Investor · San Luis Obispo, CA · Member since 2016 · 5 posts · 1 vote
Anyone have experience with Delaware Statutory Trusts (DSTs)? My mom is selling a large property and wants to do a 1031 into something that is more passive in nature. Are there any companies she should gravitate towards or avoid? Any pitfalls to consider? What are the typical fees she should expect, and what return on investment should she expect after all the fees are paid off?
While DSTs have matured somewhat from the recession market, my group has had multiple bad experiences from stopped cash flow, short sales, and foreclosures. You have no control and no say as an investor, the trustee can sell the property at any point without investor consent, and it is usually very fee intensive. I do think there is a place for DSTs in the market, and some do well, but you would be well served searching the horror stories that have occurred.
We have invested with many now defunct providers and we also currently have a few assets with Inland and Passco. Both are huge companies, but we were turned off by Inland selling an asset 2 years into a 10 year hold for minimal appreciation, and not having a proper LTV deal to 1031 exchange into. They also generally require 40-50% down on apartments which are our preferred asset class. We have decided to focus on areas outside of California, source a good management company, and control our own destiny.
Hi @Jey Berke, I'm an investor in a couple DSTs, one in FL and another in KY. I was fortunate to find @Leslie Pappas here on BP and she was extremely helpful is guiding me through the process. She also wrote a book on DSTs that is easy to read and a really solid resource, if you reach out to her (send her a PM) she'll most likely send you a copy.
Regarding returns, I look for cash flow that starts around 5.5% and increases each year from there. This has been my experience so far. When the sponsor sells the property you get the appreciation, so typical historical returns of reputable companies are in the neighborhood of 10-15% after 5-7 years.
The only up-front fees you pay are for the 1031, the sponsor or Leslie doesn't charge you anything.
Frankly there are only a few companies (sponsors) that I feel comfortable with, basically stick with the ones Leslie recommends. In learning about the industry and who has survived and thrived through the down times, I came to care a lot about LTV and debt service coverage ratios in addition to quality sub-market analysis. Leslie helped me every step of the way but doing your own due diligence on not just the deal but also the company is an important part of the process.
Hey @Michael McLoughlin- thanks so much for recommending me. I really appreciate it, and I'm so happy that you're pleased with the investments we made. Best always- Leslie
I just wanted to share that I worked with Leslie a year ago and although I did not purchase any DST's through her I considered it-maybe I should have, but I went a few other directions. I can vouch that she is class act and very direct and knowledgeable.
While DSTs have matured somewhat from the recession market, my group has had multiple bad experiences from stopped cash flow, short sales, and foreclosures. You have no control and no say as an investor, the trustee can sell the property at any point without investor consent, and it is usually very fee intensive. I do think there is a place for DSTs in the market, and some do well, but you would be well served searching the horror stories that have occurred.
We have invested with many now defunct providers and we also currently have a few assets with Inland and Passco. Both are huge companies, but we were turned off by Inland selling an asset 2 years into a 10 year hold for minimal appreciation, and not having a proper LTV deal to 1031 exchange into. They also generally require 40-50% down on apartments which are our preferred asset class. We have decided to focus on areas outside of California, source a good management company, and control our own destiny.
@Jey Berke - Inland is just one Sponsor out there. We work with them to a limited degree, which I can explain offline. There are many qualified Sponsors to consider. In my firm, we underwrite the Sponsor as a company in addition to their individual offerings. Given that we inspect single property DSTs before approval, it is entirely possible that a Sponsor can be approved, but an individual offering may not.
This industry, like all real estate, has its ups and downs. @Matt W. seems to have had a bad experience, and that may be tied to poor Sponsor selection or offering selection. It's vitally important to know who you are working with, and have the history of the players involved. I see former players from the 2000's coming back to the industry under different business names, and some of their prior work was less than stellar. It's important to have the advice and perspective of an industry old-timer, in my opinion.
If there's anything I can do to help- please message me.
@Cyrus Merrill thanks so much for your recommendation. It really means a lot to me! I hope you and your family are well.
I am selling my properties and looking to go into DST. I have only spoken with one financial planner that is connected to DST's. I like the "idea" of having a financial planner to help me with this . . .but was wondering how to dig deeper to make sure its a good idea. I will also contact Leslie Pappas. thank you!!!
@Wendy Diaz To use a DST really depends on the state that you are in. If you are in CA, then it makes sense. Otherwise a Series LLC can make more sense...again dependent upon state. It also depends upon your purpose for establishing one- i.e. to avoid taxation on the sales? Because it won't necessarily avoid taxes.
In addition, its' an attorney that would help you set these up, not a financial planner. As a financial planner, I help to recommend the correct strategy, but ultimately its' the attorney that puts this together for you.
@Wendy Diaz - This is a difficult area, because a financial planner "connected" to DSTs would have an incentive to sell you the DST investments. In my experience, anytime someone is compensated to sell a product, that is always going to be the recommendation. It is very likely that a DST will be a good option for you to 1031 over into a more passive investment vehicle, however, much more also probably needs to go into the consideration of this. A good financial planner will look at your situation, help you understand your goals and design a path forward that both hits your goals and is tax-efficient. There are now a few of us real estate oriented financial planners around.
Another option that might work for you is the "Lazy 1031" - you can invest in syndications (multifamily or some other asset class) and the bonus depreciation can defer passive capital gains. It doesn't require all of the heavy lifting of a DST or a 1031 exchange. I used this strategy to offset all of the capital gain I had from selling my active investments. Similar to a regular 1031, it's just a tax deferral so you will need to keep deferring, but that really only means you need to keep investing when one of your deals goes full cycle.