1031 Exchanges

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Working with a High Basis Seller using a 1031 Eligible Fund (DST)

Posted Jan 24 2022, 14:26

Hello BP,

I am currently pursuing a 5 unit Multifamily purchase and upon discussing with the potential seller I discovered he feels he is unable to sell due to having a high basis in the property and not wanting to pay capital gains. In order to buy the property I need to solve this issue. I came across the idea of using a 1031 eligible fund known as Delaware Statutory Trust (DST) for the seller to park his money in upon sale. He is not interested in a traditional 1031 as he is 92 and dosent want the headache of buying and managing a new piece of real estate. I think a DST will solve his problem as his heirs will simply inherit the fund instead of the property which they can then liquidate or 1031 out if they so choose.

My question is does anyone have any experience with DST's and/or have any strong opinions on using a DST in this way. Can anyone think of other ways to address this problem without using a traditional 1031?

Best, 

Logan K

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Dave Foster#1 1031 Exchanges Contributor
  • Qualified Intermediary for 1031 Exchanges
  • St. Petersburg, FL
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Dave Foster#1 1031 Exchanges Contributor
  • Qualified Intermediary for 1031 Exchanges
  • St. Petersburg, FL
Replied Jan 24 2022, 14:35

@Logan Krutsch, Your seller is looking at a normal 1031 either way. The DST is a specific type of reinvestment that was blessed by the IRS as a replacement property in a 1031 exchange in 2004.

DSTs in essence are a fractional passive ownership of part of a larger commercial asset.  You can find DSTs representing every type of real estate sector - medical, multifamily, commercial, self storage etc.  

They are sold as a security product but qualify as replacement property for the 1031 exchange.  Opinions are all over the map.  They are generally seen as safer and more conservative option and returns reflect that.  

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Replied Jan 24 2022, 16:01

@Dave Foster Thank you very much for the info!

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Kyle Winther
  • Financial Advisor
  • Los Angeles
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Kyle Winther
  • Financial Advisor
  • Los Angeles
Replied Jan 25 2022, 13:25

Logan,

I specialize in Delaware Statutory Trusts. Based on the scenario you described, a DST would be a good option for the seller. I would be happy to discuss the 1031 DST in more detail anytime. If you would like to have the seller involved so he can become educated on the DST, we can setup a conference call.

@Logan Krutsch

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Leslie Pappas
  • Professional
  • San Francisco, CA
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Leslie Pappas
  • Professional
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Replied Jan 25 2022, 19:59
Originally posted by @Dave Foster:

@Logan Krutsch, Your seller is looking at a normal 1031 either way. The DST is a specific type of reinvestment that was blessed by the IRS as a replacement property in a 1031 exchange in 2004.

DSTs in essence are a fractional passive ownership of part of a larger commercial asset.  You can find DSTs representing every type of real estate sector - medical, multifamily, commercial, self storage etc.  

They are sold as a security product but qualify as replacement property for the 1031 exchange.  Opinions are all over the map.  They are generally seen as safer and more conservative option and returns reflect that.  

Yes to all of what Dave said. 

Logan, feel free to check out my blog here on BP for more info, DSTs are the world I work in everyday.

https://www.biggerpockets.com/...