5 Reasons Not To Do A Delaware Statutory Trust
If you have found this article you likely understand the many benefits that exist for real estate investors who exchange their property for DST Delaware Statutory Trust fractionalized replacement interests. Since 2004 when DST’s qualified for the 1031 Exchange rules those benefits include saving vast amounts of tax via the 1031 Exchange, preservation of the “step up in basis” rule, moving away from loan guarantees’, cash calls, and the 3 T’s, Tenants, Toilets and Trash. DST 1031 investors buy into institutional grade multifamily apartments, distribution facilities, medical buildings, office space, retail, national brand hotels, senior living, student housing and storage portfolios. Subject properties are commonly over 100 million dollars and far out of reach for smaller “do it all yourself” individual investors. The peace of mind of a tax advantaged cash flow distribution each month and the removal of all of the headaches that go along with managing real estate makes the DST a fabulous option for many real estate investors.
Although many people feel like the Delaware Statutory Trust may be the greatest thing since sliced bread we would caution that rarely is one thing the best idea for everyone. In looking at which individual investors might want to avoid the DST option we
1) Investors Who Are Not Yet Accredited – Younger investors who have not built yet enough wealth and or equity are prohibited from entering into a DST arraignment via Securities Regulation D under the Accredited Investor Rules which state that to invest in private placement investments one must have a net worth of over one million dollars excluding one’s primary residence and income requirements of at least $200,000. For a greater explanation of those requirements visit www.provident1031.com
2) Younger Wealth builders – Younger investors who are seeking a higher risk/return profile might not yet be ready for a DST solution. Young wealth builders might be in a greater position to take on substantial risk and in turn reap the benefits of higher risk returns than what a more seasoned investor might be willing to do. Should those risks cause the younger investor to lose income or equity the younger investor usually has more time to overcome such losses. Generally most DST investors tend to be more seasoned investors who have a few battle scars and life experience than that of a younger investor.
3) Do It Yourself Types – Some investors have a personal preference for finding tenants, negotiating leases, managing the books and records ranging from property taxes, rent rolls, bank loans, lease agreements, tenant issues, property repairs, and so on. A DST is a more passive investment where all of those things are done by institutional investment grade real estate firms. If you are the sort of person who would really miss those things and if you find significance in those activities you might find the DST solution less appealing.
4) High Need For Liquidity – Investors are people and therefore very different from one another. If a real estate investor has a high need for liquidity than the investor might want to avoid real estate all together, and to that end a 1031 Exchange might not be the best idea for an investor who needs more access to their cash. A straight sale of your real estate where you recognize capital gains might be what is required in this instance. This would allow the investor to invest in more traditional stock and bond portfolios that can be turned into cash in short order. Investors’ high need for liquidity might be due to the need for raising cash for a larger leveraged deal, anticipation of divorce, health concerns, speculation about the economy, or for many other possible reasons. Again, the DST is an ideal solution for many investors, not ALL investors.
5) Developers and Construction Company Owners – Someone who owns a construction and/or Development company might want to use a 1031 exchange where they could use their construction company to build their new replacement property therefore benefiting two of their interests. Properties that are “to be built” generally will have a higher risk return profile as well and may be better suited for a younger investor. Moreover the individual may have a keen skill set and ability around a certain and specific type of property such as car washes, storage facilities, dentist and vet clinics, retail etc..
DST offerings are offered through registered investment advisors. Accredited Investors can view multiple DST offering, a knowledge center including 24 instructional videos, referrals to CPA’s and Qualified Intermediaries, FAQ’s and more at www.Provident1031.com or speak to someone now at 281.466.4843
For more information, please visit: https://provident1031.com
Provident 1031 is a division of Provident Wealth Advisors LLC, Houston TX