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Betty Friant, CCIM, Executive Vice President and Managing Director of Kay Properties & Investments.

For real estate investors who are considering a 1031 exchange, the Delaware Statutory Trust is a popular strategy. A DST is an ownership structure for real estate-related 1031 exchanges in which investors each hold an undivided beneficial interest in the real estate trust. “Beneficial interest” means each investor within the trust holds a percentage of the real estate assets within the DST.

Real estate investors are especially attracted to DSTs because IRS revenue ruling 2004-86 blessed DSTs to qualify as “like-kind” investment properties for the purposes of a 1031 exchange.

What Is The Full-Cycle Event In A DST Investment?

One of the most important parts of DST 1031 exchange investments that real estate investors should understand is what a “full-cycle event” is and how it impacts a DST investment’s long-term strategy.

For DST investments, the term “full cycle” refers to the complete life cycle of a DST investment, from when the real estate asset was initially acquired all the way through its ultimate disposition or sale. This life cycle begins with the acquisition of the underlying real estate assets by the DST sponsor company, followed by the offering of beneficial interests within the DST to investors seeking a 1031 exchange strategy.

Throughout the investment period, investors have the potential to receive regular distributions from the rental income generated by the properties held within the DST as well as the potential for appreciation and tax benefits.

Once the investment’s objectives or other determining factors have been met, the DST sponsor company will initiate the disposition phase. The disposition means selling the properties within the DST and fully liquidating the investment.

This brings up another positive aspect of DSTs regarding full-cycle events, namely how investors’ potential proceeds are distributed. DST investors receive 100% of their pro rata portion of the net sales proceeds on the property. The term “pro rata” comes from the Latin term “in proportion,” which means a process by which investors will be assigned an amount of return according to their beneficial percentage ownership.

The distribution process of DSTs differs from other investments, such as REITs, crowdfunding structures or even real estate funds, where investors receive a preferred return, and any leftover profits are distributed in the form of a “waterfall split” with the real estate sponsor company. These splits can be a 50/50 split between the investors and the sponsor company or even a 70/30 split where the sponsor company receives 70% of the profits following paying investors their preferred return.

How Long Is The Life Cycle Of A DST Investment?

The answer to this varies, but typically, I see these investments have three- to seven-year hold periods. But some DSTs can take as long as 10 years to go full-cycle.

Speaking from our firm’s experience, our founder, Dwight Kay, personally invested in a DST that took more than 12 years to go full-cycle. Conversely, we have also seen DSTs go full-cycle after just a year and a half.

That’s why it is important for investors to recognize that unlike stocks or other liquid investments, DSTs are real estate investments that have a “buy and hold” strategy. For this reason, DST properties are considered illiquid investments, and investors should be prepared to hold the investment throughout the full investment cycle.

What Happens When A Full Cycle Ends?

After a DST investment goes full-cycle, investors have to consider their next investment strategy, which can include, among other options:

• Sell the investment and pay any associated taxes with the investment.
• Reinvest via another 1031 exchange (DST or another eligible like-kind property).
• Invest in a whole property.

Understanding the full cycle of a DST investment helps investors understand the expected duration of their involvement and the possible timing of the potential return of capital. Therefore, it is critical for investors to review the investment’s projected holding period, business plan and risk factors as outlined in its private placement memorandum.

Potential returns/appreciation not guaranteed & loss of principal is possible. Speak with your CPA/attorney for tax/legal advice.

You can read the original article here.

While all real estate investing has its risks, student housing, senior care facilities and hospitality properties face extra challenges.

When it comes to investing in a Delaware statutory trust (DST), investors should understand that not all asset classes are equal.

Typically, Delaware statutory trusts include core real estate asset classes such as retail, multifamily, net lease, industrial, medical office buildings and self-storage facilities. And while all real estate investing contains the potential for risk, when it comes to investors evaluating which asset classes to include in their Delaware statutory trust or 1031 exchange, the process should always start with what asset classes to avoid in order to mitigate the exposure to excessive risks associated with a specific asset class.

Kay Properties and Investments believes there are three asset classes DST investors should avoid when considering investing via either a 1031 exchange or direct cash investment, including:

• Student housing
• Senior care facilities
• Hospitality properties

First DST 1031 asset class to avoid: Student housing

Let’s face it, there are a lot of very exotic asset classes that are pitched to 1031 exchange and Delaware statutory trust investors these days — oil and gas programs, solar farms, land sponsored by developers seeking cheaper financing than alternative sources from 1031 investors, sale leasebacks with private companies the sponsor is propping up with free rent and more. One of these asset classes to avoid is student housing.

Reason: Black swan events such as COVID-19.

The overall occupancy and performance of student housing relies on a single demand generator: the university or college. As a result, these assets can be negatively impacted by the local college or university. For example, the recent COVID-19 pandemic was a real black swan event that exposed just how vulnerable student housing is for investors, who saw dramatic increases in vacancy due to universities shutting down.

This resulted in lowered or suspended cash flow distributions to many 1031 DST investors for months and even years on their 1031 exchange investments. When the government forced many colleges and universities to shut down, many of the students went home and no longer had a need for student housing. This created a spiral for many DST student housing projects.

Investors should be aware that these risks are very real, and they should proceed with caution prior to investing in student housing. A quick internet search for “student housing foreclosure” will bring up many articles of horror stories for investors regarding student housing properties.

Second DST 1031 asset class to avoid: Senior care facilities

A second asset class that DST investors should be wary of is senior care facilities. The fascinating thing about senior care facilities, however, is that they have a very compelling story for the untrained eye. For example, Baby Boomers are the largest demographic in American history, and they are creating a rise in demand for senior care properties each and every year. This makes sense and sounds attractive.

However, the problem that is often overlooked is that senior care properties carry significant risks that can drastically impact a property’s net operating income (NOI) and the ability of the asset to pay investors' distributions and monthly lender debt service.

Reason #1: Senior care is a heavily regulated business.

Senior care is one of the most highly regulated industries in the nation, with licensing and permits required to operate such facilities. This includes a trend toward heightened regulation requiring more caregivers per tenant residents in recent years across many states. All of this is exacerbated by the fact that senior care properties are subject to random inspections, and infractions may be subject to a remediation period.

Any significant infractions could potentially result in a loss of the facility’s license, which would result in a loss of rental income, the ability to pay investor distributions and ultimately the ability to pay monthly lender debt service… resulting in foreclosure and complete loss of invested capital.

Reason #2: Senior care is a business with a real estate component.

Senior care is not a typical real estate investment like multifamily, medical office or even single-tenant net-lease property. Senior care is a business with a real estate component. So anyone investing in senior care carries not only the inherent risk of real estate investing, but now they are taking on additional business risk with a very vulnerable tenant base (the elderly). This places extraordinary pressure on the operator or company that is running these facilities, who can often face expensive and damaging litigation challenges.

Reason #3: High expenses.

Expense ratios for senior care properties are often much higher than traditional multifamily apartment properties due to several reasons. For example, these facilities obviously require dietary and nursing components, both costly line items that could impact potential returns for DST investors.

