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While today’s rental property owners are facing challenges and pressures they have never seen before, there are alternative investment strategies that should be considered.

By Dwight Kay, Founder and CEO of Kay Properties & Investments

Historically speaking, independent real estate investors, who held for the long-term, walked a relatively straightforward (although bumpy and slow at times) path toward achieving asset appreciation and long-term wealth. This path would often look something like this: an investor would purchase a piece of property that would potentially generate enough cash flow to cover the expenses, including principal and interest on the mortgage, insurance, property taxes, and maintenance costs. Over time, the property would (hopefully) increase in value, income (rents) would rise, and certain tax advantages like the ability to deduct operating and depreciation expenses could be utilized to improve cash flow.

However, the steady march of new government regulations, the impact of COVID-19, and some basic real estate economics have helped some real estate investors recognize that the real estate investments they own have become less profitable and could even worsen to the point where investors could actually be losing money each year.

The Growing Impact of Rent Control Before and After COVID-19

While this may sound like hyperbole to some, our firm is actively working with numerous apartment owners across the country, and we hear first-hand some of the challenges and pressures property owners are facing. Even national media are picking up on this trend. For example, arecent Wall Street Journal article cites that apartment owners and investors are leaving California and the northeast for places like Florida, Texas and the other southern states where the warm weather, business-friendly governments and laws, lower taxes and fewer regulations seem like a breath of fresh air. Reuters recently lamented that beset by COVID-19 and its fallout, many smaller local landlords are offloading their properties and selling to national institutional investors, and CNBC recently reported that at least 60 percent of single-family rental homeowners are owed back rent and are being forced to sell their rental properties to recoup losses. Finally, CBS announced that as a last ditch effort to claw back tens of billions of dollars in unpaid rent, a national group of landlords is suing the Federal government for back rent.

However, even before COVID-19 rolled across the nation’s multifamily rental real estate investment market, landlords were seeing new rent control legislation start to encroach on their investment real estate portfolios, and squeeze owners’ profits. However, when COVID-19 arrived in the United States, cities across the country started expanding rent control laws and eviction moratoriums at an alarming rate, directly exposing landlords to financial peril. Legally speaking, the term “rent control” can be defined as any statutory rule that regulates the timing or frequency of increasing tenants’ rent, the services landlords must provide tenants, and the limited ability of landlords to evict tenants.

Today, multiple cities, states and jurisdictions are under some form of strict rent control regulation, including Washington D.C., Maryland, New Jersey, and New York. Most recently, the states of Oregon and California have enacted statewide rent-control laws that have greatly reduced landlords' ability to raise rental rates. Cities like Santa Ana and St. Paul have both passed bills limiting rent increases to 3% a year. Seattle even passed a bill requiring landlords to pay the moving costs for tenants who can’t afford to stay in their homes, and the City of Los Angeles passed a law that protects tenants from eviction for unpaid rent. Perhaps no other region in the nation is more challenging for landlords than California’s Bay Area. For example, the City of Berkely has had one of the strictest rent control environments in the country capping not only rents, but also garbage and parking fees; Hayward caps rent at just 5 percent and rent increases following voluntary move-outs cannot be more than 5 percent; Oakland’s Rent Adjustment Program (RAP) limits rental increases to 30 percent in a five-year tenancy.

Even more worrisome for landlords, cities like Portland and Oakland have recently created new restrictions that limit the ability of landlords to screen potential tenants, including

• Prohibiting the use of criminal background checks
• Limiting the use of financial background checks
• Requiring landlords to accept of previously evicted tenants
• Limiting security deposits to 1.5 x month's rent

Adding to these growing restrictive rental laws, landlords today must also face the reality of complicated and costly eviction laws and the soaring costs associated with repairs and maintenance.

Finally, many owners are recognizing that perhaps their rental property may not make as much financial sense as it once did. Why is this?Well, for several years now, property values in certain situations have risen faster than an owner’s ability to raise rents. The result is that the cash-on-cash return or “equity yield” gets compressed the higher property values rise. In some cases, this cash-on-cash return can be squeezed from a double-digit return to a low single digit return. Add to this the uncertain factors like inflation and unemployment, higher taxes, and a softening rental market, combined with city and government-imposed rent control and eviction moratoriums and more landlords are coming to the conclusion that now might be potentially a good time to sell their investment real estate.

Enter the Delaware Statutory Trust and Passive Real Estate Investing

So why don’t rental owners simply take their equity positions and cash out? The simple answer because of the tax liabilities, including Federal Capital Gains (15-20%), State Capital Gains (0-13.3% depending on the state he/she lives in), Depreciation Recapture Tax (25%) and the Medicare Surtax (3.8%) will now be due upon sale. These associated taxes could potentially take up to 40 percent of the asset’s sale price out of the seller’s proceeds. However, while it is true that a 1031 Exchange would allow them to defer their taxes, it is also true that they would most likely be limited to exchanging into another multifamily building or a single-tenant NNN building. What’s the problem with these assets? Nothing, except investing in another multifamily building doesn’t offer the owner much diversification, and because the proverbial “3 T’s” of tenants, toilets, and trash will still be involved, there will always be headaches and management expenses involved. A single-tenant net-lease property relies heavily on the quality of that sole tenant, and if that tenant fails, the investor’s income is likely to be reduced or eliminated completely (during COVID-19 there were a number of NNN tenants that went bankrupt or sought rental relief from their landlords). Also, triple net lease properties can be hard to locate, and conducting proper due diligence can be very difficult to accomplish within the time frame of 1031 exchange.

