.7701-3(b)(1)(ii) disregards a domestic eligible entity with a single owner unless it elects otherwise, so you are treated as holding the real property itself. Buying an NNN building in your own name, or in your own single-member LLC, reaches the same result under section 1031.

So the real comparison is practical: who finds the property, who arranges the loan, who manages it, how quickly it can close, and what size of property you end up with. The trust-versus-deed question is on DST vs direct title security.

Sourcing and closing: a direct title property is presented as a finished package, while your own NNN purchase starts from a blank page

Breakwater sources direct title properties between $250,000 and $500,000 in metro areas it selects for job growth, school systems and rental demand, and delivers each with a private placement memorandum, a customized supplement and a subscription agreement. The properties are triple-net leased single-family rentals with monthly rent paid to the owner for the lease term.

Buying your own NNN property means doing every step yourself inside the exchange clock: search, offer, purchase contract, inspection, title review, lease and tenant review, lender underwriting and closing. Reg. section 1.1031(k)-1(b)(2) ends the identification period at midnight on day 45 and the exchange period at the earlier of day 180 or your return due date, with extensions.

Either way the identification must describe the property unambiguously, and the regulation accepts a street address or legal description. Because a direct title security is tied to a specific property address, it can be identified the same way as any building you find yourself.

Financing decides most exchanges, because debt you retire has to be replaced or covered with cash

Under Reg. section 1.1031(d)-2, a mortgage paid off at the sale is consideration received. It is offset by debt on the replacement or by cash you add, but cash you receive is never offset by debt you take on. The arithmetic is set out in the exchange equation.

Buying your own property, you replace debt with a loan from a lender of your choosing, underwritten to your finances and closed inside 180 days. Breakwater's direct title offering describes custom financing arranged to satisfy exchange debt requirements without traditional bank involvement or personal liability.

Financing terms such as rate, loan-to-value and term were not published on the offering page, so compare the actual loan documents against a lender quote before you identify.

Worked model: a $900,000 sale with a $300,000 loan, replaced two ways

Hypothetical round numbers, ignoring closing costs. You sell for $900,000, the qualified intermediary receives $600,000 after a $300,000 mortgage payoff, and you want full deferral. You need at least $900,000 of replacement value and at least $300,000 of new debt or added cash. Run your own numbers with your CPA.

• Your own NNN: one $900,000 building with a $300,000 loan. One identification, one tenant, one lender approval to land before day 180.
• Direct title securities: two properties at $450,000 each, inside the $250,000 to $500,000 band, with $300,000 of financing spread across them. Two identifications, well inside the three-property rule.
• Mixed: one property you buy yourself plus one direct title property, still within three identified properties.
• Either path fails the same way if the debt is not covered: a $600,000 all-equity purchase leaves $300,000 of unreplaced debt as boot.

Which fits: your own NNN suits a large single purchase you want to choose yourself, direct title suits smaller or split exchanges

Buy your own NNN property when the exchange is large enough for one building you would actually want, you have time before the sale closes to search, and you are comfortable choosing the tenant, the market and the lender. The work is front-loaded, so start before the relinquished property closes; the pre-sale checklist lists what to line up.

A direct title security fits when the exchange is smaller, when you want to spread equity over several homes in different metro areas, or when you want direct ownership without running a property search under deadline. The trade is that the property set is limited to what has been sourced, inside the published price band.

Both routes leave you holding a single asset per deed. If neither concentration nor management appeals, a shared trust is the third option, compared on DST vs direct NNN property.

Management and exit: both leave the exit with you, but only one comes with a manager attached

With your own NNN property the tenant usually pays taxes, insurance and maintenance under the lease, but you still enforce the lease, handle renewals and find a new tenant if the current one leaves. The terms vary by lease, so read the landlord obligations before you identify.

Breakwater pairs each direct title property with a professional property manager that oversees leasing, maintenance and tenant service, while you keep decision-making authority. Either way you own one property per deed, so vacancy risk is concentrated; spreading equity over several homes is the main defence.

On exit, both let you sell, refinance or start another exchange when you choose. Breakwater's direct title case studies show how owners have used the structure.