DST 1031 Exchange: What is it and How Might it Help with my Current 1031 Exchange

So you’ve decided to do a 1031 exchange, meaning you have decided to sell your property and invest that money in another property in order to defer the federal capital gains tax, state capital gains tax, depreciation recapture tax and the Medicare surtax. Smart!

But are you just moving from one headache to another? If you’re looking to retire from property management but you still want to defer your taxes using a 1031 exchange and keep your invested money working for you, you might be interested in learning about a DST.

DST stands for Delaware Statutory Trust. Here’s the full technical definition: a separate legal entity established under a trust created for the purpose of holding, managing, administering, investing, or operating a property, or for allowing business/professional properties to have multiple trustees where each owner has beneficial interest for federal tax income purposes and every owner gets an undivided fractional interest in the DST property. These properties are not limited to the state of Delaware, but the idea of a DST was created under Delaware law.

Let us decode that for you. A DST allows each investor to own a fractional interest in a property with other investors, not as limited partners, but as his or her own individual owner inside the trust. Everyone will receive his or her own percentage share of the potential income, tax benefits, and potential appreciation of the whole property. Each owner is treated as owning an undivided fractional interest.

This structure of ownership allows the minimum investment to often be as low as $100,000, allowing investors to not only be able to invest in properties that can be too expensive to purchase individually (like large multifamily apartment communities, office buildings, industrial properties, single tenant net lease retail, self-storage facilities, and medical offices), but to invest their money into multiple properties, diversifying their real estate portfolios with properties that are professionally managed.

So if you invest in a DST as your replacement property during a 1031 exchange, you can be a passive investor (no more calls about the toilet clogging or cockroach infestations) and diversify your real estate portfolio by being able to put the money from your sold property into multiple properties. Not only will you be free from management responsibilities, you can have a fractional ownership interest in multiple properties (for example instead of buying one apartment building or one single tenant net lease building you are now able to own an interest in thousands of apartment units throughout the country and an interest in a multi property portfolio of single tenant net lease buildings), letting your investment work for you while you take a step back and enjoy your newly found free time.

If you are trying to do a 1031 exchange, you might also be in a “time crunch” due to the 45-day identification period. If you decide to invest in a DST property for your exchange, you can close on your DST replacement properties typically between three to five business days of completing and returning the subscription documents. DST property investments are able to close quickly, due to the properties being pre-packaged and ready-to-go, saving investors from missing the deadline to defer the capital gains tax.

In order to effectuate a 1031 exchange, you need a Qualified Intermediary (also known as QI) to facilitate the exchange. A QI is an independent third party who will hold the proceeds and will be a part of enacting the 1031 exchange through purchasing the replacement property. That’s where Kay Properties comes in. We provide DST properties that have passed our due diligence program and connect you with the properties that make sense for each investor’s situation. We work with our clients to extensively review different DST sponsor companies, DST investments, real estate asset classes, locations, the use of debt vs. all-cash/debt-free real estate, etc. For more details on 1031 exchanges, DSTs and the Kay Properties process, please register at www.kpi1031.com or contact your Kay Properties representative.

There are a number of potential benefits of exchanging into a DST property, but it is important to note that these should be carefully weighed with the potential risks outlined below. You should also read in detail the risk section in the offering materials of each DST 1031 property prior to investing for a full understanding of each DST investments business plan and risk factors.

About Kay Properties and www.kpi1031.com 

Kay Properties is a national Delaware Statutory Trust (DST) investment firm. The www.kpi1031.com platform provides access to the marketplace of DSTs from over 25 different sponsor companies, custom DSTs only available to Kay clients, independent advice on DST sponsor companies, full due diligence and vetting on each DST (typically 20-40 DSTs) and a DST secondary market.  Kay Properties team members collectively have over 115 years of real estate experience, are licensed in all 50 states, and have participated in over 15 Billion of DST 1031 investments.

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.  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.  There are material risks associated with investing in real estate securities including illiquidity, vacancies, general market conditions and competition, lack of operating history, interest rate risks, general risks of owning/operating commercial and 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.

Nothing contained on this website constitutes tax, legal, insurance or investment advice, nor does it constitute a solicitation or an offer to buy or sell any security or other financial instrument. If you are not the intended recipient of this message, any use, dissemination, distribution or copying of this communication is strictly prohibited. If you have received this communication in error, please immediately notify the sender and permanently delete all copies that you may have. Securities offered through Growth Capital Services, member FINRASIPC, Office of Supervisory Jurisdiction located at 582 Market Street, Suite 300, San Francisco, CA 94104.

Email this to someoneTweet about this on TwitterShare on FacebookShare on LinkedIn