That’s why many landlords are utilizing Delaware Statutory Trust (DST) 1031 Exchanges to exit the active management role of owning rental real estate.DSTs are a form of fractional ownership that can be used to make passive investments in real estate and achieve monthly income potential via ACH direct deposit and diversification across multiple assets. Also, because DSTs are eligible for 1031 Exchanges, investors can sell their investment property and reinvest the proceeds into one or more DST investments while deferring capital gains and other taxes.

Another reason DST investments are popular among real estate investors is because many types of diverse real estate assets can be owned in a DST, including industrial, multifamily, self-storage, medical and retail properties. Also, it is not uncommon to find properties within a DST investment include institutional quality assets like those owned by large investment firms such as a 450-unit Class A multifamily apartment community or a 100,000-square-foot industrial distribution facility leased to a Fortune 500 logistics and shipping company.

In addition, Delaware Statutory Trust 1031 Exchanges offer real estate investors the following specific benefit potential as well:

• The ability to close their 1031 Exchange within typically 3-5 days
• The opportunity to eliminate the hassles of tenants, toilets, and trash (i.e. the Three T’s).
• The potential to receive regular monthly distributions via ACH direct deposits
• The ability to access institutional grade real estate assets
• The potential advantages associated with greater portfolio diversification by geography, tenants, and asset class*

The Bottom Line

Investment properties have gone through significant changes over recent years, and in many cases, owners have been faced with challenges they have never seen before, including the COVID-19 pandemic, and ensuing eviction moratoriums. For qualified property owners who are motivated to sell in the near future and are facing capital gains, reinvesting the proceeds in qualifying properties including DSTs will allow them to not only defer capital gains taxes but also become part of a diversification* strategy with the potential for appreciation and monthly income.

Dwight Kay

Founder and CEO, Kay Properties and Investments, LLC

Dwight Kay is the Founder and CEO of Kay Properties and Investments LLC. Kay Properties is a national 1031 exchange investment firm. The www.kpi1031.com platform provides access to the marketplace of 1031 exchange properties, custom 1031 exchange properties only available to Kay clients, independent advice on sponsor companies, full due diligence and vetting on each 1031 exchange offering (typically 20-40 offerings) and a 1031 secondary market.

The 96-page glossy magazine dissects present-day investment themes and explores investment strategies for today's 1031 Exchange and DST real estate investor.

TORRANCE, Calif., April 11, 2022 /PRNewswire/ -- Kay Properties & Investments, a national leader in Delaware Statutory Trust equity placements and in educating DST investors nationwide, announced it recently published its exclusive 1031 DST Digest magazine, a publication designed exclusively for 1031 Exchange and Delaware Statutory Trust investment strategies and education.

According to Dwight Kay, Founder/CEO of Kay Properties and editor of the magazine, the 1031 DST Digest was designed to help educate investors on the DST 1031 Exchange marketplace, while also answering specific questions his firm's team of expert representatives hear from investors daily.

"Inside this accessible magazine, readers will find out what makes Delaware Statutory Trust 1031 investments so popular, how to build a defensive DST real estate portfolio, and how DSTs help investors replace debt in a 1031 Exchange. The magazine is offered free of charge as part of our commitment to providing educational resources to 1031 exchange DST investors nationwide. Request your complimentary copy today and in addition to a print version delivered to your doorstep, you'll also receive instant access to an electronic version of the magazine." said Kay.

People can receive a copy of the limited-edition periodical by going to https://www.1031dstdigest.com.

"The intent of the 1031 DST Digest magazine is to help educate existing and potential clients about DST 1031 properties, the potential benefits and risks of DST investments and whether they might be a right fit for investors considering a 1031 exchange," said Kay.

Specifically, the Kay Properties "1031 DST Digest" will cover topics like :

• How 1031 Exchanges into Delaware Statutory Trust Investments Can Unlock More Quality Time for Investors

• Why Now Might be a Good Time to Sell the Income Property you Love

• What Real Estate and DST Investment Opportunities Should be Considered after the Pandemic recedes?

After deciding to retire and step away from actively managing a $10 million real estate portfolio, successful medical professional turns to Kay Properties to help evaluate DST properties for his 1031 exchanges.

(Torrance, CA) Kay Properties & Investments, a national leader in Delaware Statutory Trust investments recently helped a retiring physician complete a series of DST 1031 exchanges totaling more than $10 million in order to achieve passive management and greater potential diversification. *

According to Dwight Kay, Kay Properties founder and CEO, the investor was introduced to Kay Properties through his Certified Public Accountant (CPA) who recommended the firm because of their extensive marketplace of DST 1031 property options, their reputation of putting integrity and clients’ interests first, and their nationally recognized expertise in DST 1031 exchange investments.

“After the client contacted us, we spent the next year introducing him to and educating him and his family on DST 1031 exchange investments. We provided him educational material, spent many hours on phone calls with him, and conducted multiple in-person meetings to help him understand how DST 1031 exchanges could potentially help him achieve his investment objectives. As is our practice with all investors, it was important for us to also emphasize the potential risks associated with DST 1031 exchange investments. In the end, our team of DST experts worked with him to create a diversified portfolio of all-cash/debt-free DST properties that potentially met his needs and investment objectives,” explained Kay.

