A DST is a business trust created under Delaware law. It is a securitized investment that must comply with IRS Revenue Ruling 2004-86.
It allows investors to hold fractional shares in real estate properties – typically institutional grade. The properties are managed and administered by the Trustee for the financial benefit of the Trust beneficiaries (i.e. the investors who exchanged into the Delaware Statutory Trust). Investor options can be 100% cash (outright purchase of shares), but the most common method of investing is via a 1031 tax deferred Exchange. DSTs offer investors property ownership benefits, just as if they were the sole owner of the property. With a DST ownership interest the investor typically receives monthly income, some of it sheltered by depreciation deductions and the like.
In the examples shared in the "Real Estate Agents: The Baby Boomers are Coming!" article , Diane and her Mom and Louise and Ted became the “beneficial owners” of a DST. They sold their properties through a traditional residential or commercial real estate broker, and stipulated in the sales contract that they were electing to do a tax deferred exchange with their proceeds.
Before they entered into a purchase and sale contract, they were working with me planning their exchange strategy into a DST. As an investment professional specializing in DSTs, I was and am in an ideal position to assist them as their investment representative. Real estate transactions are time sensitive. Have you ever heard the saying that “Time is of the essence”? That’s the bell weather key to all real estate transactions. And I take it very seriously. Part of my service is to follow the process closely. I prefer to start working for you at the outset until the goal is reached. Bring me on board immediately and I will be with you all along the way, looking after your interests making sure things get done right. My job begins the day you list your property, and finishes the day you have it sold and have exchanged into your new DST investment. This complex process can be difficult to navigate and understand, something that I will help you with. And to that end, I will make sure that critical time frames are adhered to, that you understand the process to your satisfaction, and that we find the most ideal DST to invest in, selecting the company and property type that works best for you.
My broad-based financial background may be of use in assisting in financial planning. Or it may be more focused on the transactional aspects of the DST exchange. Or it could be a combination of both. Whatever your needs may be, they will come to the fore front when we meet. It is important that we take the time to go over where you are and where you want to be. And then develop a strategy to that end. For instance, you may wish to exchange all of your equity into DST interests. Or you may want to exchange part of your equity taking the balance in cash and paying tax on those proceeds. And you may elect to exchange part of your proceeds into a DST investment and the balance into another property that you would own outright while managing it yourself. There can be many factors contributing to the decision-making process and I look to explore those with you and help you identify what they are and how to deal with them. My experience by the way, is that sometimes what seems to be obvious can easily be overlooked. Our meeting could prove to be critical in achieving optimum results for your future liquidity, current and future income as well and any life concerns that must all be considered. There is a whole discovery process which concludes with a determination of best fit for you, the investor.
One cannot predict what future health care issues or long-term care needs may surface. Concerns such as trust considerations, children, and any other issues need to be discussed.
To reiterate what was previously mentioned, there are very important time line rules that need to be adhered to. Having another set of eyes to watch out for your interests in that regard can be key. I will be in constant communication with the escrow officer with two key deadlines in mind: the 45 calendar days from the closing of the sale of the relinquished property that you have to identify the property(ies) you wish to trade into, and the 180 days from the closing of the sale you have to complete the acquisition of the new property. Figure 1 is a visual of this process.
*** DST investments are illiquid, highly speculative and like all real estate, may involve substantial risks. DST owners do not maintain control over management decisions and are subject to additional IRS regulations. Potential tax benefits must be weighed against the costs and fees associated with a DST investment and its management.
By Don Meredith, President of Tactical Income Inc.
Author of The DST Revolution –1031 Exchange into retirement mode. 2nd Edition
Contact Don Meredith of Tactical Income, to learn more about Delaware Statutory Trusts (DSTs) and 1031 Exchanges at: don@lightpathcapital.com or (619) 726-6100.
Securities through LightPath Capital, Inc., Member FINRA/SiPC, 1560 E. Southlake Blvd., Suite 100 Southlake, TX 76092 925-899-1709 Direct 214-734-2957 Office
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