Delaware Statutory Trust DST 1031 Difficulty Giving up control

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Delaware Statutory Trust DST 1031 Difficulty Giving up control

Isaac S.
Member since 2018 · 563 posts · 562 votes

Looking to get feedback from others that have 1031 into DST Delaware Statutory Trust.

We have tons of equity, low debt, fully depreciated, and I have been dealing with toilets, trash, and tenants, for 20 years...I often fantasize about passive income, because owning a 90 year old apartment building, is not passive at all. I tell people that I start my day with a list of 100 things to do, and by the time i finish the first 10, the list is already back up to 120 and I'm lucky to end the day back at 100.

Maybe this is a moment of weakness, but, it sure seems like I have them more and more often and that lifestyle of a passive investor analyzing DST's every 5-7 years, and checking on quarterly reports keeps seeming more and more attractive!

Am I missing something? I know fees are high, but, the passivity is worth it, to me, as long as the cash flow and appreciation are consistent. Hell, even just not loosing equity and steady cash flow would be fine.

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Mike Jacobson
Rental Property Investor · Rochester MN · Member since 2018 · 64 posts · 106 votes
7y

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.

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  • Joe SeraBusiness Member
    MD · Member since 2021 · 29 posts · 16 votes
    4y

    @Diane Forgy if diversification and liquidity are important to you, then I highly recommend looking into 721 DSTs (also known as UPREIT DSTs) instead of "traditional DSTs."

    3Reply
  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    4y
    Quote from @Diane Forgy:

    I have a commercial building under contract and am now considering investing my proceeds into DST's. Been through most of the thought processes above but due to time constraints and uncertainty on going it alone right now in a property or properties, DST's are the probably the best route for this bucket of cash. I got a presentation from Inland through my financial advisor and because of this thread, am also researching other DST's. Feel it best to diversify into a few to manage risk and liquidity. I hope I am on the right track. Appreciated reading every response on this post.


    A lot of our clients will. approach this exact way but not give up their search for bricks and mortar until much closer to day 45. It sounds like you've kind of resigned to the DST route. If that's the case then you're probably not excited about what you've been offered. Keep looking around. And don't give up on finding more bricks and mortar real estate. You've go 45 days after the day of your closing to identify your potential properties. DSTs typically move a little more slowly. So you can wait until close to day 45 and see what the regular market and the dst market are telling you.

    The 1031 Investor5137 Reviews
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    2Reply
  • Rebecca Six
    Member since 2019 · 11 posts · 10 votes
    4y

    I looked at DSTs but ended up going with turnkey single family homes and syndications.

    2Reply
  • Matt Kab
    Member since 2020 · 3 posts · 1 vote
    3y

    I am trying to understand who the more reputable broker dealers are in the space? Does anyone have suggestions of good ones or more particularly, who to stay away from?

    1Reply
  • Kyle Winther
    Financial Advisor · Los Angeles · Member since 2020 · 53 posts · 19 votes
    3y
    Quote from @Matt Kab:

    I am trying to understand who the more reputable broker dealers are in the space? Does anyone have suggestions of good ones or more particularly, who to stay away from?


     Matt - I can help you. Feel free to send me a message and I would be happy to answer any questions you have. 

    0Reply
  • Jack Martin
    Specialist · Scottsdale, AZ · Member since 2014 · 626 posts · 700 votes
    3y

    @Matt Kab I have a relationship with a DST broker whom we really like. We use his expertise for a different reason but feel free to PM me and I will share his info.

    Also, for those on this thread who are seeking to defer tax in 2023, consider the value of syndications who are utilizing cost segregation and bonus depreciation. Even with the reduction in bonus depreciation this year, with the right debt on the right asset class, that's still a competitive option. 

    All the best, 

    Jack

    0Reply
  • Julie Fischer
    Member since 2023 · 1 post · 0 votes
    3y

    Anybody invested in Multi Family in Florida? Just nervous about the darn Hurricanes.