In addition, Kay explained that because of the amount of time his team of hyper-specialized DST experts spent with the client over the course of a year, the client and Kay Properties were able to identify and reserve the exact exchange properties he wanted ahead of time, and successfully completed the exchange within just 5 days of closing on the relinquished property.

According to Kay Properties Vice President and DST 1031 exchange expert, Steve Haskell, the client had spent the past 25 years successfully assembling a multimillion-dollar real estate portfolio of multifamily buildings and single-family homes that he actively managed. However, when he decided to retire to spend more time with his grandchildren and travel the world, he wanted to shift from the day-to-day activities of toilets, trash, and tenants, and enter a passive real estate management structure that would allow him access institutional grade investments while also achieving the potential for regular monthly distributions. In addition, his entire portfolio was heavily concentrated in one submarket, so he also wanted to achieve greater geographic diversification** as well.

“This gentleman was not only a successful physician, he was also a successful part-time real estate professional who had made his wealth locally by doing his own deals and performing his own property management tasks. When it was time for him to retire, he decided to liquidate his portfolio and pursue DST 1031 investments. Plus, from an investment standpoint, he was concentrated in both multifamily and single-family types of assets in a single local submarket. So, we worked closely with him to help create a blended portfolio that included higher quality real estate assets across seven markets nationwide to help him achieve the potential of greater diversification**. And instead of being in a single asset class, we helped him invest into five different asset classes, that included self-storage, medical, industrial, Class B multifamily and manufactured housing.” said Haskell.

However, Haskell feels that as important as the actual transactions, this investor valued the educational process that Kay Properties provided him leading up to his multiple 1031 DST exchanges.

“It really is important that our clients completely understand the DST 1031 structure and the potential risks associated with any real estate or DST investment. In this case, because of the amount of time and education we were able to provide him, this investor was very pleased and appreciative of the Kay Properties business model. We spent the necessary time with him to understand their objectives, goals and risk tolerances and worked tirelessly with him and his CPA to build a 1031 exchange DST solution that would potentially achieve those objectives,” said Haskell.

*Diversification does not guarantee profits or protect against losses.

Large institutional real estate investment firm uses Kay Properties to help complete four - $30 million DST 1031 investments to help create greater portfolio diversification.

(Torrance, CA) Kay Properties & Investments, a national leader in Delaware Statutory Trust equity placements, recently announced it worked closely with a large institutional real estate investment firm to perform a series of test investments prior to helping the client complete multiple DST 1031 exchanges totaling $100 million.

According to Dwight Kay, Founder and CEO of Kay Properties, the institutional investment firm decided to strategically relinquish a portfolio of four large retail assets and invest in custom DST 1031 exchange portfolios in order to help them become potentially more diversified. A significant caveat to their investment strategy, however, was to enter into smaller investment transactions as part of a “test investment” strategy.

“Kay Properties is widely recognized as the number one leader in placing 1031 exchange equity for every sized accredited real estate investor. In this case, we were contacted by a large institutional real estate investment firm who ultimately wanted to liquidate its $100 million portfolio of retail investment properties to potentially achieve greater diversification for its investors. The Kay Properties investment team spent more than a year educating them and introducing them to different sponsors that we work with, and carefully going over the risks, benefits and structure of DSTs, and even facilitated several test investments with them before they decided to invest a larger component of their portfolio with us,” said Kay.

Steve Haskell, Vice President with Kay Properties spearheaded the interaction with the client, and explained that while they were more sophisticated than many real estate investors, they still required a lot of education and insisted on testing out the Kay Properties DST 1031 exchange platform before placing larger investments with the firm.

“It is not uncommon for investors of all sizes to want to test our processes and platform before placing a large investment amount with us. In this case, the investment firm wanted to watch our paperwork and look at how we operated as an advisory firm, while also evaluating the DST structure as an investment vehicle. They also wanted to make sure we always ‘dotted our i’s and crossed our t’s’. We obviously performed as we do with all our clients - professionally, honestly, and always being forthright regarding potential risks of DSTs,” said Steve Haskell, Kay Properties Vice President and recognized DST 1031 exchange expert.

According to Haskell, during these test investments, Kay Properties was also introducing them to numerous sponsors, and helping them create a portfolio that fit their specific investment criteria.

“Because we had been working with them for more than a year, we were able to have properties they wanted already set up and reserved so that they could close on their DST 1031 exchange literally the same day they closed on their relinquished assets,” explained Haskell.

As a result, Kay Properties helped the investment firm successfully close on multiple DST portfolios in various types of real estate asset classes, in different geographic locations, and across a variety of tenants to help achieve greater diversification, passive management, and the potential for monthly distributions.

“The client was impressed with every facet of the Kay Properties business model, and felt like they accomplished what they wanted to do from an investment perspective,” said Haskell.

The Kay Properties team operates one of the largest 1031 exchange marketplaces and has made an impact on the commercial real estate industry and the Delaware Statutory Trust 1031 exchange investment platform. As the number of DST transactions has grown, new investors look to DST expert advisory firms such as Kay Properties to help them navigate the marketplace. The Kay Properties team was founded in 2010 and includes Chay Lapin, president of Kay Properties & Investments; Jason Salmon, SVP and managing director of real estate analytics; Betty Friant, SVP; and VPs Matt McFarland, Orrin Barrow, Steve Haskell and Alex Madden. The team operates on a customer-centric philosophy that views each client as a unique entity with individual investment objectives and special challenges. The team focuses on educating clients on 1031 exchange dynamics over months and sometimes years to help them achieve their specific goals. Since its founding in 2010, Kay Properties has created a business model that provides clients access to the marketplace of DSTs from more than 25 sponsor companies, full due diligence and vetting process for each DST property they represent; the industry’s first secondary market for those wishing to sell their DST interests prior to the property going full-cycle, and the industry’s largest selection of debt-free DSTs and leveraged DSTs for 1031 debt replacement. As a result, Kay Properties clients participated in thousands of transactions, and the $610 million of equity invested through the Kay Properties platform was invested in more than $8 billion of real estate offerings totalling approximately 50 million square of multifamily, manufactured housing, single tenant net lease, industrial, self-storage, and medical properties nationwide.

