Select a DST 1031 Expert and Avoid the Four Stages of 1031 Exchange Grief

Avoid 1031 Exchange Grief

Matthew McFarland, Vice President, Kay Properties & Investments 

Key Takeaways: 

  • What are the four stages of 1031 grief? 
  • Why a DST 1031 expert can help investors avoid major stress with the sale of real estate.
  • What are the most important things to look for when choosing a DST 1031 Advisory Firm? 

Participating in a 1031 exchange can be challenging for many investors, which is why finding an experienced and knowledgeable professional is critical for anyone thinking about participating in a 1031 exchange. For many years, investors have chosen Kay Properties and Investments for our vast understanding of the nuances and rules surrounding Delaware Statutory Trust 1031 exchanges and extensive expertise in real estate fundamentals. However, the firm is also expert at helping real estate sellers cope with “The Four Stages of 1031 Grief”.

What are the Four Stages of 1031 Grief and What Causes Them?  

Confusion: To many real estate investors 1031 exchanges are like a cloud of confusion and mystery. Even worse, many times what they think they know or have been told is often inaccurate. Questions like “Can I exchange a piece of personal property for the exchange?” or “Can I take proceeds from the sale of my property before I make a 1031 exchange” can all be quite difficult for people to understand. Furthermore, timeframes, debt replacement, and property types are all areas of a 1031 exchange that can trigger confusion in unprepared investors. 

Fear: This is another common emotion that creeps into the minds of many 1031 exchange investors. For one reason, they know there is a challenging  timeline that is staring them in the face to identify a 1031 exchange property within 45 days and close on the property in 180 days. That’s not a lot of time to locate a property, arrange financing, and conduct a thorough due diligence. This creates a sense of fear. 

Depression: A deep feeling of gloom results from recognizing that without a successful 1031 exchange, the owner will be smacked with a huge tax event including federal capital gains tax, state capital gains tax, depreciation recapture tax, and the Medicare surtax greatly reducing their net proceeds.

Guilt: Many investors get caught in between the close of their sale and the start of their 1031 countdown. It is at this point that they feel guilty that they didn’t consult with their real estate broker or other professional ahead of the sale closing date in order to get ahead of the curve. Also, guilt can derive from failing to successfully complete a 1031 exchange into income producing properties because it will hurt not only the investor but also their family/heirs.  

Real estate investors can  cope with these troublesome run of emotions by seeking the advice of a qualified DST 1031 firm that specializes in nothing but DST 1031 properties to help guide them across the often potentially treacherous waters of DST 1031 investing. 

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

What to Look for When Searching for a DST Advisory Firm 

With these wide ranges of emotions as a backdrop, Kay Properties and & Investments has put together a quick checklist of what real estate investors should look for when searching for an advisory firm that specializes in Delaware Statutory Trust 1031 exchanges. 

Make sure you use a firm that is hyper-specialized in DST 1031 investments

There are only a handful of truly specialized firms that deal with nothing but DST 1031 investment strategies. Many firms offer services like financial planning, insurance, mutual funds, stocks, bonds, etc., but these are considered generalists in the industry. But a true DST specialist firm will have participated in billions of dollars of DST investments, and be able to provide clients hundreds of different DST 1031 exchange portfolio options in order to satisfy their specific, unique needs. 

  • Key Takeaway: Ask how many DST 1031 deals the firm has successfully completed.

Make sure you use a firm that has an entire team of DST 1031 professionals

The DST 1031 market can be fraught with risk. Understanding how the concepts of debt replacement, lease structuring, diversifying real estate portfolios, etc. are relevant to any 1031 exchange is critical, and a true DST 1031 expert will be able to explain these and other terms in great detail. 

  • Key Takeaway: Ask very specific questions and demand very specific answers.

Make sure you use a firm that is very particular with their DST Properties

While many DST 1031 firms use the entire list of on-market DST properties offered by sponsors,  DST advisory firms that specialize in DST 1031 exchanges dismiss many of these properties because they just don’t live up to the established investment standards of a specialist firm. In fact, it is common for the majority of firms that don’t specialize in DST properties to include properties that are higher risk, overly priced, and little historic performance data. Also highly specialized DST advisory firms perform their own due diligence so that their clients are able to consider the best performing assets with their CPA’s and lawyers. 

  • Key Takeaway: Ask where the advisory firm sources their properties for 1031 exchanges, and what type of due diligence have they performed on the properties. 

Make sure you use a firm that has access to off-market properties, all-cash properties, and leveraged properties. 

Like a lot of things in life, it is often better to have access to as wide an array of options as possible. DST 1031 specialist firms do thousands of deals a year, and have insights and avenues other financial advisors or even real estate brokers don’t have. This is critical for the 1031 client because not every 1031 exchange requirement is the same. Like the proverbial snowflake model, each 1031 exchange scenario has different challenges and nuances. The breadth and depth of the 1031 portfolio can help clients create a customized DST 1031 investment direction that is completely designed for their specific needs. A good rule of thumb is to select a DST advisory firm that has at least 30 – 45 offerings options at any given time. 

This also means having multiple debt structures as well. Because the IRS requires investors to replace the value of debt when making a 1031 exchange, a good DST 1031 advisory firm should have both properties with debt and properties that are available for all-cash/debt-free options. 

  • Key Takeaway: Ask do they have access to off-market, leveraged, and All-Cash/Debt-Free properties available for a 1031 exchange?

Make sure you use a firm that has some of its own skin in the game 

Most people wouldn’t buy a car from a dealer who didn’t believe in the manufacturer he was representing. Nor would they hire a personal trainer who was 300 pounds overweight. So smart investors like working with DST 1031 advisory firms who invest their own money in the funds they are selling. This not only shows confidence in what they are advising other clients to invest in, it also allows the DST 1031 specialist to share advice based on actual personal experience. 

  • Key Takeaway: Ask if they personally invest in the specific properties they are advising other people to invest in. 

About Kay Properties and www.kpi1031.com

Kay Properties is a national Delaware Statutory Trust (DST) investment firm. The www.kpi1031.com platform provides access to the marketplace of DSTs from over 25 different sponsor companies, custom DSTs only available to Kay clients, independent advice on DST sponsor companies, full due diligence and vetting on each DST (typically 20-40 DSTs) and a DST secondary market.  Kay Properties team members collectively have over 115 years of real estate experience, are licensed in all 50 states, and have participated in over $21 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 Growth Capital Services, member FINRASIPC, Office of Supervisory Jurisdiction located at 2093 Philadelphia Pike Suite 4196 Claymont, DE 19703.

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