All Forum Posts by: Joshua Wright

@Ralph Galdorisi My understanding of Deferred Sales Trusts is that they basically allow you to do an installment sale, but not have to worry about the risk of the buyer defaulting on the debt. But if you’re goal is to 1031 and go passive, and if liquidity isn’t your primary concern, then DSTs work great. I work with clients around the country utilizing DSTs. Happy to chat more about pros and cons. Just message me if you have questions.

You definitely need to connect with some brokers who specialize in this stuff in the areas of the country you're interested in.  I've seen a lot of investment coming into the midwest and Kansas City lately (where I'm based) because cap rates haven't compressed quite as much as other parts of the country.  But a good broker/firm that has a large presence could point you in the right direction.  I can refer someone if you're interested. 

Also, I work in the DST space (Delaware Statutory Trust). You should consider utilizing a DST or two as a backup for your exchange if things don't materialize in time for your exchange. Happy to PM you and share more if that's of any interest.

Best of luck!

I'd definitely consider getting one biz loan against the portfolio and allocating that money if you could.  Not sure how you've got them all titled.  Also, depending on when you bought them and if they're cash flowing well....might be tough to find deals that are cash flowing as much.  Lot of variables in there.

Hi Rhonda. I work with clients in the DST space. They can work great depending on your goals, but there are pros and cons like any real estate investment. They are definitely hands off, 1031 exchange eligible, and have been a wonderful planning tool for a lot of folks...including those that still own/manage real estate in addition to their DSTs. But you're right, you typically won't get the types of returns you could get if you were buying and managing property on your own (But this really depends on the property type you're in, etc...and there are always exceptions to this ). There's something to be said for going passive when you're ready...and the stress reduction that brings :) They're a great planning tool for sure.

I found TICs and DSTs when doing research for a solution for my father who was in the hotel business and trying to find a tax favored exit strategy at retirement. 

I'll PM you with more details on these, what to look for, etc.

Yeah...not for everyone.  Best of luck on your exchange if you do one.

@Edit B. Sure. Here's how a DST works... A real estate sponsor goes out and purchases institutional real estate (everything from NNN like a Walgreens for example...to Multi-Family, Industrial, etc) and puts it in a DST. Then they sell beneficial interests in these Trusts to investors. These Trusts are 1031 exchange eligible and can be used for exchange or as a backup on an exchange. These Trusts are pass through entities and completely hands off. Income and deprecation are passed through to the owner. You have to be an accredited investor to utilize them however ($1m of net worth excluding your primary residence or $200k/$300k income as Individual/Married for last two years and expectation of same in the current year). They typically have a life of 7-8 years (from purchase to sale). I've seen them go much faster, but I would plan on at least that. Once the property in the DST is sold, you're free to 1031 exchange out to any property you want (self-managed or DST).

Like any real estate, they have pros and cons. Pros would be low minimums (typically $100k), you can diversify geographically and by property type, you can access property you wouldn't be able to do on your own, you can diversify amongst a portfolio of DSTs, you can close on these very quickly (typically 48 hours give or take), and they can work great for backups on an exchange or for boot if you're replacement property doesn't cover the entire exchange.  

Cons would be that they're completely passive. Some investors are fine with this, but if you want to maintain control, this isn't the vehicle for you. You're allowing the real estate sponsor to make the decisions for the property. They can also have a lot of cost in them, particularly in upfront commissions going in. My firm is structured as a registered investment adviser and I have been too able to have these up-front costs waived and credited back to the client. And of course, there is risk to your principal like any real estate investment.

To answer your question - they typically do not have any liquidity in them. However, I've been doing some due diligence on a DST provider that might provide a liquidity option.

With DSTs, the real estate sponsor, property type, costs, tenants, and leases are very important (which is my job as an adviser to do this due diligence for my client). Honestly, they don't fit everybody, but can work great in a lot of situations.  You need use them as a planning tool.

Hope that helps.  Message me if you want to chat more on these.  Happy to help.

If you're going to 1031, definitely try to list multiple properties in your exchange as backups. I work in the DST space (Delaware Statutory Trust) which are passive real estate investments and we often use these to list as backups on the exchange just in case. I've seen a lot of folks struggle to find replacement property or close in the 45 day window this year. But you have to be an accredited investor to access these.

From a risk perspective, I'd definitley try to diversify geogrpahically and by property type.  Look for markets and property types that might fare better in a real estate correction.  But frankly, you can sometimes hedge yourself the best by simply not overpaying for something. Start with the end in mind, think the through the worst case scenario, and then make a plan for that. 

I don't have a lot of experience with folks using contingencies outside of seeing some of my clients' deals fall through because of them.  I'm sure there will be some folks who jump in here with experience on dealing with contingencies. 

Good luck!

@Alan Grobmeier Yeah...tough environment to go find and duplicate what you bought in the past. Just be careful to not chase that past performance to the point of overpaying for something and then taking it on the chin down the road. Watched some of my family members do that. I’d just try to hedge yourself as best you can for what could happen. Definitely have to go to RE if you want cash flow. I’ve got a few public, but non-traded real estate funds I’ve been using for clients lately who are in the same spot, but cash flow isn’t great. But you can still get some liquidity and exposure. Hard to duplicate good cash flow off a low cost property in a quickly appreciating maket :)

@Alan Grobmeier Think about goals for the money. Do you need liquidity? Do you need this cash for another RE purchase in the near term? If you go the stock market route, I’d look for an investment manager that can and does come out of the market from time to time. If you go the real estate route, look for property types that are better insulated to economic downturns and diversify (property type and geographically if possible). If you want to sit it out for a while, grab a money maket fund that’s liquid paying decent yield and wait. You’re not going to make much here, but it can serve a purposes. And if you go this route, don’t lock your money up in something. Food for thought.

I'm sure a good QI will jump in here and comment on this.  But generally speaking, the title on the real estate you sold must match the title on the property you're exchanging to. How was the property that you sold titled? Also, did the funds go to a QI or did you take possesion of the money?