**NOTE: Past performance does not guarantee future results and DST investments may result in a complete loss of investor principal. This is an example of the experience of one of our clients and may not be representative of the experience of other clients. These clients were not compensated for their testimonials. Please speak with your attorney and CPA before considering an investment

There is a risk of loss of the entire investment principal. Past performance is not a guarantee of future results. Potential distributions, 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.

This continued record growth represents a 49.5% percent increase over last year’s $408 million in equity placements

Year-End Highlights:

● Kay Places $610 Million of Equity Investments in 2021

● Kay Grows Its Fully Integrated Real Estate Team and Robust Online Real Estate Investment Platform

(Torrance, CA) Torrance, CA-based Kay Properties, which operates one of the nation’s largest 1031 exchange property and real estate investment marketplaces, announced today it had posted another record year after successfully placing $610 million in equity for accredited investors participating in 1031 exchanges and direct cash investments.

Founded by CEO Dwight Kay, Kay Properties & Investments is considered one of the most experienced and knowledgeable investment firms in the country specializing in Delaware Statutory Trust (DST) and private equity real estate investments. The firm was established in 2010 with the emphasis on providing real estate investment options to high-net-worth clients looking for passive real estate ownership. In addition, Kay Properties believes it has created one of the largest 1031 exchange and real estate investment online marketplaces in the country that generates some of the largest DST 1031 investment volume in the United States. In 2021, for example, Kay Properties clients participated in thousands of transactions, and the $610 million of equity invested through the Kay Properties platform was invested in more than $8 billion of real estate offerings totaling approximately 50 million square feet of multifamily, manufactured housing, single tenant net lease, industrial, self-storage and medical properties nationwide.

Unparalleled Online 1031 Exchange Real Estate Marketplace Platform

“The kpi1031.com online marketplace has truly become a best-in-class robust platform connecting high-net-worth investors with quality real estate offerings as well as a place for real estate sponsors and operators to connect with tens of thousands of high-net-worth investors seeking to deploy capital into real estate offerings. We think the platform creates a perfect match for all sides of the 1031 exchange and real estate investment equation. This success over the years comes from hard work and dedication to our clients and team members as well as ultimately, beyond anything else, from the Lord,” said Dwight Kay, Founder & CEO of Kay Properties & Investments.

Kay explained that most investments made on the Kay Properties platform are for DST 1031 exchange replacement properties followed by a growing number of cash investments into real estate funds and other vehicles. DST investments are an allowable option for replacement properties for investors who have recently sold other real estate assets and are seeking to defer taxation on their gains, enter a passive management structure, and potentially broaden their geographic and real estate asset diversification* by reinvesting the proceeds in qualifying properties. So-called “like-kind exchanges” are allowable under U.S. Internal Revenue Code Section 1031 and DST investments have grown in popularity among accredited investors over the past decade.

“While it is true that a large amount of people investing through the kpi1031.com marketplace are seeking like-kind exchange properties, it is also true that the platform attracts many high-net-worth investors who are interested in participating in the offerings on the company’s marketplace with direct cash investments, a trend that we are seeing growing tremendously,” stated Kay.

Remarkable Year for Delaware Statutory Trust 1031 Exchange Investors

According to Kay, 2021 was a remarkable year for both Kay Properties and the entire 1031 exchange property market, including DSTs.

“Investment properties have gone through significant changes over recent years, and in many cases, owners have been faced with challenges they have never seen before, including the COVID-19 pandemic. For property owners who were motivated to sell during 2021 and were facing capital gains, reinvesting the proceeds via a 1031 exchange into qualifying properties including DSTs allowed them to not only defer capital gains taxes but also become part of a diversification* strategy with the potential for appreciation and monthly income*,” explained Kay.

Client-Centric and Emphasis on Educating Investors

2021 also extended and reinforced the established success of the Kay Properties business model that emphasizes both client relations and DST education.

“When I started Kay Properties, I had a vision of creating a hyper-client-centric business model that emphasized the utilization of tax efficiencies afforded to investors through the 1031 exchange and real estate investments and potentially reduced risk for investors through a fully-integrated real estate investment platform. This platform includes a growing team of DST 1031 experts and back-end support specialists that provide Kay clients deal sourcing, due diligence, transaction coordination, investor relations, in-house accounting, legal, finance and asset analysis. We also support potential investors through exclusive educational programs that are presented in an effort to keep investors fully informed of opportunities and potential risks that they must be aware of. The model has worked out well, and the year-end results of 2021 proves this out,” said Dwight Kay, Founder and CEO.

The result has been that Kay Properties has assisted thousands of high-net-worth investors across the country successfully complete 1031 exchange and direct investments, into real estate opportunities via the Kay online real estate marketplace at kpi1031.com.

