1031 Exchanges

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AS Chow
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Know A Good DST Company ?

AS Chow
Posted Jan 24 2019, 02:22

So I've gone through the entire 1031 Exchange Forum and there are very few posts on DST Companies. I am a complete novice at the entire Real Estate game. (I inherited partial ownership in several buildings more than 20 years ago.)

I'm not even sure who the big DST companies are...

I'd like to hear if anyone has invested in one, and would they recommend it ?  What have been your actual returns ?

I worry about fee's and don't really see it mentioned very often. 

I have large Capital Gains coming (1-2m) and would like to at least defer them so I can spread them out over a number of years.  I live in California and the state tax is high.

(I don't have any children to pass it down to, and I can't take it with me, so I'm not concerned about defering it forever.)

Also I have ZERO desire to become a Landlord of any kind. I'd just pay the Cap Gains if being a Landlord was the only option. DST companies might not give the best return but I'll be ok with smaller returns.

Oh and if anyone knows when it says 7-10 years holding period ... what does that mean exactly ? I'd prefer knowing the year, so I could choose different lengths.  

Thanks ! 

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Brandon Bruckman
  • Investor
  • Milwaukee, WI
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Brandon Bruckman
  • Investor
  • Milwaukee, WI
Replied Jan 24 2019, 04:21

Inland, Passco and AEI are three of the largest and longest tenured firms in the space. The 7-10 years depends on the ability to sell the property. You would have to really dig in with the sponsor to understand their intentions deal by deal.

Fees for each deal are different and classified very differently as well. I’ve categorized and calculated averages for a large section of deals.

I did something very similar with historic returns.

I can talk through this with you on a call. Shoot me a note direct.

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Jacqueline Gardiner
  • Engineer
  • Genoa, NV
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Jacqueline Gardiner
  • Engineer
  • Genoa, NV
Replied Jan 24 2019, 08:06

@AS Chow. I read through several of the DST offerings and ultimately decided to go with a couple of TIC properties offered by Rockwell Debt-Free Properties. With those, you at least have the option of selling off a part or all of your interest to another investor after a few years. With the DST offerings, the sponsor is going to decide when to sell based on the market and you won't have any control over when that is.

The reason you don't see much about the DST offerings is that all of them that I saw are for accredited investors only and so you can't get any information until you sign up with one of the investment advisors who offers them and provide them with some assurance that you are accredited.

Leslie Pappas on Bigger Pockets is one of the advisors who can provide you with DST offerings to review. Another is Cornerstone R.E. Investment. (I never had any personal contact with the latter, but I am on their mailing list and get a regular list of potential investments to look through. Leslie provided more personalized service and set up regular conference calls so that one can hear about the details of various offerings directly from the sponsors.)

The details of the offerings are rather extensive and filled with a lot of legal jargon, disclaimers, and risk analysis. They do not make for enjoyable reading.

I hope that you will find this helpful. Good luck!

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Replied Jan 24 2019, 13:54

Just sent you a private message! Feel free to reach out.

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Account Closed
  • Attorney
  • Fort Lauderdale, FL
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Account Closed
  • Attorney
  • Fort Lauderdale, FL
Replied Feb 25 2019, 12:13

@AS Chow, Brandon is accurate with the top three largest, though there are a lot more sponsors that have varying DST portfolios. The fees are built into the portfolio where the sponsor earns on their spread over the actual yield to investor, so there is no decrease to capital going into the portfolio. You can absolutely spread your funds around into multiple DST portfolios with different objective and timelines. Returns can range from 4-6% annually. The holding periods are never set, though the sponsors typically like to get out in 5-7 years, but that differs across sponsors and portfolios. The sponsor would sell out of their portfolio investments, dissolve the DST, and return capital and any gains to investors, at that time you can 1031 into another DST or building direct if you wanted. Happy to answer any more questions you may have. Best!

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Mike Jacobson
  • Rental Property Investor
  • Rochester MN
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Mike Jacobson
  • Rental Property Investor
  • Rochester MN
Replied Feb 26 2019, 21:38

@AS Chow There is some good discussion is going on about DST's in another thread. Search for the thread " Delaware Statutory Trust DST 1031 exchange Difficulty giving up control".

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Randy Wallis
  • Rental Property Investor
  • Boca Raton, FL
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Randy Wallis
  • Rental Property Investor
  • Boca Raton, FL
Replied Mar 18 2019, 12:53
pretty much spot on with the experience I had in mine.

@AS Chow, Brandon is accurate with the top three largest, though there are a lot more sponsors that have varying DST portfolios. The fees are built into the portfolio where the sponsor earns on their spread over the actual yield to investor, so there is no decrease to capital going into the portfolio. You can absolutely spread your funds around into multiple DST portfolios with different objective and timelines. Returns can range from 4-6% annually. The holding periods are never set, though the sponsors typically like to get out in 5-7 years, but that differs across sponsors and portfolios. The sponsor would sell out of their portfolio investments, dissolve the DST, and return capital and any gains to investors, at that time you can 1031 into another DST or building direct if you wanted. Happy to answer any more questions you may have. Best!

