By Dwight Kay, CEO and Founder of Kay Properties and Investments, LLC
If you’re looking for a clear and concise answer to this question, here it is: Yes, you can 1031exchange out of a DST. If you’re the type who wants to know a little more about the hows and whys of 1031 exchanges and DST, we at Kay Properties are happy to elaborate.
First things first, a DST is a Delaware Statutory Trust. DSTs are a vehicle for passive real estate ownership that allows investors to remove themselves from day to day headaches of property management as well as the opportunity to diversify their equity in an effort to reduce risk. Each individual investor possesses his or her own share, including potential income, tax benefits, and appreciation of the DST property.
The question of “Can I 1031 exchange out of a DST?” should be answered in two parts. First, when the DST property itself goes “full cycle” meaning the property is sold on behalf of investors. Second, when an investor wants to sell out of their DST position prior to the DST as a whole going full cycle.
Full Cycle – Yes, you can 1031 exchange out of a DST when the property goes full cycle. Once the DST sponsor has sold the asset per the DSTs business plan each individual investor then has the same options as they had when they first exchanged into the DST: They can exchange into any other type of like property that they would own and manage on their own, they can exchange into more DSTs or they can pay their taxes.
Prior to Full Cycle – The answer to can you 1031 exchange out of a DST prior to the DST itself selling is a bit more detailed. DSTs are considered illiquid investments as they are real estate which itself is considered illiquid as well as there is no stock market type exchange whereby you can log online and sell your DST investment quickly. Therefore investors should only purchase a DST via a 1031 exchange if they are willing to hold for the full life of the investment which could be 5-10 plus years.
That being said Kay Properties has a DST Secondary Market whereby an investor that wants to sell early and 1031 exchange out of the DST has the potential to sell. The Kay DST Secondary Market is made possible due to the fact that we work with many DST buyers on a daily basis. Kay Properties helped clients purchase approximately 300 million of DST investments in 2018 this volume allows us to be a resource for those wanting to sell a DST investment early as we are working with many, many DST buyers nationwide. Again, there is no guarantee that you will be able to sell your DST investment on the Kay DST Secondary Market however it is a potential option.
When you sell your share of a DST and want to 1031 out of it, all the same rules apply as though you were selling a traditional investment property. You must use a Qualified Intermediary, you must identify your up leg within 45 days of the closing of your relinquished property and you must close on your up leg within 180 days of the closing of your relinquished property.
For a list of 1031 DST properties please visit www.kpi1031.com as well as your will find more helpful articles and resources as you are considering 1031 exchange DST properties.
About Kay Properties and Investments, LLC:
Kay Properties and Investments, LLC is a national Delaware Statutory Trust (DST) investment firm with offices in Los Angeles, San Diego, San Francisco, Seattle, New York City and Washington DC. Kay Properties team members collectively have over 114 years of real estate experience, are licensed in all 50 states, and have participated in over $9 Billion of DST real estate. Our clients have the ability to participate in private, exclusively available, DST properties as well as those presented to the wider DST marketplace; with the exception of those that fail our due-diligence process.
To learn more about Kay Properties please visit: www.kpi1031.com.
This material does not constitute an offer to sell nor a solicitation of an offer to buy any security. Such offers can be made only by the confidential Private Placement Memorandum (the “Memorandum”). Please read the entire Memorandum paying special attention to the risk section prior investing. This email contains information that has been obtained from sources believed to be reliable. However, Kay Properties and Investments, LLC, WealthForge Securities, LLC and their representatives do not guarantee the accuracy and validity of the information herein. Investors should perform their own investigations before considering any investment. IRC Section 1031, IRC Section 1033 and IRC Section 721 are complex tax codes therefore you should consult your tax or legal professional for details regarding your situation. This material is not intended as tax or legal advice.
There are material risks associated with investing in real estate, Delaware Statutory Trust (DST) properties and real estate securities including illiquidity, 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 multifamily properties, financing risks, potential adverse tax consequences, general economic risks, development risks and long hold periods. There is a risk of loss of the entire investment principal. Past performance is not a guarantee of future results. Potential cash flow, potential returns and potential appreciation are not guaranteed. For an investor to qualify for any type of investment, there are both financial requirements and suitability requirements that must match specific objectives, goals and risk tolerances.
Securities offered through WealthForge Securities, LLC, Member FINRA/SIPC. Kay Properties and Investments, LLC and WealthForge Securities, LLC are separate entities. There are material risks associated with investing in DST properties and real estate securities including illiquidity, 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 particular situation. This is not a solicitation or an offer to see any securities. Please read the Private Placement Memorandum (PPM) in its entirety, paying careful attention to the risk section prior to investing.