Where would I start looking for a DST?

Question

This is in conjunction with an earlier post regarding the sale of my property in Chicago and the purchase of a property in the Indianapolis area. I have been researching the 1031 exchange process and have come across the DST. What is your experience with these. How long should I expect my capital to be tied up? They look like a good option if I can't find another property. I would prefer a cash flow but can I expect appreciation also?

Norman Schultz · Answer

I've worked with Leslie for a couple of years now on two properties 1031 exchanged into DSTs. Leslie and her team are very professional and overall solid to work with. But something must have happened in the market to change the returns DSTs are producing. For me on average they are only slightly outperforming inflation, mostly because one of them just announced a dividend reduction. It would seem the days of the 7%+ returns cited in the past are over. And I'm not entirely sure why - I still invest in real estate and my other properties are performing quite well, and REITs have been outperforming the stock market over the last few years. And perhaps the biggest annoyance is that you don't actually know when your funds will become liquid. That said, these DSTs did save us from paying a very high capital gains tax rate, and I'm hoping there will be some capital appreciation before we cash out, so there's still a decent chance they will prove to be good investments. But sometimes I think we should have just taken the damn capital gains hit and just smartly invested whatever was left without looking back. 🤷‍♂️

Leslie Pappas · Answer

Hi Donald, time frames vary by DST, but it's typically 7-8 years on average. DST investors receive their percentage of the net cash flow, depreciation, and appreciation of the properties they purchase. Investors can anticipate potential monthly cash flow income that may be tax sheltered using depreciation. This cash flow is net of all property expenses, including loan, if any. DSTs potentially offer similar tax benefits as conventional investment real estate only without the management burden. Note all investments, including real estate, carry the risk of loss in addition to possibility of gain. Choose your Sponsors carefully. Before committing, make sure the sponsor you’re buying from has a great performance record. Good Sponsors should have a portfolio of properties in different regions, and usually select properties rated Class-A—high quality, newer buildings with top amenities and low vacancy rates.

Leslie Pappas · Answer

Yes 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.

Mark H. Porter · Answer

Account Closed I did a DST this year with left over money from a 1031 STNL.  Research this carefully, set your goals beforehand.

For instance, I needed to cover a debt service from my relinquished property, I wanted a DST with an experienced sponsor with a good reputation, and I wanted a 6% return.

The return I was demanding eliminated much of what was out there.

It was VERY easy to eliminate the many DST brokers out there.  If theyre just going to send you a portfolio booklet or send you to a website of all their listings tell them to pound sand.

Jack Martin · Answer

Account Closed another alternative to a 1031 is to invest in a syndication (or fund) where bonus depreciation is being taken on assets as they are acquired. With real estate where the land improvement value is higher than the building value (like mobile home parks) the bonus depreciation taken can be significant, resulting in passive losses equal to the amount invested. Therefore, the passive losses offset the gain you incurred from the sale of your property.  Keep that in mind.

All the best,

Jack

E. C. "Stony" Stonebraker · Answer

Account Closed.  It depends.  Are you talking about a Delaware Statutory Trust or a Deferred Sales Trust?  A google search will turn up a number of firms that can help you and have tutorials explaining more about them and the details to set them up for you.

Account Closed · Answer

Thank you to all. I am referring to a Delaware Statutory Trust by the way. One other question: I believe that these are either 50% equity or 100%. Am I reading that correctly?

Where would I start looking for a DST?

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