Delaware Statutory Trust DST 1031 Difficulty Giving up control

113 Replies

Originally posted by @Kyle Winther :


@Isaac S. what route did you end up taking? Did you go into a DST? Has your property sold yet or in escrow? Curious to know the route you are going down after reading through this thread.

 Hey Kyle,

Thanks for reading and posting. I started/continued cultivating about half dozen different commercial brokers, by taking incoming cold/warm calls from brokers for off market offers(calls I used to just hang up on) from their fund buyers and deep pocket private investors, and soon realized(as few of the brokers had warned) that off market deals for this asset are always gonna be low ball, no matter how premium my location.

One thing that became apparent was the strategy of the all the buyers, force appreciation by finding assets with upside, which my property had plenty.

So, I got way more professional with managing the building and enforcing leases, paying attention to the rental comps and in turn improving my NOI. I have managed to improve our cash flow considerably(enough to make it less stressful) and have paid attention to the interest rates for commercial mortgages, which have remained pretty flat and low, making refi-cash-out a very attractive option.

All that being said, I have several refi offers that are very motivated to close a deal because of the large loan and relatively conservative LTV.

So, now instead of the all or none attitude I was having when starting this thread, I have positioned myself to have the option of refi and redeploy that cash out equity into one or several other assets, and hold back some cash for reserves and improving the primary asset in anticipation of squeezing maximum appreciation for a future sale when the prepayment fixed rate period on the refi is over, and ideally at the right time in the economic cycle to get maximum value.

As for my perception of 1031 to DST, the beginning of the thread I was thinking of them as a possible replacement or fix-all solution. However, I think with the amount of equity in play and my financial needs/goals, it would not be a good plan to 1031 into all DSTs. Rather, use DSTs to fill in the gaps and/or satisfy debt requirements to round out a 1031 that would see the majority of the equity go to a fee simple interest in multifamily or NNN property(s).

Any thoughts? Reason for asking? Or ideas to add to thread?

Wishing you health and wealth in the new year!

@issac S. - I think you have the right idea to fill the gap and satisfy your debt requirements and defer the capital gains tax on your property. Our firm Winthco Wealth Management works very closely with Inland securities and can provide a strategic solution to replace the debt (boot) with property in a DST which in turn will allow you to have more real estate investment exposure while reducing your overall fees.

I was reading the thread and it was a good topic of discussion and was curious of your outcome and how you proceeded. I am constantly doing market research in the 1031 DST industry to better help our clients.

If you have any direct questions or would like to speak in more detail about your scenario, feel free to reach out directly! 

Wishing you a happy new year as well! 

Originally posted by @Kyle Winther :

@issac S. - I think you have the right idea to fill the gap and satisfy your debt requirements and defer the capital gains tax on your property. Our firm Winthco Wealth Management works very closely with Inland securities and can provide a strategic solution to replace the debt (boot) with property in a DST which in turn will allow you to have more real estate investment exposure while reducing your overall fees.

I was reading the thread and it was a good topic of discussion and was curious of your outcome and how you proceeded. I am constantly doing market research in the 1031 DST industry to better help our clients.

If you have any direct questions or would like to speak in more detail about your scenario, feel free to reach out directly! 

Wishing you a happy new year as well! 

OK, got it and thanks for reaching out. Yes, I am aware of inland and that they are one of the top sponsors in the DST market.

My one criticism about the DST market, is that the offerings are not readily listed and available to compare and contrast. I find it annoying and contradictory to require "accredited investors" and then to not give them easy access to the data required to fully vet an offering.

Everybody(DST Brokers and sponsors) sends out pretty shallow promotion emails, and you have to really actively chase down the deal memos that have the details. Inland is a perfect example, all that is listed at their site is location, # units and acquisition date. No info on LTV, acquisition price, exit strategy or any good details that would help me initially quickly qualify if they would be appropriate for my situation. Basically, if they could distill down the 100+ page deal memo to a 1-3 page statement of the key metrics in the deal.

