Delaware Statutory Trust DST 1031 Difficulty Giving up control

113 Replies

@Nick Cortolillo - congrats on listing your property! There is no need to pay off the mortgage. You can go into a leveraged dst portfolio and replace the debt in your transaction. We have access to many different leveraged dst portfolios. Feel free to shoot me a DM, email, or call and would be happy to answer any further questions 

@Nick Cortolillo Keep in mind that most DSTs are about 50-55% LTV or less.

The answer to your question is somewhat subjective depending on personal preferences...The most important thing to keep in mind is that you'll need to match your debt and equity in order to execute a tax-free exchange.  You can always take on more debt, but less will create taxable "boot."

Currently researching DST's as a 1031 upleg alternative or possible place to park our proceeds for the next +-5 years giving the hot RE markets some time to hopefully normalize. One issue I see for this strategy is the property I'm selling (scheduled to close escrow in a few weeks) is not encumbered by any financing and it seems that most of the desirable multifamily DST's are 40-50% LTV with interest only loans. So at the end of this DST term when I "un-park" and 1031 back into a solely owned building I will need to then finance at least the same % the DST was financed at.

Any of you 1031 or DST guru's know a way around this? I guess I could just keep rolling DST's with this portion of our rental portfolio but in the long run I hope to do better then 4-5% returns.

when you 1031 back into solely own building why not take on 40-50% debt?  It is modest leverage so it will help you returns as you hope to do better than 4-5%.

@Kevin Hubbard , There's several commonly used tactice 

1.  It's important to know that you don't technically have to replace the debt.  You can use your own cash and as long as you purchase at least as much as your% of the net sale you'll still defer all tax.  Most folks don't have the cash so they end up taking out new debt to match.

2. Like you said, you can always roll into another DST. Or you could end up going into a zero coupon DST to eat up the debt and use the rest of the cash to purchase a brick and mortar asset. This would just mean that your 1031 purchases two replacement properties.

3. You could also take the attitude of @Randy Bloch .  40% - 50% leverage isn't hard to come by.  And I'm guessing that you're anticipating a jump back into the market after a correction.  In that case you'd be wanting to beg borrow and steal every penny you could to purchase real estate.  So some responsible debt won't hurt you at all.

Don't forget that theres some positives in assuming that debt. First it's non-recourse so it disappears from your personal balance sheet. Secondly, putting $500K of cash into a 50% leveraged DST means you are purchasing $1,000,000 of the DST. That means more depreciable basis, and more appreciation (and amortization if it's an amortizing loan).

@Kevin Hubbard - If you are looking to park your proceeds to get back into the RE market in 3-5 years, a multifamily DST is your best option. Multifamily dst portfolios are seeing a shorter hold time of 3-5 years with the growth of the RE market. You are correct, most multifamily dst portfolio are leveraged around 40-50%. When the multifamily dst properties sell, you will need to replace the debt from the dst portfolio. You can 1031 exchange out of a dst into a physical property when the properties sell. You can finance your replacement property to replace the debt from the dst. We have many clients who utilize this strategy. If you have any questions, feel free to contact me directly.

@Kevin Hubbard
Dave Foster did a nice job of outlining the mechanics of transactions. The hard part of investing is sifting through everything on the list and picking the best opportunity. The nice thing about DSTs, much like a publically traded equity, there is so much information that has to be filed for each offering that if you have the time and expertise, you can really understand the good deals from the bad. You wouldn't buy any "house" just because a "house" is for sale. You shouldn't by a "DST" or a "stock" just because it's for sale. It's just doing your own research that has made you a good investor in the past.

The nice thing about DSTs, is there are entire research companies dedicated to 3rd party analysis on every individual DST offering. I'd start there. 

I'm new and have enjoyed reading and learning from this thread! We are in the middle of doing a 1031 ourselves and I researched DSTs staring a year ago as a plan B. I'm a real estate broker in Utah and knew how difficult it would be to do a 1031 in this market if we didn't have something lined up prior to the sale and learned about DSTs and started researching different offerings. When one of our properties fell through we determined it may be good to diversify and put the left over funds into NNN as everything else we put into Residential rentals again. After much research we are leaning towards ExchangeRights NLP-52 that was just released for these reasons. A-we have money left over from our 1031 and are identification period ends in 9 days. B-They project a 6% return with monthly distributions which is higher than what we can find in any other replacement properties C-Its a diversified NNN package with essential businesses D-Their track record even through Covid was 100% rent collection as they are all corporate leases not franchise leases D-We love the option that we can Upreit, cash out or 1031 again. E-All their past offerings have performed at or above the projections F-We are debt free and actually was attracted that we could benefit from taking on the non recourse loan. Has anyone invested with ExchangeRight as I know they are not one of the bigger sponsors but their fees are the lowest from what we can see and its our understanding they get paid based on performance which keeps them motivated to manage properly. Is my research correct and does anyone have insights that I may need to be aware of before we commit to identify this as our last purchase?

@Sandi Bates A lot of investors are hesitant to invest in NNN properties these days given the current and expected inflationary environment we're in combined with leases that have fixed rent escalations. If inflation outpaces the rental escalations the NNN DSTs will not hold their value and you'll more than likely end up getting absorbed into their UPREIT.

I'd recommend looking at DSTs in more inflationary adjusted asset classes like multifamily, self-storage and manufactured housing. 

First experience with a 1031 exchange and DST. Let's see how this goes!

Sold our vacation rental and have put the proceeds into two DST offerings. Both are multi-family apartments and one has a 3.9% distribution rate and the other is 4.01%. Both were offered by Capital Square.

Originally posted by @Nick Cortolillo :

First experience with a 1031 exchange and DST. Let's see how this goes!

Sold our vacation rental and have put the proceeds into two DST offerings. Both are multi-family apartments and one has a 3.9% distribution rate and the other is 4.01%. Both were offered by Capital Square.

Congrats and best of luck! My clients who are no longer hamstrung by daily upkeep and repairs experience a tremendous sense of relief investing passively.