Senior care facilities also carry higher general liability insurance and workers’ compensation insurance requirements.

In addition, there is high staff turnover for senior care properties due to the ultra-demanding work of caring for elderly tenants combined with the relatively low wages that staff caregivers receive. As a result, staffing volatility can be extremely costly in the form of never-ending training costs, as well as having an impact on occupancy because of the resulting uncertainty for the residents and their family members.

Reason #4: Beware of lawsuits.

Unfortunately, due to the highly vulnerable nature of the elderly population who live at senior care facilities, the risk of owners facing litigation is much greater than with other traditional commercial real estate asset classes such as apartments, office, industrial and single-tenant net leases. A quick internet search will undoubtedly showcase dozens of senior care properties being sued by family members of their elderly residents.

Individually, these risk assessments can potentially be mitigated, but when taken in totality, the combination of regulatory pressures, licensing issues, high expenses and the potential for lawsuits can quickly destroy a DST’s cash flow and ability to meet monthly lender debt service.

Third DST 1031 asset class to avoid: Hospitality

Another asset class that has historically come with more inherent risks than traditional real estate asset classes is hospitality properties.

Reason #1: Boom and bust cycles.

Hotel property values tend to be very volatile, constantly in the cyclical motion of up and down. For example, following the Great Recession, hotel asset values fell more than 40% from their peak in 2006. After recovering in the subsequent years, the hotel investment asset class took another major hit during the pandemic.

According to the National Institutes of Health, U.S. hotel assets lost an excess of $46 billion in 2020, including the loss of 4.8 million hospitality jobs. This extreme volatility has been devastating to many hotel assets and therefore makes the asset class a very risky one indeed for real estate investors. Again, a quick internet search for “hotel foreclosure” will show myriad articles of recent high-profile hotel investors that had to hand the keys back to their lender.

Reason #2: Management intensity.

Hotels have the highest turnover of any asset class in the great real estate arena, with the average lease term expiring every 18 to 24 hours as guests come and go. As a result, the need to fill rooms is a constant battle, and a small glitch in marketing, a corporate change, a breakdown in reservation infrastructure or a pandemic can significantly affect the bottom line, which in turn can cause asset values to suffer immensely.

Reason #3: Shifting trends.

Because hotels rely heavily on their direct location or proximity to destination spots, relying on the fickle nature of “what’s cool” today combined with any changes in demographics can have a devastating impact on hotels. For example, a major hotel chain had to close its doors in San Francisco due to crime and a wave of homelessness.

Another trend that is impacting the hotel investment arena is the fact that corporate and leisure vacation travel has been declining due to recessionary pressures. In addition, hotel investors are being impacted by the reality that technology continues to remove the need for corporate travel and proves an easy way for companies to cut costs.

Reason #4: Financing risks and foreclosure.

Very often, hotels have large balloon mortgages whereby the property's loan comes due in five to 10 years. With the recent rise in interest rates, many hotel owners will be challenged to refinance and face the risk of foreclosure. According to the American Hotel & Lodging Association and Trepp, payments on nearly one-fourth of all loans backed by hotel real estate were delinquent during 2020 by at least 30 days, signaling an imminent and unprecedented wave of hotel foreclosures.

While all real estate investing carries risk, when it comes to investing in DST properties, investors should avoid these three asset classes and consider more traditional real estate investment real estate properties.

At Kay Properties, we encourage our clients to consider DST 1031 exchange investment asset classes that we witnessed performed well throughout the Great Financial Crisis, throughout the COVID-19 pandemic and throughout the recent rise in interest rates and ensuing market turmoil.

Of course, past performance is no guarantee of future results. However, we believe understanding the DST investments that have performed and those that have not performed is incredibly prudent for today’s 1031 exchange DST investor.

You can read the original article here.

The Raleigh, North Carolina Medical Office Building (MOB) DST successfully delivers uninterrupted distributions for Kay Properties investors as well as meaningful appreciation. The DST offering was a custom program designed exclusively for Kay Properties clients.

Key Highlights:

-- Custom Medical Office Building DST property goes Full-Cycle -- The DST investment realized an 12.14% total annualized return for investors and a 1.91x equity multiple. ** -- The Raleigh MOB DST offering successfully delivered uninterrupted monthly distributions at an average annualized rate of 6.07% throughout the 7.5 year hold period and throughout the COVID-19 pandemic. ** -- Custom Medical Office Building delivered meaningful equity growth, and appreciation for Kay Properties 1031 exchange and DST direct cash investors.* LOS ANGELES, Aug. 16, 2023 /PRNewswire/ -- Kay Properties and Investments, a national real estate investment firm and operator of the www.kpi1031.com investment marketplace that specializes in Delaware Statutory Trust investment options for 1031 exchange and direct cash investments, announced their strategically located Raleigh, NC DST Medical Office Building offering went full cycle on behalf of multiple 1031 exchange and direct cash investors.

"Full Cycle" is the name used to describe a Delaware Statutory Trust property that is purchased and then sold on behalf of a group of accredited investors after a period of time.

According to Dwight Kay, Founder and CEO of Kay Properties, the Raleigh, NC DST investment sold for $6,950,000 on behalf of a group of DST accredited investors who, for those investors that closed simultaneously on the DST investment the same day that the property was purchased, realized a 12.14% total return and a 1.91x equity multiple** on their investments.

"Like many of our DST offerings, the Raleigh, NC Medical Office Building DST was offered to both 1031 Exchange and direct cash investors. We are very pleased to have provided another successful custom DST investment opportunity for our clients that resulted in a full-cycle liquidity event with meaningful uninterrupted monthly cash flow distributions, equity growth and appreciation*. As always, past performance does not guarantee future results and we encourage all investors to read each Private Placement Memorandum (PPM) in its entirety prior to investing in real estate and DST offerings," said Kay.

Chay Lapin, President of Kay Properties also pointed out that the Raleigh, NC offering provided investors uninterrupted monthly distributions throughout the hold period and during the entire COVID-19 pandemic, a significant accomplishment considering the volatility of many other real estate investments during the Coronavirus pandemic.

"While past performance does not guarantee or indicate the likelihood of future results, our Raleigh, NC is another great example of why Kay Properties is committed to providing investors quality Delaware Statutory Trust offerings that are designed to mitigate risk* through a variety of investment strategies," said Lapin.

Kay Properties Executive Vice President and Managing Director, Betty Friant explained that one of the investment strategies that Kay Properties continues to emphasize is identifying geographic locations that have the potential to provide value for investors.

"This Medical Office Building DST is a great example of this. Kay identified the Raleigh Metropolitan area is home to some of the largest national and international employers, including SAS Institute, MetLife, Caterpillar, John Deere, Verizon Wireless, Siemens Medical Solutions USA, Kellogg's Snacks, and Oxford University Press. In addition, the Raleigh region is home to some of the nation's top universities, including Duke University, North Carolina State University and the University of North Carolina at Chapel Hill, as well as other numerous well-regarded local colleges. The Kay Properties team felt that the combination of these ingredients coupled with the quality of the asset itself would have the potential to deliver positive returns for our investors. Of course, we always want our investors to know and understand the risk factors of real estate and DST investments as well as we strive to remind them that past performance of any Delaware Statutory Trust investment such as this one will not guarantee future results," said Friant.