Anyway, I have yet to engage a DST broker that could get me good actionable info regularly, instead of shallow vague promotional stuff.

It kind of feels like most brokers just want to deal with somebody that is already in escrow?

Personally, I want to vet the sponsor and broker via detailed analysis of many offerings over a length of time, before I am in escrow, even if the actual deal I end up choosing is not the ones used for my vetting.

Anyway, thanks again for adding to the thread and any insight you can add would be greatly appreciated!

@isaac I understand where you are coming from. We have worked with Inland and the same reps for many years. We have a very good relationship with them, and we have access to the full PPM's, investor kits, and executive summaries. We allow our potential 1031 DST investors to review all the material of the properties, as well as have as many calls with our Inland reps until they feel comfortable with the DST portfolios, as well as Inland as a company. If you would like to see some of the current DST offerings, I would be happy to send you some literature. There is a new Nashville hospitality portfolio that was just rolled out today that is offer 6.5%. Feel free to search me online - Winthco wealth management or send me a direct message and I would be happy to help you out! Communication and education is what what we are all about when we are in the trust building process! :)

The brokers are a joke for the most part. They will "tour" the properties with you.. even though all of their expenses paid by the sponsor. They know nothing more than you know by doing your own superficial due diligence. One of my DST investments was touted as "one of the best" is ending up to be a dud. An overwhelming amount of competition and new deliveries..(new apartment complexes). Never stated in the PPM. My initial call with some "Leslie P" something or other was met with a totally uninformed and very arrogant person who forgot our call and talked to me while strolling around in the grocery store. No "I'm sorry" or anything.. just complete arrogance. A complete joke to those whom want to secure their retirement. Such greed and incompetence is astounding.

Updated almost 2 years ago

Pay 6 percent for no value at all!

Updated almost 2 years ago

"we have access to the PPM's" LOL. No, you as an investor Must have access to the PPM's... not the brokers to give to you. Again... complete racket.

The more I educate myself the more I see the absolute bad choice of DST's and their brokers. Lessons well learner. DST buyers are for the most part uneducated or just simply don't know the better options that exist. Period.

Hi @Isaac S. and others. I have had a bad attitude toward Delaware Statutory Trusts (DSTs) for a long time... with their high fees and low returns. But once I studied them more I learned that the returns can often be more predictable and strong than many other investments. And there are now some options to directly invest in a DST with a sponsor without paying the heavy front-end loads and commissions that weaken the investment. I am glad I looked closer.

Originally posted by @Paul Moore :

Hi @Isaac S. and others. I have had a bad attitude toward Delaware Statutory Trusts (DSTs) for a long time... with their high fees and low returns. But once I studied them more I learned that the returns can often be more predictable and strong than many other investments. And there are now some options to directly invest in a DST with a sponsor without paying the heavy front-end loads and commissions that weaken the investment. I am glad I looked closer.

 Hey Paul,

Thanks for chiming in and keeping the thread going!

I'm not sure if you have read any of my previous posts, especially at the top of this page.

My primary issue with DST market and process is: I find that it's very annoying to require accredited investors, and then make them jump through hoops before OM or actionable information is available. it's been my experience that 90% of the DST market is not that attractive to an investor like me, and that's why they keep things so cryptic and difficult to accrue information about each offering.

I would be surprised if the majority of the DST customers bass is not mostly people that are too far down the 1031 path to do anything else, retired and just don't want anything to do with RE fee simple interest, or less sophisticated investors that have high enough net worth to satisfy the "accredited investor" criteria.

Are you a DST broker? Do you personally own DST? How long and how much invested?

I'm curious to hear your experience.

@Joel Owens


"This is why I do not like Dollar Generals. 15 year flat rent and an inferior building in junk locations. People buy them because sub 2 million it's about the only thing NNN absolute that gives a 7 cap. Usually it is retirees that are looking at is for an income stream to live off of before they kick the bucket. That is all they are usually thinking about."

