Case Study: A Client’s First Experience with DSTs
By Betty Friant, Senior Vice President, Kay Properties & Investments, LLC
The client has invested in real estate since 1987. After experiencing difficulties in renting an industrial property she owned for the past 13 years, it was time to sell. Having sold many properties in the past, the concept of doing a 1031 exchange was all too familiar to her. She questioned whether or not to do it this time. In consulting her financial advisor and CPA, she was informed of the tax consequences in selling this property. In hearing this information, she inquired into the best course of action for her tax situation. The advice was based on a simple question, “Do you want another rental property”? Emotionally, the client was tired of the responsibilities associated in being a landlord, in addition to everything involved in purchasing another rental. Logically, however, it was concluded that the best course of action was to purchase a replacement property and defer the taxes.
The search began for a replacement property, with the industrial unit settlement coming in 60 days. Within a few days, she was tired of looking through 100’s of listings provided by residential realtors and commercial properties, that did not meet the financial criteria. Despite these challenges, the search continued until she reached a point of frustration and considered paying the tax, rather than deal with this long process. Why invest in another property, doing the same things she has already been doing such as rent collections, paying bills, and solving all sorts of problems? She called her commercial broker to discuss the situation, who said the DST’s sound like the perfect solution for her situation.
The client was then introduced by the commercial broker to Kay Properties and Investments, LLC. She was hesitant at first, not knowing how DST’s work. Taking it upon herself to read all of the educational material and asking many questions, the client studied DST’s prior to the settlement for her warehouse.
Client spent six weeks prior to her warehouse settlement, immersed in numerous PPM’s and in study mode with Kay Properties. In the end, the client was grateful to Kay Properties for helping her to avoid a huge tax consequence and educating her through various channels.
The client was able to successfully complete her 1031 exchange into a diversified portfolio of DSTs consisting of Class A apartments, Class B apartments, and also single tenant net lease industrial. The process from the close of the warehouse to the selected DST’s took place within a week! She was delighted to start receiving income from her DST investment because for the two and a half years prior, her relinquished property had been vacant and not producing income. She now enjoys sharing her new acquired knowledge with other investors, who are tired of property management, but still love the passive income real estate offers.
This is an example of the experience of one of our clients and may not be representative of the experience of other clients. Past performance does not guarantee or indicate the likelihood of future results. Diversification does not guarantee profits or protect against losses.