According to Jason Salmon, Executive Vice President and Managing Director, the entire Kay Properties team played an important role in educating clients on the potential benefits and the potential risks of investing in real estate and DST investments.

"While there are never any guarantees when it comes to real estate, we are honored to have been able to provide this positive outcome to our investors. Many clients come to Kay Properties wondering 'Are DSTs a good investment?', and the answer to that is simple, yes they can potentially be good and equally so, they can be bad. For those investors that invested with other groups outside of Kay Properties into a senior care or hospitality DST that stopped paying cash flow and resulted in a loss of principal, the DST investment was not good. For those investors that participated in this Kay Properties custom DST in Raleigh, NC that just went full cycle at a 1.91x equity multiple, it was indeed a good DST investment. Unfortunately, with all real estate investments there are no guarantees for cash flow or appreciation as well as property values can go up and they can go down, which is why it is vitally important for investors to read each offerings Private Placement Memorandum (PPM) to understand the business plan and risk factors of the offering. Also, it is important that investors understand that there are indeed higher risk asset classes in the DST space such as senior care and hospitality that over the years have often underperformed for investors. At Kay Properties, we strive to educate our investors on these risk factors as well as to reject all senior care and hospitality DST offerings to reduce potential risk for our investors.

You can read the original article here.

Kay Properties & Investments Announces Best First Quarter Results Ever for Both Equity Placed and Number of Delaware Statutory Trust and Real Estate Investment Fund Transactions Completed

TORRANCE, Calif., June 28, 2022 /PRNewswire/ -- 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 a record first quarter after successfully placing $141,621,871 million in equity for accredited investors participating in 1031 exchanges, Qualified Opportunity Zone Funds and direct cash investments into real estate offerings. This amount represents an 11.32% increase over the first quarter of 2021, and indicates Kay Properties is once again on its way toward a record-breaking year.

For the first three months of the year ending on March 31, 2022, Kay Properties saw a 37.9% increase in the total number of transactions performed on behalf of accredited investors who invested in DST assets within the multifamily, manufactured housing, single tenant net lease, industrial, self-storage and medical properties nationwide as well as in Qualified Opportunity Zone Funds (QOZs) and direct cash investments into real estate offerings.

Founded by CEO Dwight Kay, Kay Properties & Investments is considered an expert 1031 Exchange and DST advisory firm, providing real estate investment options to high-net-worth clients seeking a passive management structure, and potentially broadening their real estate asset diversification via geography, asset class, and tenant mix.

The firm's first quarter results amplify its belief that Kay Properties has created one of the largest 1031 exchange and real estate investment online marketplaces in the country and generates some of the largest direct to accredited investor investment volume in the United States.

"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 believe our first quarter results reinforces our belief that the Kay Properties platform creates a perfect match for all sides of the 1031 exchange, QOZ and real estate investment equation," said Dwight Kay, Founder & CEO of Kay Properties & Investments.

Other notable trends for the first quarter include a growing number of investors across the country being attracted to Kay's custom DST properties and real estate funds found on the Kay online real estate marketplace as direct cash investments.

"We continue to see a growing number of high-net-worth investors participate in the offerings on the company's marketplace with direct cash investments, a trend that we are seeing growing tremendously. Investors continue to be drawn to DSTs as a tax deferral strategy for their 1031 exchanges as well as direct investments into real estate opportunities via the Kay online real estate marketplace at www.kpi1031.com. We wouldn't be in this amazing position if it wasn't first and foremost for the Lord, our amazing clients, and our team members nationwide," stated Kay.

As founder and CEO of Kay Properties, I talk with hundreds of clients each month, allowing me the privilege of listening to some fascinating life stories while helping people with their long-term investment goals. I recently encountered such a story when I met Frederick and Gloria*.

These two focused individuals met at Georgia State University. After graduating, they found jobs in Atlanta: Frederick as an accountant for a major home-improvement chain and Gloria as a history teacher at an Atlanta middle school. Eventually, the two decided to marry and begin a life together.

Neither Frederick nor Gloria came from wealthy families, but they both had a vision for building wealth and a plan for how to do it. Frederick’s background in accounting and finance taught him that one of the best ways to create wealth was through real estate while also deferring capital gains taxes. Through her love of history, Gloria also understood that the vast majority of the people in the United States who achieved financial success had done so through owning real estate.

So, the two sat down and plotted out a long-term, three-phase plan for entering the investment real estate world.

Building a Real Estate Portfolio in 3 Phases

Phase 1: The Purchase of Their First Rental Property

The first step in their plan was to invest in a single-family home rental property. Even though they understood there would be very little cash flow from this and money would be tight, they also knew that this first step, the entry point into real estate investing, would be the most important one for them in the long term.

Frederick flashed a big, proud smile when he told me that he knew at a very young age that while the cash flow would be minimal at best, they had youth on their side – both in years and in real estate experience, and they would use this investment property as a way to gain valuable experience.

The two also knew that even with a small down payment and large loan, the money was a secondary hurdle to achieving financial independence. The first hurdle they had to jump was to overcome inertia and the urge to overanalyze, and just make the move.

This is an interesting point, and I’ve heard it before from other experienced real estate investors.  When entering into the first phase of building a real estate portfolio, novice investors should not expect to find phenomenal deals or that one will just fall out of the sky. Frederick, too, believed the best strategy for acquiring anything in business was to emphasize the business strategy first over the financial strategy, then find a decent deal and move forward to secure it.

In the case of Frederick and Gloria, they knew the greater Atlanta market well, and with a handle on financing and basic accounting, Frederick also knew his numbers. He carefully detailed what their monthly expenses would be, including paying principal, interest, taxes, insurance and maintenance and what kind of rent they would have to receive to make the investment work.

After spending almost a year saving and searching, and with a little help from their parents, Frederic and Gloria purchased their first rental home – a small two-bedroom, one-bath house in the Atlanta suburbs, for approximately $62,000. While the numbers are only used as examples, the scenarios surrounding them are relatively accurate. For example, since they bought their first investment house in 1983, stagflation and high energy prices forced interest rates to reach nearly 13%. The total monthly payments on a 30-year loan were $442, and they were able to rent the house for $575.  It was tight, but they watched their pennies, and soon the rental property started to appreciate as they paid down the principal, which helped them build equity.

Phase 2: Building Cash Flow and Realizing the Tax Advantages of Rental Real Estate

Over the next decade, Frederick and Gloria worked hard at their jobs, gaining promotions and raises. Along the way, they refinanced their rental property, drastically reducing their interest payments and allowing them to pull out cash — which they used to strategically acquire more rental properties. In 10 years, they had grown their portfolio to six single-family homes strategically located throughout the Atlanta market.