“We also would like to thank all of our loyal and many times repeat investors from over the years as well as the numerous DST sponsor companies and other real estate operators with whom we have worked closely. We will continue to work tirelessly on behalf of all of our thousands of investors, team members and industry sponsor partners to, God willing, continue this great path forward in 2022 and many years to follow,” said Kay.

Investors can view current offerings on the Kay Properties online marketplace at www.kpi1031.com.

*Diversification does not guarantee profits or protect against losses. Potential cash flow, potential returns and potential appreciation are not guaranteed.

LOS ANGELES, Nov. 15, 2021 (GLOBE NEWSWIRE) -- Kay Properties & Investments recently helped a sophisticated high-net-worth investor strategically identify viable Qualified Opportunity Zone (QOZ) projects to help him achieve greater diversification from a heavy stock market concentration and take advantage of the unique tax benefits associated with the law outlined by the 115th Congress in Public Law No: 115-97 on December 22, 2017.

According to Betty Friant, Senior Vice President with Kay Properties & Investments, expert tax advantaged real estate advisor and highly experienced QOZ investment advisor, the client knew a little about QOZs, but relied on Kay Properties & Investments and their own CPA and attorney to help create a complete business plan that included both short-and long-term objectives.

"This particular investor did really well in the stock market but wanted to add diversification to his overall portfolio. Kay Properties helped him identify different Qualified Opportunity Zone projects that contained multiple properties distributed across many different geographic regions, multiple asset types, and with a diverse tenant mix," said Friant.

According to the Internal Revenue Service, Qualified Opportunity Zones were created by the United States Congress as part of the Tax Cuts and Jobs Act of 2017. The purpose of the program was to encourage long-term investments in low-income communities across the United States. The United States Department of Treasury estimates there are more than 8,700 QOZs in the country, including in territories like Puerto Rico. If the investor invests gains from a previous investment before December 31, 2021, and then holds their interest in the QOZ fund for at least five years, the tax they owe in December 2026 may be reduced by approximately 10% by virtue of the stepped-up basis. Furthermore, if the investor holds the investment for 10 years, there is potentially no tax on any appreciation on reinvested gains that they made. 

"So obviously, one of the keys to this investment strategy for this investor was to make sure the QOZ investment was initiated before December 31, 2021, after which he would not be able to receive a 10% step-up basis on his original investment," said Friant. 

According to Friant, Qualified Opportunity Zones may be able to provide investors a unique way to reduce taxes while doing something good for those who are less fortunate. By simply rolling profits over from the selling of a business, stocks, bonds, cryptocurrency, jewelry, art or real estate into a Qualified Opportunity Zone, investors can reap an array of tax benefits — assuming they make the investment within six months of realizing their capital gain.

"But the thing about QOZs is that their designation is based on data from the 2010 census, and QOZ's didn't become law until 2017. So here we are in 2021 and some of these previously identified opportunity zones are now on the edge of some of the hottest real estate in the United States," said Friant. 

1031 exchange investor couple turns to Kay Properties to help eliminate active management responsibilities and to achieve potential recurring monthly income

(Torrance, CA) Kay Properties & Investments was recently contacted by a real estate investor couple who needed help completing a 1031 exchange into Delaware Statutory Trust (DST) investments across multiple property types and geographic locations. While the couple were experienced investors with decades of real estate experience, they contacted Kay Properties in order to access the firm’s full DST marketplace of all-cash/debt-free real estate investment options, and the firm’s nationally recognized expertise in DST investments.

“This was more than a successful DST 1031 exchange transaction. It represented a growing trend we’ve been seeing more and more within our investment community. There is a real need for our investors to have solutions for their investment real estate needs once the time comes for them to step away from active management. I was incredibly proud that our Kay Properties team of DST experts was able to help these two impressive and experienced investors achieve their objectives,” said Dwight Kay, Founder and CEO of Kay Properties and Investments.

According to Kay Properties Vice President and DST 1031 investment expert, Alex Madden, when the couple reached out to Kay Properties, they were in a conundrum, and needed a firm who could help advise them on Delaware Statutory Trusts 1031 exchanges. They were looking for someone with the patience and resources to educate them on specific strategies while always enlightening them on both the potential risks and benefits of DST investments.

“They had worked hard their entire lives and had acquired a portfolio of eight well-located condominiums that had appreciated phenomenally over the years. It was a big point of pride for them that they were able to pay off the mortgages on all their properties,” said Madden.

Because the couple were first-time DST investors, Madden explained that he spent a significant amount of time in the beginning educating them on how to use DST investments as a 1031 exchange vehicle, and how the unique structure of the DST could potentially help them achieve their unique set of financial and nonfinancial goals. We also spent considerable time and energy discussing the potential risks of DST investments and going through these risk factors in detail.

“They had been active and hands-on real estate investors for so long, so we understood there was going to be a learning curve. But they regularly attended and participated in our conference calls and our webinars, along with reading just about everything we had including the detailed offering memorandums business plans and risk factors, so that when they consulted with their CPA, they were prepared and had all of the right questions to ask. The main thing they wanted was to be completely hands off from active management as well as to defer associated taxes utilizing the 1031 exchange,” said Madden.

Madden explained that while they had considered some triple net lease (NNN) properties at first, they also felt it was too late in their life to learn a whole new business model. They also felt that after making all the sacrifices over the years to become debt-free on their condominiums, it didn’t make sense to take the risk of investing in a leveraged DST. Kay Properties has access to many leveraged DSTs for those needing to replace debt in a 1031 exchange as well as many debt-free DSTs for those not needing to replace debt nor wanting to take on the risk of leverage in their replacement properties.

