The Delaware Statutory Trust (DST) has been making a comeback during these turbulent economic times. A DST is similar to a Tenant In Common (TIC) investment with just several key differences. In this blog we will take a look at DSTs and how they differ from the more publicized TIC investment concept.

Technically a DST is a separate legal entity created as a trust under Delaware Statutory law that qualified under section 1031 of the IRS code. The DST owns 100% of the fee simple interest in the real estate and permits up to 100 investors (sometimes more). The DST is supported legally by IRS Revenue Ruling 2004-86 and qualifies as a tax-deferred exchange. The real estate sponsor firm who organizes and manages the deal generally serves as the master tenant and the investors of the DST own a beneficial interest in the trust which owns the underlying real property.

Securities offered through Pacific West Securities, Inc. – Member FINRA/SIPC

*Accredited Investors (Individuals = net worth in excess of $1 million and/or annual income of $200,000. Accreditation for entities = total assets of $5 million and/or each entity member must be an accredited investor as an individual.

This material is neither an offer to sell nor the solicitation to purchase any security. The information is for discussion and information purposes only. It is not intended to replace competent legal, tax or financial planning advice. The applicable tax codes apply to and relate to federal law only. Individual states may have their own additional tax codes. Please contact the appropriate tax and legal professional in your state. This information is provided from sources believed to be reliable but should be used in conjunction with professional advice that is consistent with your personal situation.

Welcome to Our Blog!
Welcome to the Real Estate Dispatch from BiggerPockets.com. Our blog brings together experts in various fields of real estate with the goal of keeping our readers informed and up to speed. Whether you're a real estate professional (lender, Realtor, banker, etc), investor (landlord, flipper, wholesaler, etc.), or simply a consumer, renter or homeowner interested in the world of real estate, this blog is the place for you to get involved!

You can subscribe to our RSS feed, get blog updates by email, join our free mailing list, or best of all, join our social network along with 25,000 others interested in real estate education, dealmaking, networking, and marketing.

Tags: 1031 exchange, Delaware Statutory Trust, dst, TIC

A Tenant in Common 1031 Exchange, a (TIC), allows the owner of investment, business or income producing property to exchange it for a fractional ownership in another large commercial property or multiple industrial grade properties. When the IRS requirements for this type of exchange are followed, capital gains and depreciation recapture taxes may be deferred. A Tenant in Common investment offers the possibility for cash flow while freeing the owners of property management headaches.

13 Benefits of a 1031 Tenant in Common Investment:

1. Upgrade your present investment into institutional grade commercial real estate
2. Defer 100% of capital gains tax and depreciation taxes
3. Professional property management
4. Diversify an investment portfolio
5. Potentially increase cash flow from the investment
6. Cash flow from properties may be partially sheltered due to a new depreciation schedule.
7. Diversify real estate holdings over several geographic markets
8. Diversify real estate ownership in several different asset classes (hotels, office buildings, apartment buildings, industrial complexes, etc.)
9. Gain the potential for long-term high quality leases with tenants such as government entities, Fortune 500 companies
10. Ease of acquisition of the Replacement Property within the IRS required 45 Day period. The investor can take advantage of due diligence that has been completed on property offerings of TIC sponsors .
11. Investor may benefit from appreciation of the Replacement Property if it is sold.
12. A TIC is a valuable estate planning tool as it can be willed to heirs.
13. Heirs receive the potential for a stepped up basis upon the TIC owner’s demise.

Risks of the TIC Exchange

As with any investment in real estate, there are risks associated with TIC ownership, including fluctuations in the real estate market that may impact the value of the property. The following risks may also be associated with investment: illiquidity, economic risks due to vacancy rates, default if unable to pay mortgage and possible loss of principal. TIC ownership requires unanimous approval to take major action, such as a re-finance or sale. Obtaining unanimity may be difficult when 10 or 20 investors are involved. It is not possible to address all relevant risk factors in this forum. Risk factors are outlined in the Private Placement Memorandum for each offering. Investors should thoroughly understand all risk factors and discuss them with their financial representative prior to investing in a 1031/TIC offering.

The investor who is considering a 1031 Tenant in Common Exchange should evaluate possible Replacement Properties prior to closing on the sale of his present real estate holding. A 1031 TIC Exchange presents an opportunity to expand your investment portfolio, potentially improve cash flow, and should not be overlooked.

Securities offered through Pacific West Securities, Inc. Member FINRA/SIPC

Photo Credit: Chris Gin

Tags: 1031, 1031 exchange, investment real estate, real estate, real estate investing, Tenant in Common, TIC