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Jacqueline Gardiner
  • Engineer
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Jacqueline Gardiner
  • Engineer
  • Genoa, NV
Replied Oct 15 2019, 07:42

I wanted to chime in and say that I would no longer recommend Rockwell. One of the two investments that I made with them has gone south because the tenant has filed bankruptcy. The general consensus is that we overpaid for the property based on inflated rent rates and so we don't have any desirable exit strategy.

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Replied Oct 15 2019, 08:09

Wow, thank you for sharing the info, Jacqueline. Was it a STNL property? Is Sponsor going to look for another tenant? Was the property debt free?

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Joel Owens
  • Real Estate Broker
  • Canton, GA
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Joel Owens
  • Real Estate Broker
  • Canton, GA
ModeratorReplied Oct 15 2019, 08:19

DST's often overpay for properties. They make money off of the fees going in. If you are paying a premium you better make sure the tenant is really strong (typically Standard and Poor's) BBB- Investment grade rating or better. Some developers build STNL and in agreement for tenant to receive heavy TI's (tenant improvements) they agree to pay above market rents. This helps developer recover higher sales price on resale than they spent in extra TI's.

DST's can work in certain situations but there can be other investment alternatives. One thing I have seen is someone wanting to own directly but buying in the 2 million range. Lots more buyers in the 2 million range and many all cash so best case might get a 6 cap whereas if a DST is a buying a 20 million property the cap rate and loan available can change for higher returns. With a DST you also lose control with voting rights and controlling the exit timing to a degree.

There is pluses and minuses and not one solution fits all. There are just solutions after investors research that they decide give them more positives than negatives to go that direction.  

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Jacqueline Gardiner
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Jacqueline Gardiner
  • Engineer
  • Genoa, NV
Replied Nov 25 2019, 03:16

@Tien Ly Yes, it is a STNL property. The sponsor is no longer involved. Once the deal closes, it's up to the TIC owners to work with each other to make decisions. That was my biggest concern going in, but in retrospect, I should have been much more concerned with other aspects of the deal.

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Tim Jensen
  • Rental Property Investor
  • Rockford, IL
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Tim Jensen
  • Rental Property Investor
  • Rockford, IL
Replied Nov 25 2019, 13:31

I am going to assume, then it might make sense to go with a major player in the dst's. You may not make as big of a return, but the downside is a lot less. Correct me if I'm wrong.

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Kyle Winther
  • Financial Advisor
  • Los Angeles
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Kyle Winther
  • Financial Advisor
  • Los Angeles
Replied Jan 15 2020, 16:06

The biggest DST sponsors are Inland, AEI, and Pasco. We work with all of them. Hope that helps!

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Paul Moore
  • Commercial Real Estate Fund Manager
  • Lynchburg, VA
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Paul Moore
  • Commercial Real Estate Fund Manager
  • Lynchburg, VA
Replied Jul 8 2020, 07:37

To add to this old thread... there are now Delaware Statutory Trust options that allow investors to directly invest with sponsors - which can avoid front-end loads.  That has long been a criticism of this structure, but this can help boost returns. 

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Replied Jun 1 2021, 20:13
Originally posted by @Paul Moore:

 there are now Delaware Statutory Trust options that allow investors to directly invest with sponsors - which can avoid front-end loads.  

I am looking for such a DST. Can anyone recommend them? Is due diligence a concern when the broker-dealer is not involved?

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Paul Moore
  • Commercial Real Estate Fund Manager
  • Lynchburg, VA
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Paul Moore
  • Commercial Real Estate Fund Manager
  • Lynchburg, VA
Replied Jun 2 2021, 09:37

Hi Vladmir, I don't have a DST available at this time, but I would point you to @Mark Creason - he can help you! @Vladimir Kotomin

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Mark Creason
  • Real Estate Lender and Broker
  • Dallas, TX
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Mark Creason
  • Real Estate Lender and Broker
  • Dallas, TX
Replied Jun 2 2021, 10:32

@Paul Moore

Thank you for the recommendation.  I would be happy to discuss DSTs with Vladimir.

Mark

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Replied Jun 2 2021, 15:26

I am not looking to someone to sell me a DST. My inbox is full of these messages. I am looking for a DST sponsor that does not employ broker-dealers and sells directly.

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Joe Sera
  • Maryland
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Joe Sera
  • Maryland
Replied Jun 6 2021, 03:58

@Vladimir Kotomin You can't purchase a DST directly from a DST Sponsor, you must use either: a commission based Broker-Dealer (BD) or Registered Investment Advisor (RIA).  

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Perry L.
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Perry L.
  • Investor
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Replied Sep 4 2022, 09:06
Quote from @Joe Sera:

@Vladimir Kotomin You can't purchase a DST directly from a DST Sponsor, you must use either: a commission based Broker-Dealer (BD) or Registered Investment Advisor (RIA).  


Here is my understanding: RIA gets DST from BD. The structure is very rigid for SEC compliance. Sponsor-BD-RIA-Investor. However, BD and RIA can reduce commission at their discretion.