These six homes together created a much better cash flow picture (approximately $9,500 a month), but because the two had carefully created a long-term real estate investment plan, they understood that Phase 2 was not only about increasing cash flow, it was also about reducing their taxable income, which would reduce their tax bill at the end of the year.

One way Frederick knew he could significantly reduce his tax liabilities during these years was to gain a real estate professional status (REPS). After considerable research, Frederick learned that the IRS considers anyone who fulfills these three conditions to be a REPS:

1. Over half of the personal services you perform during the tax year were in your real estate business.
2. You worked more than the minimum threshold of 750 hours during the tax year in real property trades or businesses.
3. You are actively involved in managing real estate investments. This includes buying and renting out commercial buildings or apartments and being involved in the day-to-day management of these properties.

Having spent every available hour developing his real estate portfolio over the past 20 years, Frederick easily qualified for this status and began reducing his taxable income by writing off significant passive losses, such as depreciation. As a result, the couple were not only building equity and realizing a moderate monthly cash flow through their rental properties, they were also sheltering their personal income.

Instead of paying 35% of their salaries to the government, they dropped their tax bill down to 15%. That included both their real estate income and salary income, which they continued to plow back into their growing real estate business.

As a result, Frederick and Gloria used their rental properties to double their net worth approximately every five years.

Phase 3: 1031 Exchange Exit Strategy to Defer Capital Gains Taxes and Preserve Wealth

Interestingly, Frederick and Gloria recently celebrated their 35th wedding anniversary. After working 50 hours a week with their full-time jobs and managing their six rental properties, they decided it was time to sell their real estate portfolio, step away from active management and live off the proceeds.

One of Frederick’s and Gloria’s neighbors was a real estate broker named Sue. They gave her a call to discuss selling some or all their real estate assets in the current sellers’ market. Two weeks later, the two received an estimate of what their portfolio was worth and were surprised to realize the total was $3.5 million.

But what about the taxes, they wondered?

Capital Gains Shock: Enter Chuck, the CPA

Frederick and Gloria had worked with Chuck (their CPA) for years, so they called him to get an idea of what kind of a tax event they would be looking at. After looking into Frederick’s and Gloria’s situation, Chuck explained that if they sold their portfolio, and paid the depreciation recapture tax of approximately 25% (of the depreciation they had previously written off), their federal and state capital gains tax of 20%, and their net investment income tax, or Medicare Surcharge Tax, of 3.8%, they would be looking at a tax bill of more than $350,000.

That number was unnerving, and while they were familiar with the 1031 exchange, they were not interested in reinvesting into another piece of property that would still require active management duties. They wanted a tax-deferral strategy that offered passive asset management and diversification.

That’s when Chuck recommended the couple investigate a Delaware Statutory Trust, which qualifies for 1031 exchanges and accomplishes the specific investment goals the two were looking for.

Chuck explained that like a 1031 exchange, all capital gains and other taxes would be deferred as long as they could find like-kind properties. But, a Delaware Statutory Trust also allows investors to 1031 exchange into potentially high-quality institutional-caliber real estate assets, eliminating active management while still potentially receiving a monthly income.

Frederick started researching DST 1031 exchanges, and he found that the Delaware Statutory Trust was established in 2004 and is covered in IRS Revenue Ruling 2004-86. He further discovered that the DSTs he had researched averaged around $100 million in value, and that, in many cases, DST properties were offered and operated by many large real estate firms nationwide. He was surprised to learn that over the past several years, billions of dollars of investors' equity had been moving into DSTs via 1031 exchanges as investors had caught on to the attractiveness of this time-tested strategy.

The notion of completing a DST 1031 exchange fit with Frederick’s and Gloria’s Phase 3 goals and objectives of their real estate investment journey. But with six different properties to sell, they were facing six different 1031 identification and closing deadlines. It was too much for Frederick, Gloria and even Sue to fathom.

Frederick decided to look for a DST 1031 specialist firm.

DST Specialist Helps Complete DST 1031 Exchange and Achieve Long-Term Strategy

That’s when they called me. For more than a year, we spoke together at length about various DST investment strategies and property options. I explained that real estate investments always present risks. They then developed a flexible business plan that included six properties in individual exchanges that could be adjusted when sales were delayed or deals changed.

It was during this time that I learned about their fascinating story. The thing about Frederick was that he worked in finance for a large company, so he really wanted to explore and study subjects himself. He would do his research, and we’d all get together for a call or video conference.

Frederick and Gloria consulted their CPA, tax attorney, children and even their friends and neighbors. After they were fully educated and comfortable with their options, they decided to start selling their portfolio and moving the proceeds to a 1031 Qualified Intermediary, and then to the DST sponsor companies that offered the targeted DST investment properties.

The DST advisory firm conducted thorough due diligence on each prospective DST property, including the macro and microeconomics, the assets and markets, the financing and the past performance of the sponsor companies. Through this type of detailed analysis, Frederick and Gloria had all their questions answered and felt comfortable with moving forward.

In the end, the couple sold their entire portfolio within two months, following a carefully laid out business plan that calculated multiple 1031 exchanges across a multitude of real estate asset classes, including debt-free multifamily properties, debt-free self-storage facilities, a debt-free medical building and debt-free net lease buildings.  And instead of a $350,000 tax bill, they paid nothing.

Now the couple enjoy a passive management structure with regular monthly income, and more time to spend with their children and future grandchildren.

*Note: While the events and scenario described in the following article are factual, the names and details have been altered to provide anonymity.

Kay Properties Delaware Statutory Trust and 1031 Exchange Expert, Jason Salmon Invited to Speak During New Jersey Real Estate Capital Markets Conference on Tuesday, June 21 in Edison, NJ

TORRANCE, Calif., June 20, 2022

Betty Friant CCIM is SVP and expert DST 1031 advisor for Kay Properties & Investments.

No question about it; these are turbulent times. Just read the headlines of pretty much any major news outlet, and you will be deluged by stories that would rattle even the calmest of nerves. Unsettling events are happening both globally and domestically. These events don’t just impact the psyche; they also can have significant financial consequences for all types of investors and entrepreneurs. For example, I know several business owners who were devastated by Covid-19 and forced to close their businesses. Because they owned the real estate where the business operated from, and because that real estate had appreciated over the years, they decided to sell their real estate assets. Similarly, many real estate entrepreneurs who invested in multi-family properties over decades have been negatively impacted by rent controls and eviction moratoriums and have similarly decided to relinquish their real estate holdings.

In both cases—business owners selling their buildings and real estate investors selling their rental properties—as a financial advisor, I encourage my clients to consider all-cash/debt-free Delaware Statutory Trust (DST) assets when entering a 1031 Exchange in order to reduce risk.

What is a debt-free Delaware Statutory Trust asset?

For those unfamiliar with the term, entrepreneurs and real estate investors don’t have to live in Delaware to invest in DSTs; Delaware was simply the state where the law defining a DST and its structure was created. This special kind of real estate investment vehicle has been blessed by the IRS to qualify as “like-kind” investment property for the purposes of a 1031 exchange.

