All Forum Posts by: Jon Taylor

 @Bruce Ah... yes. Interest is tax-deductable, but the amortization is not. Thanks!

@Greg Scott

Thanks for your input! That's helpful. 

I was thinking that because the rental income is depreciable, and the mortgage interest on the investment property is not a deduction, it may be beneficial to show as much rental income as possible. 

@Brian 

Another option is a Delaware Statutory Trust. This allows for up to 499 investors to participate as fractional beneficial interest holders in a syndicated real estate portfolio.

The language is important here: it’s NOT a limited partnership. But it has many similarities.

There are some DST posts on this forum if you do some searching.

I could go pretty deep down that rabbit hole with you if interested, but this format is difficult

The Springing LLC is a last resort to save a failing property. I've never been a part of that process, but I've heard lots of friends describe the experience.

As long as you are extremely confident that the model is based on realistic assumptions, then the Springing LLC wouldn't come into play.

Hoping you tax strategists can help me think through this…

I am the owner of a business and the only member in a separate LLC that owns the building.

I am in a position to be able to decide how much rent the business tenant pays in rent.

From an accounting purpose, assuming I could justify that wherever I end up can be considered valid “market” rent, would I be better off paying more in rent and showing less EBITDA on the business, or less rent?

That is for sure a matter of opinion. Would you rather have cash flow or capital gain (amortization)?

If all else is equal, it’s a preference. It does not change the underlying performance of the asset.

You will want to ID a DST that has a positive IRR model WITHOUT considering cash flow.

In my experience, put the right properties in the Trust, and it should do fine. Pick the wrong properties, and the trust likely won’t.

Your diligence should probably be 80% at the property level (which will filter out most of what you don’t want to invest in) and 20% at the structure level (which will kill a few more deals).

@Jose Amer

Good question… Happy to provide clarity (I hope!)

Most DSTs have non-recourse debt at a fixed percentage across the entire portfolio of properties (or one larger property).

As an investor in a given portfolio, you are assigned your pro-rata share of the debt based on the portfolio and treated as the borrower.

"For tax purposes" means that this debt counts in your replacement requirement calculation on the 1031 exchange. And it also means that your cost basis and depreciation schedule calculation should take into account the equity and debt. 

In the example above, every investor who invests in this DST will assume the same debt as a percentage of their equity. In your example above $100k of equity invested would likely show at least $182,797.68 as the total purchase price on your closing statement (perhaps more if there were investor-funded reserves).

"Non-recourse" debt means that you, as the borrower, do not have personal liability for the loan. Your liability only reaches as far as the equity you've invested. 

The debt terms should be studied carefully because not all DSTs are structured the same. Amortizing, interest-only, fixed-rate, variable-rate, term length and cash sweep options should all be understood prior to making an investment.

Many investors appreciate the opportunity to trade their recourse (personally liable) debt for non-recourse debt in a DST. Or, investors who exchange out of a debt-free relinquished property appreciate the opportunity to add additional basis to depreciate.

Each PPM has a page called the "Estimated Use of Proceeds" (or similar) that clearly lays out the allocation of funds in the Trust as various line items. This is a page every investor should understand as a part of your own due diligence.

Happy to provide more insight if needed.

Use a big box Qualified Intermediary. This is NOT a good place to save $200. They are ultimately the party that will advise and protect you through the process. It’s a small fee for the liability they carry. 

Trusted groups I’ve personally worked with:

IPX1031

Exchange Resource Group

Exeter

DM me if you want contact information 

My firm is a research and consulting wealth management office that's been tracking publically available DSTs for a decade. Happy to chat if you are interested. The purpose of the interaction would be educational in nature. 

There is a post on here that's long and meandering regarding DSTs... If you haven't read it, it may be worth cruising through.

https://www.biggerpockets.com/...

@Chase Schneider

As long as it's "real" property.

That park, raw land, self-storage, commercial, residential... Doesn't matter.

Most states consider the mobile homes themselves to be "personal" property, which is not able to be exchanged.