By: Dwight Kay, Founder – Kay Properties and Investments, LLC
What Does DST Stand For?
DST stands for Delaware Statutory Trust and is an entity that is used to hold title to investment real estate.
What is 1031 Exchange?
A 1031 tax-deferred exchange is a way to temporarily avoid capital gains taxes on the sale of an investment property or commercial property. Capital gains taxes can be hefty, running as high as 15-30% when you combine state and federal together.
The 1031 Exchange gets its name from the IRS code Section 1031. It allows an investor to replace one investment property with a like-kind property and then put off the capital gains on the sale. (A like-kind property is a piece of real estate that is similar to another in nature.)
Why Use a 1031 Exchange?
1031 exchanges are very valued by retiring people who hold appreciated real estate and who may be looking for ways to turn that real estate into a passive income source. The key word here is “passive”. Using a 1031 exchange, the real estate owner can exchange a property that may be high maintenance (both literally and figuratively) with a property that is more stable and easier to take care of. In essence, 1031 exchanges turn problematic investment properties (with troublesome tenants, expensive repairs, and turnover management) with a property that has none of those things. The new property is a source of regular, passive income to the owner, so that the owner–who is now typically in retirement–can enjoy time off without have to worry about the day-to-day cares of property management.
How Does a Delaware Statutory Trust Work?
The real estate sponsor firm gets the property under the Delaware Statutory Trust and seeks investors to purchase the beneficial interest. Investors can use the 1031 Exchange to put their money directly into the Delaware Statutory Trust, or they can directly purchase an interest in the DST.
The investors in the DST get the benefit of having the investment property managed by someone else (thereby providing passive income). An example would be a retiree who wants to sell a fourplex property that they no longer wish to maintain, and then would invest in a DST that owns a 500 unit property, or a strip mall, or a health clinic that is professionally managed. The retiree no longer has to take care of direct management of the property but gains the income that they were seeking.
What are the Risks of a DST?
Just because a retiree (or other investor) does not want to be involved in the day-to-day management and operation of the DST doesn’t mean that they are getting all reward and no risk. There will always be risk in any investment, and DSTs are no different. Any real estate investment could be the victim of loan defaults, vacancies, or downturns in the real estate market. This is why it is so important to consult a qualified investment professional for advice. This is where Kay Properties comes in. We can walk you through all of the risks, the potential rewards, and make the entire system make sense to you.
A DST stands for Delaware Statutory Trust and is an entity that is used to hold title to investment real estate. In some ways this is similar to how a limited liability company or an LLC can hold title to real estate however, unlike an LLC, a property structured DST property will qualify as like kind exchange property for a 1031 exchange according to the IRS revenue ruling 2004-86.
The typical minimum investment for a DST 1031 Property is $100,000 allowing an investor to diversify his or her exchange proceeds among multiple properties. DST 1031 properties also have various leverage ratios to potentially satisfy an investors exchange requirements of taking on equal or greater debt.
The typical loan to value of a DST 1031 property is 50% however, some DST properties are offered all cash/no debt in order to eliminate all financing risks. Kay properties and investments is a real estate wealth advisory firm that specializes in DST 1031 properties. Call us today to receive a free list of our current DST 1031 properties.
Call us today at 1-(855) 899-4597 or complete the form on this page to receive a free list of our current DST 1031 properties.
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. If you are not the intended recipient of this message, any use, dissemination, distribution or copying of this communication is strictly prohibited. If you have received this communication in error, please immediately notify the sender and permanently delete all copies that you may have. Securities offered through Growth Capital Services, member FINRA, SIPC, Office of Supervisory Jurisdiction located at 582 Market Street, Suite 300, San Francisco, CA 94104.