It’s striking to me that most investors entering into a DST 1031 Exchange investment are incredibly focused on the specific asset in question. Whether it’s a multifamily building in Houston or a logistics/distribution facility in Gulfport, investors are typically well-versed with the location, income potential and type of tenant. However, what they sometimes overlook is what type of financing is in place for the investment property.

One of the ways investors can potentially reduce their exposure to risk—especially in turbulent times—is to avoid taking on any additional debt. While many 1031-eligible assets have debt associated with them, and not all debt is bad, many investors want to remain debt-free and take a conservative position on their 1031 investments. Many of my clients don’t want to increase their debt load, as many of them have already paid off their investment properties or business real estate assets and they just don’t want to go back into debt. This is the time in their lives when they want to reduce their exposure to potential risk and not increase it. Debt-free DSTs offer the perfect opportunity to invest in multiple asset classes and in different geographical regions without incurring debt.

Four reasons to consider this type of investment

If there’s one thing we’ve learned during the Covid-19 pandemic, black swan events can drastically alter economic patterns. Think about iconic brands that went bankrupt in 2020 (though some later emerged): Brooks Brothers, Guitar Center, JCPenney, Neiman Marcus and Pier 1. Entrepreneurs who decided to invest in single tenant-net lease buildings often faced a harsh reality after the businesses there went bankrupt or out of business and were unable to pay rent.

2. All-cash/debt-free DSTs can offer better cash flow potential.

With no monthly debt service to a lender, the all-cash/debt-free DST potentially can pay larger monthly distributions to investors.

3. All-cash/debt-free DSTs provide investors and entrepreneurs the ability to diversify a portion of their 1031 Exchange dollars into unlevered asset to lower potential risk

Many entrepreneurs who have invested heavily in the stock/bond markets turn to all-cash/debt-free DST properties as a strategy to diversify away from stocks and bonds.

4. All-cash/debt-free DSTs can help protect entrepreneurs and investors from the financial catastrophe of a complete loss of their principal due to a lender foreclosure.

While it is not common, investment property foreclosure can and does occur, causing investors to lose their entire investment. However, with all-cash/debt-free DST investment, investors never have to worry about a lender foreclosure because there is no monthly debt service attached to the investments.

Times are indeed turbulent, but considering all-cash/debt-free DST investments might be a good way to reduce investment risk and avoid lender foreclosure.

Key Takeaways:

• Investors can 1031 exchange out of their DST Investments
• What does it mean to have a DST 1031 exchange go full-cycle?
• Investors must conform to all of the 1031 rules when a DST goes full-cycle
• What is the Kay Properties DST Secondary Market?

Many investors that have participated in or are considering a DST 1031 exchange with Kay Properties will oftentimes ask us, Is it possible to 1031 exchange out of a Delaware Statutory Trust? If you’re looking for a clear and concise answer to this question, here it is: Yes, you can 1031 exchange out of a DST. But let’s dig a little deeper into this subject.

First Things First: What is a DST?

Let’s first look at exactly what is a Delaware Statutory Trust (DST)? DSTs are vehicles for passive real estate ownership that allow 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 potentially reduce risk. Each individual investor possesses his or her own share—sometimes referred to as a “beneficial interest,” including potential income, tax benefits, and appreciation of the DST property. A longer and more detailed article of exactly what a Delaware Statutory Trust is and why so many real estate investors are attracted to them can be found by visiting www.kpi1031.com.

Now the question of, “Can I 1031 exchange out of a DST?” can be addressed from two different perspectives. The first perspective involves when a DST property itself goes “full cycle.” The term “full-cycle” is used to describe a Delaware Statutory Trust asset that has been purchased and then sold on behalf of a group of accredited investors after a period of time. Once the DST sponsor has sold the asset per the DST’s business plan each individual investor then has the same options as they had when they first exchanged into the DST: They must use a Qualified Intermediary, identify the up leg within 45 days of the closing of the relinquished property and close on the up leg within 180 days of the closing of the relinquished property. If they choose to “cash out” following the full-cycle investment, they are required to pay their taxes.

A good example of a Kay Properties DST investment that went full-cycle is the Alexander Pointe Multifamily DST in Orange Park, FL.

Exchanging out of a DST before the investment goes full-cycle is a bit more detailed. Because DSTs are real estate-based investments, they are considered illiquid. There is no stock market exchange that allows you to 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.

However, it may be possible to sell your share of a DST and either cash out or pursue another 1031 exchange. While DST interests can be sold and transferred to an accredited investor, the most obvious purchasers of DST interests are other investors either in the same DST or outside investors who wish to acquire interest in the particular DST.

Please note that exchanging out of a DST prior to the investment going full cycle means that the investor must follow all the same rules as any traditional 1031 exchange. That is, investors must use a Qualified Intermediary, they must identify their up leg within 45 days of the closing of their relinquished property and they must close on their up leg within 180 days of the closing of your relinquished property.

Kay Properties Secondary Market

Because Kay Properties understands investors might need to exit a DST prematurely, they created a DST Secondary Market where investors who want to sell early have a potential market available to buy their interest in the DST investment. The Kay DST Secondary Market is made possible due to the fact that Kay Properties works with many DST buyers on a daily basis. Kay Properties helped clients purchase approximately $30 billion of DST investments since its founding. 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 may be a potential option.

For a list of 1031 DST properties, please visit www.kpi1031.com as well as you will find more helpful articles and resources as you are considering 1031 exchange DST properties.

Dwight Kay is the CEO and founder of Kay Properties and Investments, LLC, New York, N.Y.

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 FINRA, SIPC.

You can read the original article in NEREJ

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.

Local real estate broker liaisons with Kay Properties to capitalize on the firm’s reputation as specialist in DST 1031 exchanges, and its dedication to provide concierge-level service and education on behalf of real estate investors to create a customized 1031 exchange strategy

LOS ANGELES, Sept. 23, 2021 (GLOBE NEWSWIRE) -- Kay Properties & Investments recently announced another successful completion of an all-cash/debt-free Delaware Statutory Trust 1031 exchange. The transaction highlighted the perfect coordination between real estate brokerage representation, enlightened clients and a DST 1031 expert advisory firm to orchestrate the successful 1031 exchange of a vacant lot into a $2-million diversified portfolio.

“Kay Properties & Investments is very special to the 1031 exchange market because we do nothing but work in the DST space day in and day out. For many years, investors like these have chosen Kay Properties for our vast selection of DST opportunities, vigorous DST due diligence process, extensive expertise in real estate, and relentless dedication to customer service,” said Dwight Kay, Founder and CEO of Kay Properties & Investments.

According to Chay Lapin, DST 1031 expert and Kay Properties President who supervised the exchange process, the transaction first entailed extensive education for both the real estate broker and the investor client. This included reviewing potential DST properties that would possibly be a good fit for the investor’s long-term plans, lengthy discussions about the potential benefits and risk factors of investing in real estate and DST investments, and then creating a detailed business plan that ensured the multiple 1031 exchanges would be met within the allotted time frame, along with zero debt (aka debt-free Delaware Statutory Trust investments) with a passive management structure, and targeted monthly cash flow to the investor.