Hi Joel, I like your candid opinion about the Dollar stores.  Funny, because I had actually thought those were good deals with a high 7 cap, and corporate guarantee.  And yes, I was searching on LoopNet for NNNs with 7 cap min and under $2M, and a lot of the Dollar stores pop up.  Do most investors lose money on those deals?  I'm guessing if one sells near the end of the lease they will lose part of their original investment as value goes down, and if they hold until the end of the lease the tenant will leave and the landlord can't find a new tenant?  It seems the only safe and secure investments are the 5-6 cap properties.

Calvin Lee,

You won't really find a 7 cap Dollar General in a strong suburban to urban core location unless limited years remaining on primary lease term and mostly cash deals or very small financing.

The brand new Dollar Generals with upgraded construction all around in strong suburban to urban core areas tend to sell for 5.75 to 6.4 caps with new leases in place.

The 7 cap new Dollar Generals tend to be in crap areas weak suburban to rural and cheap construction and many times on septic systems instead of county or city sewer.

Every once in awhile in a strong location there might be a 7 cap with 10 years left on a high end Dollar General at 3 million in price or up.

These have no rental increases in primary lease term so year over year your income dollar becomes worth less and less. Why do people buy them? Because most investment grade tenants are over 2 million in price point. So investor is looking at a lot of regional to mom and pop or small franchisee tenants with more risk. Financing on those is not as good so reduces returns going in. Lots of retirees just want to make whatever 6 figures off of the property each year to live on and then pass on property to heirs in the estate. They are not thinking about long term values just park money safe for income.

Every one of my clients situation is different so they go to my site and fill out a form and once I review I set up a call. Different NNN available in various price points and areas. Around 2 million I like Advance Auto parts, Auto Zone, Davita, Fresnuis, Aspen Dental, Heartland Dental, national emergency clinics,etc.

Starting out cap rate in 6's but over time blended cap might eventually pass the 7 cap mark. These tend to be in better locations and have better construction. I do like some Dollar tree conversions from older pharmacy stores in good locations. Sometimes those can be higher cap with good financing. I look at debt and quality of tenant when I am searching for my clients. Loopnet is a graveyard of dead properties for sale. Sometimes you can find something but it is rare. I have many thousands of retail owners in my year database built up over a decade of time. I often get first looks for my clients on properties from developers, listing brokers, and individual property owners because they know I qualify my clients and I am there through the whole process.

Thanks for your detailed response Joel.  I plan to do a 1031 exchange next year and will need to find $1.5-2.0M in property.  I had originally planned to go with maybe three to four single tenant properties of $500K each for some diversification, but as you pointed out it's hard to get quality for those small investments.  So now I'm leaning towards the DSTs where I can get quality and even more diversification.  The Inland properties boast pretty decent weighted average ARR's on their past properties, with a total average of 6.72%. Of course those are only past figures and I'm sure their current portfolio will take a hit from Covid-19.

@susan,

You cannot buy a DST directly from the sponsor. You need to go through a licensed advisor because a DST is a security regulated by the SEC. I can help you with any of your DST needs. When does your 45 day window end? Feel free to direct message me, or email me - kyle at winthco dot com

Hi @Calvin Lee ,

I have some really great resources I can send you if you're interested, so you can do your homework between now and next year. It always helps if you're not in a rush, as that can make you feel overwhelmed when making decisions with large amounts of money. DM me if interested.

Jumping into this thread! I will likely be doing a 1031 exchange this week and not have something identified in 45 days to replace it since the market is nuts right now.. Looking into a DST as a backup (thanks to @Dave Foster s recommendation) and intrigued by all of this information.   

@Mike Jacobson - youre about due to update the thread :) How are things still going for you? What DST broker did you use to make your purchases?

Here is the short version.  Cash in: $2,147,000 Debt: $2,496,000 Monthly cash flow before Covid $10,500  Average monthly After Covid: $7,500.  Key points from different asset types.  Florida Keys, Apartments: Due to closing the economy and road to the Keys, occupancy dropped significantly. Government mandates allowing renters to live free...Hurts.  The return is down about 30%.  Not bad for what they are going through.  Florida is on the rebound since they opened up.

