By: Orrin Barrow, Vice President, Kay Properties and Investments, LLC
The Delaware statutory trust was invented so investors would have the ability to utilize their 1031 exchange proceeds to diversify across different 1031 DST sponsor companies, asset classes, submarkets and investment strategies. We here at Kay Properties and Investments have access to a diversified DST 1031 marketplace platform (kpi1031.com) to be able to build well diversified DST portfolios for our clients who are currently in a 1031 exchange, 1033 exchange and for cash investments.
At Kay Properties we are able to use our considerable resources to get real time updates on how the DST market is performing and we are able to let investors know how each asset class and how each 1031 DST sponsor (the asset manager who manages the DST) is performing. As an investor, it is not only important to work with a group that has an ample amount of DST offerings and DST sponsors providing diversification available on their platform, but also a group that has deep connections in the 1031 DST industry that allow for investors to potentially benefit from real time market data.
According to US News here are the benefits of diversification:
The benefits of diversification include:
- Potentially minimizes the risk of loss to your overall portfolio.
- Potentially exposes you to more opportunities for return.
- Potentially safeguards you against adverse market cycles.
- Potentially reduces volatility. (https://money.usnews.com/investing/investing-101/articles/why-diversification-is-important-in-investing)
The overarching understanding of diversification applies generally to most investor’s investment philosophy so why as an investor would you not apply the same concept to real estate and your 1031 exchange? Due to high entry price points for real estate investing, investors typically are concentrating a large portion of their net worth into one or two assets that many times are in the same submarket and belong to the same asset class (for example, an investor that owns a 5 million dollar multifamily building in New York City or an investor that owns a 3 million dollar industrial property in Los Angeles).
As a stark contrast, the Delaware Statutory Trust allows for you to diversify your 1031 exchange equity amongst multiple DST offerings, multiple DST sponsor companies, multiple asset classes and multiple geographic locations. For example, instead of owning one 5 million dollar multifamily building in New York City, you could take that 5 million of equity, utilize a tax deferred 1031 exchange and invest into a diversified portfolio of DST offerings consisting of: 1 million into a multifamily DST that has 4 multifamily communities with a total of 1,500 units and diversified amongst 4 distinct geographic locations, 1 million into a debt free DST which owns a self-storage facility, 1 million into a debt free industrial facility subject to a long term net lease with a Fortune 500 investment grade tenant, 1 million into a debt free DST medical facility subject to a long term net lease with an investment grade dialysis provider and lastly 1 million into a debt free multifamily DST. As shown, the diversification provided with a DST portfolio is tremendous compared to owning just one multifamily property in one location.
To view currently available DST opportunities, with typical minimum investments of 100k, for your upcoming 1031 exchange please register at www.kpi1031.com for free access.