    0Reply
  • Ryan Beatty
    Investor · Calabasas, CA · Member since 2022 · 18 posts · 7 votes
    3y

    I've worked with around 30 investors in your shoes before, ready to move passive. I don't think it's an easy decision for anyone, but seeing distributions coming in on time as projected tends to calm folks down. I don't do DST's though, I'm more focused on 1031's via tic's.

    2Reply
  • Sandi Bates
    Member since 2021 · 3 posts · 4 votes
    3y
    Quote from @Julie Fischer:

    Anybody invested in Multi Family in Florida? Just nervous about the darn Hurricanes.


     We have three single family homes in central Florida per the advise we received. We purchased them only 1 1/2 years ago and with 2 hurricanes in 2022 we were pretty nervous. All 3 had no flooding or damage..but there is always risk. The insurance renewal premiums popped up and there are only a few carriers for Florida as it is. We are very pleased with their performance but again, we are "new" to investing in Florida.

    0Reply
  • Tyler GibsonBusiness Member
    Real Estate Agent · Orlando, FL · Member since 2017 · 1k+ posts · 2k+ votes
    3y
    Quote from @Julie Fischer:

    Anybody invested in Multi Family in Florida? Just nervous about the darn Hurricanes.


     I have several and have had very little issues with them that were caused by hurricanes. 

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  • Amit M.
    Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
    3y

    @Mike Jacobson hi Mike. It’s been awhile since you updated us on your dst performances. Curious how they have been working out for you since your last update?

    Cheers

    3Reply
  • Adrian Lu
    Member since 2023 · 3 posts · 2 votes
    3y
    Quote from @Nick C.:

    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.


     Hi Nick, I'm curious how your DSTs have performed so far - I guess it's been about 1.5 years since you wrote this message.  I'm seriously considering putting a large proportion of the proceeds from a recent rental sale into multi-family DSTs, so I'd really appreciate your experience.  Which Broker or RIA did you go through , and were you happy with them?  Thanks!!

    1Reply
  • Nick C.
    Cincinnati, OH · Member since 2021 · 32 posts · 27 votes
    3y

    Hi Adrian,

    I split my proceeds up evenly and invested in two separate apartment complexes offered by Capital Square.  They are returning 4% which given the current environment, doesn't seem great but that's what was available at the time.  I've received the monthly distributions every month on time so they are performing as expected.  Looking back, I don't know if splitting them up is something I'd do again because at some point they will be sold and in all likelihood not at the same time so I won't have all the money available at the same time unless I do something different.  

    It's definitely a lot easier to cash the checks each month and not have to worry about taking care of the property and what renters are doing to it that I would need to fix.  

    3Reply
  • Joe SeraBusiness Member
    MD · Member since 2021 · 29 posts · 16 votes
    3y

    @Nick C. I'd give it a high probability that when the Capital Square DSTs you purchased go full-cycle you'll have the opportunity to go into their REIT via the 721 Exchange. This would provide actual diversification and liquidity. They recently did their first 721 and I think about 85% of investors opted to go into the REIT.

    1Reply
  • Nick C.
    Cincinnati, OH · Member since 2021 · 32 posts · 27 votes
    3y
    Quote from @Joe Sera:

    @Nick C. I'd give it a high probability that when the Capital Square DSTs you purchased go full-cycle you'll have the opportunity to go into their REIT via the 721 Exchange. This would provide actual diversification and liquidity. They recently did their first 721 and I think about 85% of investors opted to go into the REIT.

     Thanks Joe.  I wasn't aware of 721 Exchanges and appreciate the information.  That's what makes this site great; learn something new every day.

    0Reply
  • Jon Taylor
    Pasadena, CA · Member since 2019 · 136 posts · 148 votes
    3y

    @Adrian Lu -

    Each DST sponsor (the group who puts the deal together) is required to disclose the "past performance of the sponsor and their affiliates" in their most recent PPMs. This is something that your advisor would have access to and should review in great detail. Every real estate offering contains risk, and most sponsors aren't batting 100. It's important to know what factors negatively impact real estate (systemically, and non-systemically), and where each offering is susceptible to that risk.