Apartments Florida Mainland: Paying per PPM.

Sr. Assisted Living:  When policy's don't allow visitors you cannot find new renters to move into a (prison).  Also PPE requirements and protocols have significantly increased expenses.  This one is down about 45 to 50%.  As things open this too will return.

Hotel in Missouri: I still am a partner in a local hotel so I know the devastation. Cash flow went to $0. I am happy with that as it is doing better than the one we own locally. Having a company that has relationships with lenders and full time people to handle the day to day struggle to keep it alive is nice. I believe it will come back. It may take years. I compare it to my hotel I sold 2.5 years ago that got me into DST's. If I still had the hotel now...The bank would own it.

Self Storage, Houston Tx.: Doing well.  A few problems but they are still paying per PPM.

Apartments Dallas/Fort Worth: Full pay per PPM.

Had I bought a NNN property as many realtors were recommending, and had a non essential renter. I would not have been able to make the payments. Like I said in my original posts, many of these were companies like Shopko, Gander Mountain, etc. They all went out of business within a year or so of selling their buildings and doing a lease back. Well I don't have enough cash flow to cover a $40,000 per month payment if the rent doesn't come through. In my 2019 taxes, I actually got money back for the first time that I can remember. You get to write off both the debt and equity even though you are not responsible for the debt. I sleep well with DST's.....So far

Mike

3/2/2021 Update after 1 year of Covid in DST's. See my previous post from 4 months ago. Sr. asst. living has now gone to 0 until the state of Washington opens up. Meaning they do not allow visitors to see their parents in Sr. Housing. This has all but stopped incoming renters. Waiting list is large so it will rebound quickly when government gets out of the way.

Storage units in Houston have dropped monthly payout by about 30% for the next 3 months.

Key West Apartments have not fully recovered. They are paying out about 80% of planned PPM.  

Hotel is still 0.  Should rebound in the next year or two....  (Really good people holding this together)

Dallas/Fort Worth...Paying per PPM.  Unsure what the last snow storm will do to that.

Apts mainland Florida. Paying per ppm.

Before Covid monthly cash flow was about 10,500.

March, 2021 Monthly Cash flow 6500.

My feelings at this point on DST's. Still OK as long as the the DST operators don't loose it. Most of my DST's have years left before they roll. Many business are taking a hit. If I owned it I would have to deal with it personally and I don't want the headaches, That is why I got into DST's. Hopefully they will all rebound and possibly even have some appreciation. At least that's my hope for today.

I would like to start a group of people who own DST's, who are willing to share their experiences openly with DST brokers, producers, etc. When we all keep informed of who is really creating value we have strength in numbers and knowledge. I am not sure how to start such a group.

Updated 4 months ago

10/2021. Was just notified that the mini storage DST in Houston TX is going to 0. Sr. Housing is looking better and I may get some return in the next calendar year. All else is the same from previous post. Previous covid cash flow $10,500 per month. Now $5800 per month. Not 100% happy at this point.... but when I look at the stress I would have had to deal with owning buildings and making the payment personally...I'm ok.

@Mike Jacobson as always, I appreciate your updates here. Not sure how you'd go about starting a peer DST group, but this thread is a good resource as it gets constantly updated. Maybe some of the other active DST investors following this thread can also provide updates on how their investments are performing.

As I’ve mentioned in the past, I’m always contemplating when I may shift out of my active RE investments and into something more passive. My future options are either keeping what I’ve got and getting a PM to manage all daily activities, 1031 into STNL, and/or DSTs. This year I am wrapping up my final value add project, and will pretty much go into a more passive wealth maintenance/preservation mode, as opposed to wealth creation. I’m not planning on making any asset changes until we’re through covid and back to more normal times. I’m hoping that by summer 2022 we will be getting there. Concurrently there is a huge value-wise as well as strategic realignment happening in almost all commercial sectors and we have yet to see who the long term winners will be. We are definitely in a “may you live in interesting times” time.