So, with the help of Kay Properties team of DST experts, the couple invested in a multifamily apartment DST, a corporate headquarters DST, a dialysis medical building DST, and a self-storage DST. Each property was in a different geographical location, and each tenant represented a different industry.

“Everything went well, and in the end, they were very pleased and appreciative of the Kay Properties business model. We spent the necessary time with them to understand their objectives, goals and risk tolerances and worked tirelessly with them and their CPA to build a 1031 exchange DST solution that would potentially achieve those objectives,” said Madden.

As we emerge, fortunately, from the pandemic, including the recent Delta variant surge, it’s a good time to assess real estate investment opportunities if you’re looking to reinvest proceeds in a 1031 exchange transaction or seeking to invest cash as part of a diversified financial portfolio strategy.

Here’s how you could build a post-pandemic real estate investment portfolio, recognizing some of the new realities the pandemic has exposed.

Let’s say you, your family or your family office is looking to invest $1 million to $100 million, plus or minus. A prudent diversification strategy suggests you should allocate capital across different property types, asset classes and geographies. (Of course, diversification does not guarantee profits or protect against losses, past performance never guarantees future results, and income and appreciation are never assured with any investments, but real estate has proven to be a winning part of many investors’ alternative asset portfolios.)

Diversifying across property types and locations

A diversified investment approach right now could include a mix of industrial, multifamily and retail properties.

The pandemic has been particularly kind to industrial properties, namely those occupied by logistics and shipping companies, and properties that serve as distribution hubs for manufacturers, wholesalers and retailers. These assets, as a class, have performed especially well the past two years as the trend toward e-commerce accelerated drastically during the pandemic—a period in which many people who previously had resisted home delivery of goods and services finally embraced the concept that was already growing year-over-year.

Increased demand for delivery is expected to continue to have positive long-term implications for industrial real estate, including last-mile distribution and logistics, for years to come. So industrial/distribution and logistics properties should be seriously considered as part of a real estate investment portfolio whether considering a 1031 exchange or as a direct investment.

Multifamily properties have also performed relatively well during the pandemic, thanks to help for tenants in the form of direct aid and rental payment assistance, as well as forbearance from landlords. Already, the multifamily market is experiencing higher rents as the pandemic recedes and the return to work continues, according to Yardi Matrix, and as units turn over and rents reset at new levels.

Retail properties have been a mixed bag during the pandemic, with enclosed malls performing the worst, shopping centers with big-box tenants somewhere in the middle, and grocery-anchored neighborhood shopping centers faring the best. Net-leased assets, where the tenants pay some or all of the property expenses including taxes and insurance in addition to rent, generally have outperformed the market as a whole. Net-leased assets include freestanding drugstores, health services operations such as dialysis centers, and fast-food restaurants with drive-throughs. These types of assets should be seriously considered for inclusion in a diverse real estate investment portfolio when seeking 1031 exchange investments and direct cash investments into real estate.

Using DSTs as a vehicle to hold diverse investments

An effective way to hold post-pandemic real estate investments could be Delaware Statutory Trusts. DSTs are a vehicle for direct investment or for a turnkey solution as part of a 1031 exchange. Investors are often deploying as little as $25,000 into DSTs and as much as $50,000,000-plus, so they can work for a wide range of accredited investors (typically defined as having a net worth of over $1,000,000).

With DSTs, investors can own an interest in diverse real estate assets without the hassles and headaches of sole ownership and management, which entails the burdens of being a landlord, i.e., tenants, toilets and trash.

DSTs can hold title to all manner of investment real estate. The investment sponsor is responsible for day-to-day asset management, with investors participating passively in the form of potential monthly distributions (positive cash flow) by direct deposit into their checking or savings accounts. There also is the potential to generate appreciation just like with sole ownership, although it is important to note that as with all real estate investments, positive cash flow and appreciation are never guaranteed and could be lower than anticipated.

There are also the other tax advantages of direct real estate investment, including depreciation deductions, to help shelter rental income. Plus, DSTs are 1031-exchange eligible, unlike many other real estate investment structures, which means that any capital gains on the sale of assets can be deferred if the proceeds are reinvested into other income or investment properties.

You could build a diverse portfolio of real estate investments across property types and geographies by investing in multiple DSTs. Using the $1 million hypothetical investment amount noted above, a portfolio could include:

• Five $100,000 investments in different multifamily apartment properties in various Sunbelt states;
• One $150,000 investment and one $100,000 in different net-leased medical facilities in Texas;
• One $250,000 investment in an industrial/distribution facility in the Midwest.

The bottom line

For all the challenges presented by the pandemic, the crisis is illuminating potential investment opportunities that could have stronger prospects long term. Certainly, the pandemic has demonstrated the resilience of investment real estate as an asset class, with lessons for building a real estate portfolio that can possibly endure market shifts and swings.

Because real estate is so integral to the ways we live, work and play, income and investment properties are likely to remain attractive for many investors interested in diversification and the pursuit of income and appreciation well into the future. The issue, as always, is identifying the opportunities that are best suited to meet your personal financial and tax goals and objectives.

Dwight Kay is founder and CEO of Kay Properties and Investments, LLC, which operates a DST and 1031 exchange property investment marketplace online.