    DM me if you aren't receiving that information.

    2Reply
  • Diana Hastings
    Member since 2023 · 3 posts · 1 vote
    3y
    Quote from @Henry Eisenson:

    NEWBY (here) - four years experience with DST investments

    Our DST portfolio includes 11 investments in 8 states, of 5 different sorts of properties. We like the diversity, performance, hands-free stability, and - of course - income.

    However, within that portfolio are some problem children. Madison (senior living) and Nelson (student housing) have suffered from a combination of poor planning and poor execution, as our income from those investments has either stopped or diminished. The overall portfolio, however, is doing well at >6% tax-free (plus appreciation).


    1Reply
  • Diana Hastings
    Member since 2023 · 3 posts · 1 vote
    3y

    Curious as to whether your 2 flailing DTSs recovered?  How are the rest of them doing?  Thanks!  Diana 

    0Reply
  • Victoria S.Pro Member
    Investor · Miami FL / DMV · Member since 2016 · 70 posts · 27 votes
    2y

    @Mike Jacobson

    Hi Mike, thanks for sharing your experience of your 1031 to DST. You were very happy 5 years ago, might you offer your thoughts at this point, 5 years in, with a completely different economic landscape! I would appreciate it!

    4Reply
  • John M.
    Investor · Fairfax, VA · Member since 2015 · 1k+ posts · 801 votes
    2y

    My impression of these DST's are as follows:

    They are the easy way out of making a 1031 exchange with out the pressure of a replacement property in 45 days.

    They provide steady returns with no hassles, but generally low like 5-6 percent

    They offer diversification of asset types.

    The cons are the fees to get into them and they are syndications that you don't have control over. I suspect they are better run than the average joe who is marketing their 20 unit apartment on facebook as an investment syndication.

    0Reply
  • Jean Deeb
    Member since 2024 · 5 posts · 2 votes
    2y
    Quote from @Chris Mills:

    @Mike Jacobson Thank you for your feedback. 

    If a peer group does get started, I'd be very interested in being a part.


    Please let me know if you have started a DST peer group. Thank you.

    1Reply
  • Natalie Bender
    Houston, TX · Member since 2021 · 51 posts · 28 votes
    2y

    @Jean Deeb If you are new to DSTs you may find this blog post relatable. The author of the blog also has a book you can find on Amazon or I can send you a copy. My contact information is down below. 

    https://www.biggerpockets.com/member-blogs/7993/48729-are-your-rental-properties-weighing-you-down

    0Reply
  • Jean Deeb
    Member since 2024 · 5 posts · 2 votes
    2y

    Thank you!  Are you a Real Estate Broker?  How many years have you worked on DSTs?  

    0Reply
  • Natalie Bender
    Houston, TX · Member since 2021 · 51 posts · 28 votes
    2y

    @Jean Deeb 

    I am a Registered Representative, which is financial industry talk for a Financial Professional holding different Series registrations. A Series registration are financial exams granting a Professional the ability to give recommendations and place investors in different financial products like DSTs, REITS, Mutual Funds, etc.

    DSTs are SEC regulated Real Estate securities, meaning they are for accredited investors only. I have been in the DST space for 2 years, however my Firm has been specializing in DSTs since their inception, in the early 2000s.

    Due to the regulations around these investment products, I am limited on how much information I can share on a public forum without knowing your financial background, investment goals and risk tolerance. My email is below...I would be happy to do a deep dive on DSTs and see if they would be the best financial product for your specific needs.

    0Reply
  • John M.
    Investor · Fairfax, VA · Member since 2015 · 1k+ posts · 801 votes
    2y

    Even though the returns are low on the DST's and the fees are high, one way to look at is that in order to get that 5% return with no hassle, you in essence are paying a property manager to give you that lifestyle you want.

    0Reply
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