Mike Jacobson,

Thanks for keeping us updated. I passed on the DST in 2019 and had a failed 1031 so I got my cash in the best year that I could have hoped for. My motel was down about 60 percent in 2020 and that helped but it is never fun to right that check to my partner that never did a thing. THE GOVERMENT. The rest of the cash is sitting in a Whole life insurance policy growing every day waiting for the next opportunity.

Thanks and keep me updated



@Mike Jacobson . Thank you for your contribtuion to this string. Can you please share if you're still satisfied with your DST choices? I've been a landlord for nearly 2 decades, and 8-10years from retirementn and own my 2 properties. I'm ready to quite the landlord business but facing huge capital gains taxes. Did you work directly with an advisor? Still happy with your DST investments?

@Mike Martin A few insights on the mechanics of the DST Industry that will help:

1.) "DST Sponsors" are the investment companies that purchase and package the real estate as a DST.

-2.) DSTs are securities and are registered with the SEC.

3.) 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). 

I would recommend that you use a RIA. Full transparency...I am biased as my dad and brother are wealth managers and provide advise on DSTs.

You want to work with a RIA that can help you understand how DSTs fits into your overall financial picture and not someone that's just looking to make a commission off of you (aka  Broker-Dealer).

Both BDs and RIAs are going to able to offer access to the same DSTs, but there are several conflicts of interest associated with the BD sales model....(happy to elaborate more if you'd like)....but the biggest issue I see is that you end up paying 2X more when working with a BD vs a RIA that's acting as your fiduciary.

Originally posted by @Mike Jacobson :

We sold our hotel in the spring of 2018. We had 2.2 million cash and had to replace with debt over 4.1 million. I attempted to find quality NNN properties to purchase. I had been looking for several years prior to the sale. Research 2016, 2017, 2018. I have not had commercial rental experience.

Cash flow, Freedom and not wanting to loose what I had gained were high priorities.

My goal was exceed $100,000 per year cash flow.

I was being shown high quality NNN properties with 15 year leases backed by top companies like Gander Mountain, Shopko, Many Dollar stores in some small communities with higher enticing cap rates. ( as you know they have all failed) I pictured myself making a $35,000 per month payment with no tenant. Then I thought I could diversify and get several in the 1 to 2 million range. There is much competition in that range and lower cap rates. I figured a closing fee when I sell would be a one time 6%. Then an ongoing annual management fee would be 4%ish, and more if you get a class C apartment with lots of work needed. (but higher cap rate) Limited diversification.

Freedom was very high on my list so I did not want to deal with this. I thought about taking cash but was unwilling to give the government 850K. I thought even if I did DST's and lost 30% of the equity, It would be the same as giving it to the government. (Probably not technically accurate). Doing a 1031 allowed me to invest $850,000 more whether a NNN or DST. Money you can collect cash flow from for years to come.

I looked at financial adviser's who promised 30-40K per year return on the cash after taxes.  I felt sick about that number.  They charged a .75 to 1.25% management fee.  This is 10% over 10 years.

I had been looking at DST's. Up front assembly fees about 10%. So I looked at it like 10% management fee up front that covers the assembly of the product and sales of the product to people like me. Very comparative to purchasing something myself, yet total freedom.

I now have properties in Florida, Texas, Missouri, Washington.  I have Apartments, Mini Storage, Hotel, Sr. Housing.  Checks come in ACH monthly and I love it.  I hope it continues.

Not all the money went into DST's however we did not pay any boot. Every dollar was reinvested.

We now exceed $10k per month in DST cash flow. DST's have met my goals as far as cash flow, freedom, diversification and lowering taxes. I have been in DST's less than one year. I do not know the outcome long term. I have invested with DST providers like, Moody, Inland Capital, Passco and Bourne. As you can tell by my writing I am not a financial wizard. I am impressed with the many people on the Bigger Pockets forum and I am learning from all of you. Thank you.

Now, after 2 years from your post, are you DST distribution remain solid? Thanks you!