Here are some things to keep in mind about DST that are often in the disclosures provided:
A DST is a securities product with real estate at its core. These are some of the factors a would-be investor should consider:
• DSTs may not be suitable for investors who want to continue managing their properties.
• DSTs may not be suitable for those seeking only a short-term investment. DSTs are typically designed for a holding period of 5-7 years and can be up to 10 years.
• DSTs have risks like all real estate, are illiquid, and have fees and expenses associated with the purchase, which may reduce the bottom-line dollar amount goes directly into acquiring an asset. These fees and expenses can also offset some or all of the benefits of the tax deferral.
• DSTs are designed for “accredited investors,” individuals of high net worth or income level, as defined by Regulation D of the Securities Act of 1933. At the time of this writing, this equates to a net worth of over one million dollars, but not including principal residence, or an annual income of $200,000 (or $300,000 combined with spouse) for the last two years and expected in the next.
• Because of the complexities of selecting and structuring real estate offerings, would-be investors and their registered representative need to exercise due diligence in choosing a DST Sponsor. The Sponsor will provide a Private Placement Memorandum (PPM). This provides information about the properties, such as area demographics, leases, and projections.
• The investor and the registered representative should consider a Sponsor’s expertise at property and asset management, the Sponsor’s track record, the Sponsor’s experience with sophisticated financing structures, its financial strength and legal representation, and the transparency of its communication with investors.
• The investor should remember that real estate is subject to the cycles of the economy, just like other investments. The value of a property may drop because of factors such as variations in occupancy, oversupply of space in an area, increases in operating costs, tenant defaults, a change in interest rates, adverse changes in laws, etc.
• There is no guarantee that investment objectives will be achieved.
*** 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