I'm doing a 1031 exchange and considering investing in a Delaware Statutory Trust (DST) as my replacement property. I'd appreciate any feedback (pros and cons) from anyone with experience in purchasing a DST for a 1031 exchange. Thank you!
Many DSTs incur huge internal fees in addition to the fee you will incur to dispose of your property. This killed a DST deal for me, way too much loss of Capital upfront even before considering the underlying profitability inherent in the DST's actual investment.
@Sophia Griffies , Every deal and every sponsor is different. But it's actually surprising how similar costs can be for fractional DST ownership vs fixed asset ownership. The fees are different but can be very comparable when projected out. For instance you 'll have commissions when you sell real estate and loan costs when you buy real estate during a 1031. With a DST there may be acquisition fees and disposal fees. But assumption of the loan doesn't cost you anything. And assuming that debt also moves it from recourse in your name to non-recourse which can have a huge positive impact on your financial picture and security. Different name but possibly same impact. One consistent is that with a DST you will have management fees that ding your return. That's the price you pay for passivity.
We have a lot of clients making the transition. The key is to vet the lease the sponsor property and the company equally. to do that you want a DST sales person who is not just a securities broker. You want one who is a real estate professional with a securities license.
Thank you @Christopher Smith and @Dave Foster. Dave, I'd like to talk further. I'll PM you to see if we can set up a time.
Hi @Sophia Griffies have you heard about the Deferred Sales Trust? It's another method for deferring taxes upon sales of assets. There are fees, so you need to do the math to see if it makes sense for you. It can be very powerful if the sale amount is high enough. Here's a webinar we co-hosted on this topic: https://www.youtube.com/watch?v=RhvzYahkjl0&t=6s
@Account Closed Great info! What's the process for taking the money back out of the DST?
Cash out re-fi DST's are for large exchanges that are highly levered, this is when a cash out re-fi DST makes sense.
The cash out Reif DST's are highly levered 78-87% LTV. These DST's are not for everyone but they serve a purpose.
@Sophia Griffies best of luck to you! If you change your mind or need any help in the future please let us know.