“What made this DST 1031 exchange so special was that it was originally brought to us through the real estate broker. She not only understood that there would be some significant tax consequences following the sale of this unique parcel of land but also understood she wasn’t experienced enough to accurately guide her client through the nuances and rules associated with DSTs. She was, however, taking care of her client’s best interest, and incredibly insightful to recognize that a DST investment would be a perfect fit for her client’s needs even though she knew that since she was not a licensed securities representative, she would not be able to receive compensation for the referral,” said Lapin.

After coordinating with the real estate broker and client on the sale of the land parcel, the Kay Properties team of Delaware Statutory Trust 1031 experts worked closely with the client’s entire family to identify and ultimately invest in five different debt-free DST offerings. As a result, the client was able to defer all the accumulated capital gains and depreciation recapture taxes upon sale of the land and invest the entirety of the tax-deferred capital into Delaware Statutory Trust offerings. By utilizing the Kay Properties 1031 DST marketplace at www.kpi1031.com, the client was grateful to be able to diversify into passive DST investments with the potential for monthly cash flow.

As a result, the client was able to diversify across multiple asset classes, including medical, commercial and industrial, while also spreading their investment across multiple geographic regions.

Matt McFarland, Vice President and DST 1031 specialist with Kay Properties, emphasized that one of the most valuable attributes Kay Properties brought to this client, like all their clients, was valuable information in the form of detailed education on the nuances of the DST investment marketplace.

"Through the education and explanation of the investment process, we encouraged the active engagement of all family members, as the decision to invest in DSTs is really a collaborative group effort for not only the investor but also their family members and their heirs. Family members are able to bounce ideas off each other and ask questions that the individual may not think to ask. When all the exchanges were completed, the client reached out to me to inform me how grateful he and his family were to get to work with the Kay Properties team and our significant menu of debt-free DST properties in addition to our access to the marketplace of DSTs both with debt and without,” said McFarland.

As part of a broadly diversified investment portfolio, passive real estate makes sense for many near retirees. Some are folks who own income-generating rental properties, for instance. They enjoy the cash flow, but are past the life stage where they’re okay with phone calls at 3 a.m. from tenants with HVAC issues. Others don’t own private equity real estate, but should. Owning-highly correlated investments isn’t a wise way to start retirement. Passive real estate usually has low correlation with financial markets.

“People planning for retirement should know investment properties have the potential to generate monthly income and appreciation as part of a diversified portfolio of stocks, bonds and alternative investments,” says Dwight Kay, founder and CEO of Torrance, Calif.-based Kay Properties and Investments.

“Investment properties, as a class, are not correlated to the stock market, which is one reason to include them in a diversified investment portfolio. Of course, diversification does not guarantee appreciation or protection against losses, although many believe it is a prudent investment strategy.”

Several alternatives

Those seeking to build a passive real estate investment portfolio for retirement planning can pursue one of several avenues, Kay says.

Real Estate Investment Trusts (REITs) are the first of those options. Some of those building a retirement investment portfolio buy into the REIT market through their stock brokerage accounts and retirement plans.

A REIT is a company that owns, operates or finances real estate generating a steady stream of income for investors. The real estate can be in multifamily rental properties, hotels, distribution centers, shopping malls, office buildings, medical centers, data centers, cell towers and more. Like a mutual fund, A REIT is comprised of a basket of investments, in this case real estate investments. Investors are able to earn dividends from investments in real estate. But they’re freed from the chore of buying, managing or financing any property. In addition, most REITs are traded like stocks. That means unlike holdings in physical real estate, REITs are exceptionally liquid. The negative to REITs is inability to defer taxation on capital gains from sales of shares. When REIT shares are sold, the seller must pay capital gains tax on any gains.

Delaware Statutory Trusts (DSTs) are a form of direct real estate ownership. Industrial, multifamily, self-storage, medical and retail are among the real estate types that can be owned within a DST. The properties are often institutional quality, not unlike properties owned by pension funds and insurance companies. Day-to-day care of the property is handled by an asset manager, who oversees all investor reporting and monthly distributions. Capital gains in DSTs can be deferred as long as the gains are reinvested in other properties. Reinvestments take place in 1031 exchanges.

Who uses DSTs? Cash investors with $25,000 or more to invest, as well as investors who seek a replacement property as part of a tax-deferred 1031 exchange solution.

Tenants-in-Common Properties, or TICs, allow investors to own a fractional interest in a property. Investors receive a pro rata share of the future income and appreciation of the real estate. TIC investors generally are able to vote on property issues. Among those could be whether the property should be refinanced or sold. TIC investments and DSTs are different, but often hold the same kinds of properties, and both qualify for 1031 exchange tax treatment.

Investors in passive real estate investments can reduce risk by diversifying across asset types and geographies, by seeking fractional ownership of investment properties and avoiding highly-volatile asset classes, such as hotels, senior living facilities and oil and gas-related properties, which carry higher risk than other property types.

Investing in real estate doesn’t necessarily mean taking on a lot of debt, Kay says. There exists a range of professionally-managed real estate investment vehicles, such as those just described, that have little or no leverage. “Leverage is not always necessary to generate attractive returns,” he says.

• $408 million in equity investments from high-net-worth investors in 2020

• DSTs, Real Estate Funds and other investments demonstrate their attractiveness to investors seeking to potentially minimize tax consequences, generate income and build wealth

LOS ANGELES, Jan. 27, 2021 (GLOBE NEWSWIRE) -- Kay Properties, which operates an online 1031 exchange property and real estate investment marketplace, topped $408 million in investments from high-net-worth investors in 2020, the firm said today. The volume, a record for the company, is 77 percent higher than the previous record set in 2019, when the firm saw $230 million invested on its platform.

Kay Properties (www.kpi1031.com) is a national investment firm specializing in Delaware Statutory Trust (DST) investments and private equity real estate investments. The vast majority of investments made on the Kay Properties platform are for 1031-exchange replacement properties, and 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 by reinvesting the proceeds in qualifying properties of a similar kind. So-called “like-kind exchanges” are allowable under U.S. Internal Revenue Code Section 1031.

The $408 million invested on the Kay Properties platform in 2020 was invested in $6 billion of real estate offerings representing 43 million square feet of space. Investments were made in multifamily, manufactured housing, single tenant net lease, industrial, self-storage and medical properties.

Based on publicly available information and understanding of industry participants, Kay Properties believes it maintains one of the largest syndicated 1031 exchange and real estate investment marketplaces online, with some of if not the highest investment volume in the U.S. While a large amount of people investing in properties on the kpi1031.com marketplace are seeking like-kind exchange properties, all high-net-worth investors are welcome to participate in the offerings on the company’s marketplace.

“2020 was a remarkable year for the 1031 exchange property market, including DSTs, as well as the private real estate investment offering market,” says Dwight Kay, CEO and Founder of Kay Properties. “Despite and sometimes even because of the pandemic, property owners were motivated to sell. For investors with capital gains, reinvesting the proceeds in qualifying properties including DSTs allows them to defer capital gains taxes. That’s not the only reason people invest in DST properties and private real estate investments. They also can be part of a diversification strategy with the potential for appreciation and monthly income.”