 

It’s a great feeling when you sell some stock, a piece of real estate or the business you’ve poured your life into for a nice profit that puts a small fortune into your bank account. But then comes the tax bill to take a little bit of the bloom off that rose. It’s downright painful to hand your hard-earned money over to the government, even at the reduced capital gains rate.

The good news is, every now and then, the feds are willing to cut you a break. And there’s one tax break a surprising number of investors have never even heard of, let alone taken advantage of, which is Qualified Opportunity Zones (QOZs).

What are qualified opportunity zones? 

QOZs are relatively new and were created by Congress within the Tax Cuts and Jobs Act of 2017. The purpose of this new program was to encourage long-term investments in low-income communities across the U.S. According to Indiana University’s Kelly School of Business, there are more than 8,700 QOZs in the country, including in territories like Puerto Rico. The bottom line is that QOZs are a part of a social program with the intent of redeveloping impoverished districts throughout the country by driving private capital to underserved communities and Americans by offering tax incentives to investors.

Doing Well By Doing Good

QOZs can provide qualified investors with a unique way to reduce taxes while doing something good for those who are less fortunate. By simply rolling profits over from the selling of stocks, cryptocurrency, bonds, jewelry, art or real estate into a QOZ, accredited investors can reap an array of tax benefits, assuming they make the investment within six months of realizing their capital gain.

It’s critical to note that, unlike a 1031 real estate exchange, you’re reinvesting your profit only — not your basis.

Three Examples Of How QOZs Work

Let’s take a look at the three ways you can save:

• Tax Saving Opportunity #1: Investors who invest capital gains income can defer their reinvested capital gains taxes until the end of 2026. In other words, you won’t owe the IRS a penny on that money until April 2027.

• Tax Saving Opportunity #2 (expires on December 31, 2021): If you invest your profits before December 31, 2021, you get the added benefit of a 10% step up on the basis of your original investment, which only adds to your tax savings.

• Tax Saving Opportunity #3: There is a much bigger benefit if you hold your investment for at least 10 years and a day. If an investor held their QOZ investment for 10 years, that taxpayer wouldn’t have to pay even a penny in taxes on the profits they made — no matter how big they are.

As you can see, the biggest takeaway of QOZ funds is that after an investor holds their position in the investment for 10 years, there is no tax on the asset’s appreciation. That’s zero. So, if an asset appreciates 20 or 30%, that could translate to a significant return for the investor.

Tax savings aren’t enough.

As great as all of this sounds, it’s important to carefully evaluate a project’s true investment potential before considering the tax benefits, especially since you’re required to keep your money locked up for at least 10 years in order to enjoy the full tax benefit. Like any real estate investment, there is no guarantee for cash flow, distributions or appreciation, and this can result in the full loss of invested principal.

As an investor with 20 plus years of experience in commercial real estate and investment sales who regularly advises high-net-worth investors, I try to always emphasize the importance of understanding the investment first and then the tax benefits. It’s better to look at the tax benefits as “gravy,” rather than as a reason to make an investment you otherwise wouldn’t even consider.

The good news is that plenty of development projects are currently available. Plus, because many of these locations were determined to be economically challenged areas based on 2010 Census data and the Tax Cuts and Jobs Act was passed in 2017, many of these properties are now located in some of the hipster neighborhoods across the country.

Finding Good Qualified Opportunity Zone Projects

Regardless of whether an investor decides to move forward with a QOZ fund investment or not, there are certain questions that each should ask their advisor before moving forward with this type of investment. These questions include:

• Where are the real estate properties located? Make sure you understand the underlying market fundamentals of the area. One thing, in particular, that I advise my clients do is to try and find a location where long-term demand is inherent in the market.

• What is the makeup of the fund in terms of diversified assets? One of the ways to help reduce risk is to choose a property that is diverse. For example, a portfolio with only one large project could be considerably more vulnerable to other competitors with the same type of building. Try to find a portfolio that has a balance of multifamily, retail and distribution.

• Who is sponsoring the investment properties, and what kind of reputation do they have? Just like with any profession, there are quality QOZ advisors with years of experience and there are advisors who have very little experience. Avoid financial planners and other generalists. Also, consider finding a firm that is very particular about the type of properties it offers investors. Ask specifically what type of real estate assets they have previously invested in, and try to get some historic performance data.

It’s important to go into any investment with eyes wide open. Walk away from any firm that tells you this investment is “guaranteed” to make money, as there are always risks associated with investing in real estate securities.

 

LOS ANGELES, Nov. 03, 2021 (GLOBE NEWSWIRE) -- Kay Properties & Investments recently announced the successful completion of a complicated Delaware Statutory Trust (DST) 1031 exchange for $23 million across multiple asset classes and geographic locations. The transaction involved helping two partners identify viable exchange properties prior to them selling a building that was the center of the business operation. The partnership relied heavily on Kay Properties’ unique fully-integrated DST real estate investment platform that provides clients information on the potential benefits and risks of DST 1031 investments, guidance in navigating the nuances and deadlines of DST 1031 exchanges, and a broad DST property menu.

“This was a very unique situation in that the two partners wanted to relinquish the industrial building where their business operated, and transition into a passive real estate ownership position while keeping the partnership intact. Our role was strictly limited to advising them on their DST 1031 business plan, and assisting them in identifying viable 1031 exchange options,” said Chay Lapin, President of Kay Properties & Investments, and recognized expert in DST 1031 exchanges.

