Why Kay Properties Prefers a Delaware Statutory Trust over a Tenant in Common (DST vs TIC)

If you’re an investor considering a 1031 exchange in order to defer the Capital Gains Tax and its friends, chances are you’re looking at a Delaware Statutory Trust or a Tenant in Common to take a step back while your passive investment does the work for you. The real question is, which one is best for you? A DST or a TIC?

Please keep in mind that any investment comes with risks. We urge you to work with your Kay Properties representative to help you ascertain if the real estate aligns with your personal investment agenda and needs.

At Kay Properties, we prefer a DST property for the reasons below.

1. The TIC ownership structure can create problems

The ownership structure of a TIC requires unanimous consent for all major decisions (this includes when or if to sell the property, when to refinance, etc.) making it difficult if a rogue investor refuses to follow the group, exposing the rest of the investors to possible risk. If most of the investors want to sell or refinance, it can be a huge problem if one investor refuses to sell.

In contrast, the DST structure places the decision-making in the hands of the Trustee. This person is typically an affiliate of the DST sponsor company that put together the DST offering in the first place. Instead of relying on a group of other investors, a DST lets you rely on an experienced real estate sponsor company that has seasoned professionals trained in acquisitions, asset management, property management, capital markets, dispositions, and all other fields of property investment. We find it easier to trust an experienced professional rather than a scattered group of investors who may or may not have much experience in this arena.

2. A TIC often requires higher minimum investments

The TIC structure only allows 35 investors, making an investor’s minimum investment on the higher end – often $500,000 or more. This means that an investor (depending on his/her exchange size) can often only invest in one or maybe two properties, concentrating the investor’s risk.

A DST on the other hand can typically have up to 499 investors, often which lowers the minimum investment amount to $100,000. This accessible investment amount allows us to diversify our clients’ investments into multiple DST offerings, letting them put their eggs in more baskets, and in our opinion, lowering their risk potential.

3. TIC investments usually take longer to close

Many TIC investments have a closing process that can take from 30 – 60 (or more!) days. This is due to the investors needing to be underwritten by the lender and then having to sign on the loan documents. If you’re an investor doing a 1031 exchange, you’re up against a time crunch that won’t allow you that much time. A 1031 exchange has a 45-day identification and 180-day closing window, meaning that if you don’t get your property replaced in time, you’re going to be dealt with the Capital Gains Tax, depreciation recapture tax and possibly state taxes and/or the Medicare surtax.

However, with a DST, you can typically have your investment closed within 3 – 5 business days. In a DST, investors are not required to sign on the loan documents or be scrutinized and underwritten by a lender. This can be extremely helpful to those needing to identify their property in under 45 days, and then replace it in under 180 days during their 1031 exchange.

But these are just a few reasons why we prefer DSTs to TICs. There are of course a few special circumstances where we believe a TIC can also be beneficial to an investor, in conjunction with DSTs. Either way, we’d be happy to talk with you further on the subject and encourage you to call our representatives at any time!

Please visit www.kpi1031.com for more details, call us at 1-(855) 899-4597 or email info@kpi1031.com

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 150 years of real estate experience, are licensed in all 50 states, and have participated in over $30 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. Securities offered through FNEX Capital, member FINRASIPC.

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