“Over the years, we’re pleased to have helped thousands of high-net-worth investors across the country deploy a proven, highly effective investment and tax strategy. We also would like to thank all of our investors from over the years as well as the numerous DST sponsor companies and other real estate operators that we have worked closely with. The kpi1031.com online marketplace truly has become a best-in-class robust platform connecting high-net-worth investors with quality real estate offerings and equally a place for real estate sponsors and operators to connect with thousands of high-net-worth investors seeking to deploy capital into real estate offerings. A perfect match in our opinion and one we are incredibly grateful for. We will continue to work tirelessly on behalf of all of our investors, team members and industry sponsor partners to, Lord willing, continue this great path forward.”

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

Last year, the homeownership rate in the U.S. hit a post-Great Recession high, reaching about 68%, according to the U.S. Department of Commerce. Despite the pandemic (or maybe because of it), the housing market remains relatively strong. Low interest rates have helped the sector, including by allowing people to refinance their mortgages and save money every month.

While homeownership is a significant contributor to Americans’ wealth, it’s no substitute for the potential benefits of investment real estate. Investment properties may appreciate in value — like your residence — but also potentially generate monthly income while you own them — unlike your home.

Income-generation is a key reason many people diversify their investment portfolios to include different types of commercial, net-lease, self-storage, medical and multifamily real estate assets. And who wouldn’t benefit from additional monthly income? Certainly, retirees or near-retirees would, as would most other people. Additional monthly rental income can be used to support living costs, be reinvested or be saved.

Real estate investments that are cash-flow positive will potentially generate monthly income for investors. Notably, many real estate investments are predictable and durable in their ability to generate monthly income — although rental income is never guaranteed as real estate is not a bond but a living, breathing asset. During the pandemic some assets are performing particularly well, such as leased properties occupied by essential businesses, including drugstores, medical services, and shipping company industrial distribution facilities that deliver products purchased through e-commerce.

There are multiple ways to participate in the investment real estate market in pursuit of income and appreciation. Here’s a look at four ways to invest in real estate with income potential.

Real Estate Investment Trusts (REITs)

The market for publicly traded REITs is well established, and many people access the market through their retirement plans and stock brokerage accounts. REITs are typically companies that own and operate real estate, so you’re investing in the company, not just the underlying real estate. REITs pay out their income in the form of dividends, which are taxable.

The biggest downside to REIT investments (aside from their high correlation to the overall stock market and the volatility it ensues) is the absence of the ability to take advantage of a 1031 exchange — and thus defer taxation — on any capital gains from the sale of shares.

An example: Bob has invested $100,000 in a REIT that owns shopping centers. There is no monthly income provided by the REIT, but every quarter the company pays out the majority of its earnings, if any, in the form of dividends. The dividends are taxable as ordinary income. When Bob sells his shares, if there is a gain he will pay capital gains tax on the gain.

Direct Ownership of Triple-Net Leased Property

Triple-net leased properties are typically retail, medical or industrial facilities occupied by a single tenant. With a property of this type, the tenant — not the owner — is responsible for the majority, if not all, of the maintenance, taxes and insurance expenses related to the real estate. While these benefits can be potentially attractive, direct ownership of such properties comes with distinct downsides, starting with concentration risk if an investor places a large portion of their net worth into a single property with one tenant. Other risks are potential exposure to a black swan event, such as COVID-19, if the tenant turns out to be hard hit, and management risk.

I have owned dozens of triple-net properties over my career and they are anything but passive … they require intensive asset management to properly operate them.

LOS ANGELES, Dec. 22, 2020 (GLOBE NEWSWIRE) -- Kay Properties is proud to announce the successful completion of a family's 36-million-dollar 1031 exchange diversified into 15 Delaware Statutory Trusts.

Chay Lapin commented, "At Kay Properties we have specialized in providing a far higher level of DST investing services than found at typical providers of DSTs. We specialize in DST investments thereby allowing us to provide full-service resources for our clients as they are going through their 1031 exchange situation and consideration of DST properties. As always, working with our many high-net-worth investors, there are a lot of moving parts. Kay Properties has a full team behind our clients that provides them with much needed resources for their 1031 exchanges into DSTs such as our 1031 investor marketplace at www.kpi1031.com, 1031 DST educational process, DST property due diligence, mystery shopping each DST property, transaction coordination and our Kay internal investor relations team."

Kay Properties and Investment's Senior Vice President Chay Lapin and Vice President Steve Haskell spearheaded the 1031 exchange. They guided the transfer of equity from a multifamily apartment building portfolio in California that the family had owned for many years to a diversified portfolio of 15 DSTs with over 19 properties in 10 states. The replacement property DST portfolio consisted of a variety of industrial, self-storage, medical, net lease and multifamily assets. Kay Properties and Investments coordinated with eight different Delaware Statutory Trust sponsors to swiftly execute the exchange prior to the closing of the client's 45-day window.

Steve Haskell stated, "We are appreciative of the many DST sponsors we worked closely with on this exchange. At Kay Properties the platform we provide via the kpi1031.com marketplace is a welcome relief to investors that previously had only worked with one stockbroker who really has little to no experience selling securitized real estate via a 1031 exchange -- which unfortunately is how many DST investors end up over-allocating their 1031 dollars into the wrong DST offerings, at the wrong leverage amounts and in the wrong asset classes when compared to their goals and objectives. Education is of utmost importance in the DST 1031 industry, and unfortunately many participants that sell these types of offerings are themselves not educated as to how DST investments work and, as a result, the clients are the ones that can suffer greatly. We have seen it over and over and have many clients we have inherited that told us they wish they had known about Kay Properties and the www.kpi1031.com marketplace on their previous exchanges. This was an example of a family of clients that were able to fully educate themselves on the DST 1031 investment process while working with our entire Kay team."

Dwight Kay, Founder and CEO of Kay Properties, concluded, "Another satisfied customer added to the list of thousands nationwide who have utilized Kay Properties and the www.kpi1031.com marketplace for their 1031 exchange and cash investments. We are thankful to the Lord for all of His blessings over the years, thankful to our many DST sponsor company partners who we work closely with and thankful to the thousands of Kay Properties clients nationwide."

Millions of Americans invest in alternative assets, including real estate. It’s an important step to diversify a portfolio with investments that don’t necessarily correlate with the stock or bond markets.

Here are five tips to help construct a diverse real estate investment portfolio that has the potential to generate income and appreciation. At the end of the day, diversification does not guarantee profits or protect against losses, but it can potentially help!

Step #1: Diversify your investments by property type.

Investors should diversify their real estate portfolios by asset type (also known as asset class) to avoid the risk of over-concentration in one particular category or class of property, just as you avoid over-concentration in any one stock or single investment. That means investing in multiple types of income property, from multifamily to industrial to net-leased retail to self-storage to medical office.