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Sepehr Khanbabaei
  • Financial Advisor
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Sepehr Khanbabaei
  • Financial Advisor
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Replied Sep 6 2022, 09:26

I'll send you a message

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Kristen Schade
  • Residential Real Estate Broker
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Kristen Schade
  • Residential Real Estate Broker
  • Savage, MN
Replied Sep 16 2022, 10:20

@Paul Moore what are the companies where you can go direct??  I am looking to do something but a bit hesitant with the up front fees especially given the limited upside and risks involved in today's market.  Thanks!

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Celia Moore
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Celia Moore
  • Specialist
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Replied Sep 16 2022, 10:30

Inland is huge in the DST space! Robert Smith of Peregrine Private Capital works for Inland and is the broker we use for our deals. He also has an immense video library on the topic: https://www.youtube.com/channe... 

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Replied Nov 23 2022, 06:06

BP Braintrust,

I'm looking for some insights/perspectives on DST OR alternatives. My wife and want to move away from the traditional ownership of small residential properties. We've recently invested in syndications and are very happy with the hands-off nature of the investment along with returns. Moving forward, we'd like to unload our rentals and move the proceeds into syndications, however, we do not have the accumulated losses to offset capital gains/recaptured depreciation for our rental properties. We don't want to do a 1031 exchange into another property, but rather move the proceeds to a truly passive investment like a syndication or DST. We're just starting our education in the DST space. Each syndicator we've talked to cannot accept a 1031 into the syndication unless it's a TIC structure and the few that do it, only do it for existing clients/investors. DSTs, however, do accept and/or are designed for 1031s.

I see the most common DST returns to be in the 4-5% range. DST providers/literature often cite that though the return is low, when combined with the tax deferred benefit, it's better than selling an asset, paying the capital gains, and reinvesting in a normal syndication. Of course the proof is in the actual investments and numbers, but this assertion seems unlikely based on the value-add upside normal syndications can provide which DSTs can't. I would welcome any feedback on viable 1031 options as well as alternative options that will yield the same or higher long-term returns. Thanks.

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Alex Olson
  • Real Estate Agent
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Alex Olson
  • Real Estate Agent
  • Kansas City Metro
Replied Nov 24 2022, 08:27
Quote from @Matthew Shedd:

BP Braintrust,

I'm looking for some insights/perspectives on DST OR alternatives. My wife and want to move away from the traditional ownership of small residential properties. We've recently invested in syndications and are very happy with the hands-off nature of the investment along with returns. Moving forward, we'd like to unload our rentals and move the proceeds into syndications, however, we do not have the accumulated losses to offset capital gains/recaptured depreciation for our rental properties. We don't want to do a 1031 exchange into another property, but rather move the proceeds to a truly passive investment like a syndication or DST. We're just starting our education in the DST space. Each syndicator we've talked to cannot accept a 1031 into the syndication unless it's a TIC structure and the few that do it, only do it for existing clients/investors. DSTs, however, do accept and/or are designed for 1031s.

I see the most common DST returns to be in the 4-5% range. DST providers/literature often cite that though the return is low, when combined with the tax deferred benefit, it's better than selling an asset, paying the capital gains, and reinvesting in a normal syndication. Of course the proof is in the actual investments and numbers, but this assertion seems unlikely based on the value-add upside normal syndications can provide which DSTs can't. I would welcome any feedback on viable 1031 options as well as alternative options that will yield the same or higher long-term returns. Thanks.


I have a 1031 DST group that is excellent. He does not put your money in a simple inland fund or some other big conglomo with 4% returns. DM and I can try to connect you.

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Sepehr Khanbabaei
  • Financial Advisor
  • Manhattan Beach CA
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Sepehr Khanbabaei
  • Financial Advisor
  • Manhattan Beach CA
Replied Nov 24 2022, 09:51
Quote from @Matthew Shedd:

BP Braintrust,

I'm looking for some insights/perspectives on DST OR alternatives. My wife and want to move away from the traditional ownership of small residential properties. We've recently invested in syndications and are very happy with the hands-off nature of the investment along with returns. Moving forward, we'd like to unload our rentals and move the proceeds into syndications, however, we do not have the accumulated losses to offset capital gains/recaptured depreciation for our rental properties. We don't want to do a 1031 exchange into another property, but rather move the proceeds to a truly passive investment like a syndication or DST. We're just starting our education in the DST space. Each syndicator we've talked to cannot accept a 1031 into the syndication unless it's a TIC structure and the few that do it, only do it for existing clients/investors. DSTs, however, do accept and/or are designed for 1031s.

I see the most common DST returns to be in the 4-5% range. DST providers/literature often cite that though the return is low, when combined with the tax deferred benefit, it's better than selling an asset, paying the capital gains, and reinvesting in a normal syndication. Of course the proof is in the actual investments and numbers, but this assertion seems unlikely based on the value-add upside normal syndications can provide which DSTs can't. I would welcome any feedback on viable 1031 options as well as alternative options that will yield the same or higher long-term returns. Thanks.

Sent you a DM with some info!