Are Boomers the Reason for DST Popularity?

Al DiNi­co­la DST Invest­ments, LLC- Reg­is­tered Invest­ment Advi­sor

Octo­ber 2019

Delaware Statu­to­ry Trusts (DSTs) have been around for about 20 years.  This strat­e­gy has been a viable part of the 1031 exchange process and a solu­tion for accred­it­ed investors since the late 1990s.  Many investors may not have heard of this because it’s a Reg D secu­ri­ty. The aware­ness of DSTs remains rel­a­tive­ly low because adver­tis­ing, pro­mo­tion or solic­i­ta­tion is pro­hib­it­ed. You will not see an ad for DSTs in mag­a­zine, finan­cial news­pa­per (Wall Street Jour­nal, etc.) sim­i­lar to an adver­tise­ment for a Mutu­al Fund.

How­ev­er, the pop­u­lar­i­ty for DST can­not be denied.  Cur­rent­ly, DSTs now make up about 10 per­cent of prop­er­ties used in 1031 exchange. This may be planned for the relin­quished prop­er­ty or even as a back­up for when a replace­ment prop­er­ty falls out of con­tract. DSTs can come to the res­cue to back up a poten­tial­ly bro­ken 1031 Exchange.

The rea­son for the pop­u­lar­i­ty is very, very sim­ple.  It’s almost exclu­sive­ly a demo­graph­i­cal­ly dri­ven phe­nom­e­non, mean­ing the pop­u­la­tion get­ting old­er. So maybe we can blame this on the Baby Boomers. Boomers have had a dis­pro­por­tion impact on every­thing that they’ve come into con­tact with from con­sump­tion stand­point since the get-go.  There is no secret that boomers like o con­sume things.  Over the years this spe­cial group of con­sumers have bought ten­nis shoes (Nike) lux­u­ry cars (BWs) sec­ond homes or even large homes affec­tion­al­ly called McMan­sions.

The ener­gy the boomers had when they were younger can­not be denied.  Time has a toll on many peo­ple and yes, we hate to admit it boomers now have less ener­gy now that they had when they were young. This group is reach­ing the retire­ment age and they rep­re­sent a demo­graph­ic block with shift­ing needs.  There is no secret the boomers had the ener­gy to man­age their own prop­er­ties when they were in their 30s & 40s.  Some event enjoyed in their 50’s & 60’s.  Turn­ing the cor­ner into their 70s and the sit­u­a­tion may have changed.   DST pop­u­lar­i­ty is be dri­ven by this demog­ra­phy.

Many boomers have built their wealth in the own­er­ship of real estate over their life­time. This dri­ve may have been to cre­ate a lega­cy to leave to their chil­dren or sim­ply to have income from oth­er sources. Real estate was easy to under­stand and pro­vide a com­fort lev­el when it came time for invest­ment. The real estate asset class was accept­ed. Over the years the boomers have shift­ed from res­i­den­tial real estate rentals to com­mer­cials asset like office, retail, or mul­ti fam­i­ly.  

Many boomers have accu­mu­lat­ed their wealth through a series of IRC 1031 Tax Deferred Exchanges.  In their mind they’re been able to avoid cap­i­tal gains, tax lia­bil­i­ty, almost all of it.  The word “avoid” is not cor­rect and should be replaced with “deferred”. For those who under­stand the lega­cy of wealth build­ing there could be a step up in basis upon a spe­cif­ic event (not to be review in this writ­ing). So how do they con­tin­ue to have cur­rent income from real estate and also build wealth?  That is where the boomers are look­ing to a DST for a solu­tion.

The DST solu­tion pro­vides tax advan­taged recur­ring income, no land­lord duties, sim­pli­fied invest­ment process, can fit any size exchange, insti­tu­tion­al qual­i­ty prop­er­ties and diver­si­fies real estate hold­ings.   Boomers con­tin­ue to use a 1031 Exchanges as well as direct cash invest­ment in a DST enjoy this new­found free­dom. For boomers look­ing to sim­pli­fy their invest­ment lives, and check all the box­es on their list, the DST seems to be a fit.

For more infor­ma­tion on how to prop­er­ly set up an IRC 1031Tax Deferred Exchange or if you are an accred­it­ed investor and would like addi­tion­al infor­ma­tion on a DST con­tact Al DiNi­co­la at 239–691-8098.