DST stands for Delaware Statutory Trust, which is an entity created to hold title to one or more income-producing commercial properties including apartments, medical buildings, net-lease retail, industrial facilities and more. Individual investors in a DST hold an investment position in single or multiple properties. Each investor owns a beneficial interest in the trust that owns the underlying real estate. The DST structure allows investors to defer capital gains taxes via a 1031 exchange, qualifying as “like-kind” property under IRC Revenue Ruling 2004-86. DST properties also provide access to institutional quality real estate assets, with a passive ownership position that entitles the investor to his or her pro-rata share of potential income and appreciation in the assets of the DSTs.

According to Orrin Barrow, Vice President with Kay Properties who was also instrumental in advising and facilitating the 1031 exchange, the key to making this transaction work was Kay Properties’ ability to leverage its deep industry contacts to identify custom DSTs only available to Kay clients that fit the investors’ unique needs and overall investment strategy.

“This deal highlights something Kay Properties does really well, and that is utilizing our relationships in the real estate industry to find custom opportunities that are only available through the Kay Properties platform, and then successfully securing the equity reservation. We were able to help them close on a quarter of their actual exchange shortly after their identification period so they had a leg up in securing exactly the type of exchange property they wanted. I don’t think there is another representative firm out there that has that type of leverage and that type of access to both open market options and custom DSTs,” said Barrow.

In addition, the Kay Properties team worked closely with the partners to educate them on the nuances and timelines associated with DST 1031 exchanges, along with the potential risks of the DST 1031 structure.

“Kay Properties is a truly specialized firm that deals with nothing but DST 1031 investment and real estate strategies. We have participated in more than $21 billion of DST investments, and thus have the experience needed to properly guide investors during this important life decision of a large 1031 exchange into DST investments. The two partners knew a little about DSTs, but they certainly did not have enough knowledge to facilitate it themselves and navigate the market alone. They were really appreciative of all the time we took to carefully explain the entire DST process and associated risks, and helped them navigate the entire process from start to finish,” said Dwight Kay, Founder and CEO of Kay Properties & Investments.

The result was the partners were able to transition into a passive ownership position, gain diversification across multiple geographic regions and asset types, and recognize the potential for a regular monthly cash flow.

“It was one of the most unique deals I have ever been involved with and our ability to provide access to all-cash/debt-free DSTs and leveraged DST properties was instrumental in accomplishing everything these investors wanted to accomplish,” commented Barrow.

High-net-worth investor decides to relinquish a portion of his rental property portfolio in a succession of sales before entering multiple DST 1031 exchanges to help achieve diversification, non-active management and potential monthly income

LOS ANGELES, Oct. 26, 2021 (GLOBE NEWSWIRE) -- Kay Properties & Investments successfully helped a high-net-worth client complete 15 Delaware Statutory Trust (DST) investments following the sale of five multifamily properties within a short period of time.

“This particular client leveraged the full potential of Kay Properties’ unique real estate platform that combines extensive client education, a robust menu of diversified DST investment options from multiple Delaware Statutory Trust sponsor companies, and deep market contacts across the country. After conducting literally years of research on the subject, he decided that DST investments provide an investment strategy that fit his own goals and objectives better than active ownership/management of rental properties, as well as that Kay Properties was the right team and platform to help him invest in DST 1031 properties,” said Dwight Kay, Founder and CEO of Kay Properties.

Kay also explained that this type of transaction illustrates the growing popularity of DST 1031 exchanges among real estate investors.

“As DST 1031 exchange experts, Kay Properties & Investments representatives speak with hundreds of accredited investors each week who want to know more about DST investment opportunities,” said Kay.

After completing his first DST 1031 exchange several years ago, the client recognized the level of expertise Kay Properties provided throughout the entire exchange process, and how readily available the entire Kay Properties team was to answer questions or provide advice.

“He first started to learn about DST investments through extensive conversations with the Kay Properties team and with the resources available on the www.kpi1031.com platform. Then, he started to conduct his own research and really got comfortable with how DST 1031 exchanges work. Over the months he asked many questions, and we were always there for him with answers and guidance. Plus, he really got to the point several years ago where he didn’t want to be a landlord anymore. He was proud of himself for having built such a portfolio during his younger years, but he just reached a point in his life where he wanted to start selling some of his investment properties,” said Jason Salmon, Senior Vice President and Managing Director of Real Estate Analytics with Kay Properties & Investments.

Because the investor had already completed at least one DST 1031 exchange and was comfortable with the investment vehicle, Salmon explained he now wanted to slowly liquidate his real estate portfolio. The investor, along with his CPA and attorneys, worked closely with Salmon and the Kay Properties team of DST experts to create a very detailed plan that included anticipated closing times on the relinquished properties, timelines for finding and vetting replacement properties that fit within the investor's very specific parameters, and creating a workflow that coordinated all the necessary paperwork and signatures so that everything was organized and every closing went smoothly.

“Some sales overlapped with each other, and so it became a cadence -- one after the other, after the other, after the other, after the other. We are in constant contact and we really immerse ourselves into finding just the right DST property or properties that fit perfectly into his 1031 investment model,” said Salmon.

The investor, Salmon explained, invested in industrial distribution, net lease, self-storage, medical, and multifamily DST investments that were for sale across multiple geographic regions.

“The gentleman is very, very comfortable with DSTs at this point, and is very pleased with the diversification, passive ownership, and potential monthly income stream that he has been able to accomplish. I believe his intention is to not buy any more rental real estate, and continue to move into DST investments on a systematic basis,” said Salmon.