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DSTs and 1031 Exchanges

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In many places across the country, the investment real estate market is heating up and exposing a new issue for certain investors. Namely, in some markets, there are simply more buyers than sellers, causing difficulty finding a suitable replacement property and getting an offer accepted in a property under contract.

This scenario has significant consequences when the prospective buyers are in the midst of completing a tax-deferred exchange, pursuant to internal revenue code, section 1031. And these cases, and by statute, the prospective buyer or exchanger has a 45-day window of eligibility in which defined and identified candidate or target properties and further whatever they end up purchasing for their exchange.

It has to be a property that they’ve previously identified. So if you have an arbitrary 45-day deadline to find and identify the property, you can imagine the stress and angst associated with identifying a property in a superheated market, where it’s difficult to get an offer. Now while a majority of exchangers do find a property to identify and have no trouble completing their exchange within the 180 day time period, a new alternative has emerged in the form of a DST or Delaware Statutory Trust, which is an institutional investment in which the exchange requires an interest in a professionally managed larger investment-grade property, which generates cash flow.

The appeal of these professionally managed investments is essentially the first acquiring a DST qualifies for deferred gain treatment under section 1031. Also, acquiring a DST interest allows an exchange of the immediate ability to select from a portfolio of investment-grade properties available from a particular securities broker-dealer.

In addition, you can diversify into a number of DST interests because they are available in denominations as low as 50 to $100,000.

Also, the properties involved are all professionally managed investment-grade cash flow properties. The DST sponsor can also assign you debt if you need to replace debt in your exchange.

And lastly, for many exchangers, DSTs are a way to transition from a more active role in managing your property into a more passive or coupon cutting type ownership role for the future. Now, since DST investments are sold as a security, they must be acquired through a licensed broker-dealer. Therefore they are only available to accredited investors, meaning that a minimum but a modest net worth requirement is necessary before you can make such a purchase.

And that’s a little bit about DSTs.


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There are material risks associated with investing in DST and QOZ ( Qualified Opportunity Zones) properties and alternative real estate securities including liquidity, tenant vacancies, general market conditions and competition, lack of operating history, interest rate risks, the risk of new supply coming to market and softening rental rates, general risks of owning/operating commercial and multifamily properties, short term leases associated with multi-family properties, financing risks, potential adverse tax consequences, general economic risks, development risks, long hold periods, and potential loss of the entire investment principal. Past performance is not a guarantee of future results. Potential cash flow, returns and appreciation are not guaranteed. IRC Section 1031 is a complex tax concept; consult your legal or tax professional regarding the specifics of your situation. This is not a solicitation or an offer to sell any securities. THIS IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES DESCRIBED HEREIN. AN OFFERING IS MADE ONLY THROUGH DELIVERY OF THE PPM and to accredited investors only. THIS MATERIAL MUST BE PRECEDED OR ACCOMPANIED BY A CURRENT PPM WHICH SHOULD BE READ IN ITS ENTIRETY IN ORDER TO UNDERSTAND FULLY ALL OF THE IMPLICATIONS AND RISKS OF THE OFFERING OF SECURITIES TO WHICH IT RELATES. Please consult the appropriate professional regarding your individual circumstance. Alternative investments are often sold by prospectus that discloses all risks, fees, and expenses. For additional information, please contact 281.466.4843 or www.Provident1031.com. Fee-based financial planning and investment advisory services are offered by Provident Wealth Advisors, a Registered Investment Advisor in the State of Texas, and the State of Louisiana. Insurance products and services are offered through Goodwin Financial Group. Provident Wealth Advisors, and Goodwin Financial Group are affiliated companies. Provident Wealth Advisors, LLC does not offer legal or tax advice. Consult the appropriate professional regarding your individual circumstance. Securities Offered through AAG Capital, Inc. Member FINRA/SIPC. The presence of this website shall in no way be construed or interpreted as a solicitation to sell or offer to sell investment advisory services to any residents of any State other than the State of Texas or where otherwise legally permitted. Important Notice - If you are investing in Alternatives your tax advisor may require you to file a tax return in the state where the subject property is located which could result in additional cost associated with your investment. Any additional expenses associated with any required tax filing are the sole responsibility of the investor/client.

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