Step #2: Diversify your investments by geographic location.

Investors should diversify their real estate portfolios across geography to avoid the risk of over-concentration in a particular local or regional market. In other words, make sure your investments are in multiple markets, ideally in different regions around the country to potentially insulate yourself from a single geographic event such as a hurricane, earthquake, sweeping rent control measures or other tenant- friendly laws or regulations that could disrupt investment performance.

Step #3: Avoid higher-risk and volatile property types.

All investment real estate is not created equal. Some asset types have demonstrated they are much higher risk and recession-prone than others. These include hotels and lodging properties, seniors housing in all its forms, and real estate used in the production of oil and gas.

Hospitality, for example, has been hit hard by all three recessions since 2000 and was especially disrupted by the COVID-19 pandemic as travel both for business and pleasure ground to a halt. Senior care is another sore spot, with seniors housing, assisted living, long-term care facilities and nursing homes all subject to regulations that increase the risk of operations and ownership, as well as laws that can greatly affect an asset’s performance. Oil and gas royalties and drilling, likewise, are subject to higher volatility by their very nature. If an oil well doesn’t produce as expected despite due diligence, the underlying asset value can take a serious tumble.

Step #4: Consider the different types of passive real estate investment options.

Unless you want to actively manage your investment properties, passive real estate investments can be the way to go as you are searching for real estate investment opportunities that you don’t have to manage yourself. There are a range of options to choose from, including publicly-traded real estate investment trusts (REITs), Delaware Statutory Trusts (DSTs), Tenants-in-Common (TIC) properties, debt-free real estate funds (those that do not have long-term mortgages associated with them, which reduces the risk potential to investors) and private equity funds, including Qualified Opportunity Zone (QOZ) funds.

REITs: The market for publicly-traded REITs is well-established, and many people access the market through their retirement plans and stock brokerage accounts. REITs are typically companies that own and operate real estate, so you’re investing in the company, not just the underlying real estate. REITs pay out their income in the form of dividends, which are taxable. The biggest downside to REIT investments (aside from the high correlation to the overall stock market and the volatility it ensues) is the absence of a key tax benefit (see Step #5 below).

DSTs: Most types of real estate can be owned in a DST, including industrial, multifamily, medical office and net lease retail properties. Often, the properties are institutional quality, similar to those owned by an insurance company or pension fund. The asset manager takes care of the property day-to-day and handles all investor reporting and monthly distributions of the properties’ potential cash flow to investors.

TICs: A TIC structure is another way to co-invest in real estate. With a TIC, you receive a pro rata portion of the potential income and appreciation of the real estate. As a TIC investor you will typically be given the opportunity to vote on major issues at the property, such as whether to sign a new lease, refinance the mortgage and sell the property.

QOZ Funds: A fund of this type can invest in real property or operating businesses within a so-called Opportunity Zone, typically a geographic area in the U.S. that has been so designated because it may be underserved or neglected. The time horizon of the fund may be as long as 10 years, which means tying up your capital for that length of time in an illiquid real estate fund.

Step #5: Recognize the potential tax benefits of real estate investing.

Real estate in the form of direct ownership is one of the most tax-advantaged investment classes in the United States. Depreciation deductions are available to all investors, and any real estate investment losses may be deductible against other income, which could potentially reduce your tax bill. Additionally, direct real estate investments qualify for like-kind exchange treatment, otherwise known as a 1031 exchange, which can save investors approximately 40 percent on their tax bills when there are net gains on property sales.

Notably, of the four investment types discussed above, only DSTs and TICs qualify for the highly attractive 1031 exchange tax treatment, regardless of when assets are sold. In contrast, with QOZ Funds, there are some potential tax benefits if the investments are held for the required period of time. With REITs, all gains (if any) are subject to full capital gains taxation.

So, what might a diversified, passive (management-free) investment real estate portfolio look like? Here’s how one investor could allocate $500,000 into commercial and multifamily real estate to potentially generate passive income and appreciation:

• Invest $100,000 in an industrial warehouse distribution facility with a long-term net lease to a company like Amazon, FedEx, Coca-Cola or Frito-Lay
• Invest $100,000 in a medical dialysis center with a long-term net lease to a company like Fresenius or DaVita
• Invest $100,000 in a multifamily apartment community with 300 units in Texas
• Invest $100,000 in a self-storage facility in Florida
• Invest $100,000 in a debt-free multifamily property with 60 units in Tennessee

With a passive real estate portfolio like this, the investor may be diversified by asset type, tenant base and geography. They’ve avoided more cyclical and highly volatile asset classes such as seniors housing, assisted living and long-term care, hotel and resort properties, and oil and gas royalties and wells. The investor should also prudently consult with their accountant and attorney about the potential risks and tax advantages of real estate investing, including 1031 exchanges that allow the tax on gains to be deferred.

This is a great place to start.

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

LOS ANGELES, Dec. 03, 2020 (GLOBE NEWSWIRE) -- Kay Properties today announced the completion of a 1031 DST investment for a mother-daughter duo. The pair sold a vacation rental property they owned for many years. They were eager to exit the highly management-intensive environment of operating vacation rentals and enter into a more passive, diversified investment structure such as the DST. They utilized the Kay Properties 1031 DST marketplace at www.kpi1031.com to invest in a prepackaged multifamily DST portfolio.

Kay Properties team helps with 1031 DST investment

The Delaware Statutory Trust exchange investment was completed by Kay Properties and Investments team members Chay Lapin, Senior Vice President, and Matt McFarland, Vice President.

Chay Lapin, Senior Vice President, stated, “We are grateful for the opportunity to help another family complete a 1031 DST exchange. They now are involved in a more passive investment environment to better suit their lifestyle. Our clients approached us with a very high level of sophistication of buying and selling their own real estate over many years. When considering all their options, they decided that the Delaware Statutory Trust structure was best suited for their needs.”

Lapin continued, “Through on and off correspondence for over a year and a half, the clients were able to complete their own due diligence on DSTs. They spent time with us learning about how DSTs could potentially help them all while utilizing the DST investment marketplace at www.kpi1031.com/marketplace.”

Teamwork at Kay Properties completes 1031 DST in timely manner for clients

Matt McFarland, Vice President at Kay Properties, stated, "This particular client was able to exchange out of a management-intensive vacation rental. The 1031 up leg was a multifamily DST offering with multiple properties totaling over 900 units. Needless to say, this $100M+ multifamily portfolio is an investment that would have been out of reach to many investors if it weren’t for the DST structure.”

LOS ANGELES and BALTIMORE, March 15, 2019 (GLOBE NEWSWIRE) -- Kay Properties and Investments, LLC has completed another equity raise on a 100% occupied net lease property in Baltimore, MD.

The Maryland Medical DST offering is a 100% occupied DaVita Dialysis medical clinic located in Baltimore, MD. The property benefits from a long-term net lease corporately guaranteed by DaVita (NYSE:DVA) as well as that the offering is an all cash debt free investment. The DST investment was fully subscribed by multiple high net worth accredited investors throughout the country.