DST Education Series A‑Part 4: The Economic Focus

Wel­come DST News! Our goal is to pro­vide non-biased edu­ca­tion and mar­ket infor­ma­tion for Accred­it­ed Investors on DSTs. We hope to pro­vide a Depth & Breath of knowl­edge for Investors About Delaware Statu­to­ry Trusts (DSTs).

By design most DSTs are struc­tured with debt financ­ing. This sat­is­fies 1031 require­ments to replace debt. A key ele­ment to note is the debt financ­ing is non-recourse debt for the indi­vid­ual investors. The over­all health of the econ­o­my as well as the rates on bor­rowed funds may deter­mine how the invest­ment per­forms.  As the cost of debt increas­es there is com­pres­sion of poten­tial returns.  Dur­ing down­turns in the econ­o­my, vacan­cy can rise that will affect the bot­tom line (Net oper­at­ing Income- NOI) of the prop­er­ty which in turn may change the sell­ing price dur­ing the exit phase of the reg­u­lar real estate as well as the DST asset. We will cov­er the rela­tion­ship of NOI and the Cap­i­tal­iza­tion Rate (CAP Rate) and the price a prop­er­ty may sell for in the mar­ket­place in oth­er edu­ca­tion­al arti­cles.

Reg­u­la­tions. There is no ques­tion that there needs to be strate­gic plan­ning to car­ry out a suc­cess­ful 1031 exchange. There are strict tim­ing con­straints from the IRS. Over the years Con­gress has debat­ed the 1031 exchange and may be a sub­ject to being amend­ed by con­gress. This top­ic comes up every few years. We have some reli­able insight into the ben­e­fits of 1031 to the over­all econ­o­my.

Putting the parts togeth­er for suc­cess.  There are a vari­ety of vari­able to be aligned and set up in order for a 1031 exchange to be suc­cess­ful under nor­mal real estate invest­ment. Uti­liz­ing a DST also has mov­ing parts as well.  Any mis­step between the QI or the Spon­sors’ abil­i­ty to deliv­er the replace­ment prop­er­ty will cause the 1031 exchange to fail. We may also add that all 1031 exchanges car­ry the same cau­tions. Many things may hap­pen between the end of the 45-day iden­ti­fi­ca­tion peri­od and the total 180 days to close. As to the IRS dead­lines there are no excep­tions. The list of poten­tial replace­ment prop­er­ties must be received by the Qual­i­fied Inter­me­di­ary (QI) by the end of the 45th day from the sale of the relin­quished prop­er­ty. You must close on the replace­ment prop­er­ty or prop­er­ties by the end of the 180th day from clos­ing on the relin­quished prop­er­ty. DST stream­line the clos­ing process pro­vid­ing a faster turn­around for investors to put their rein­vest­ment cap­i­tal to work.

Asset-Class­es. Offer­ings of DST include the same com­mer­cial assets as reg­u­lar real estate. Although the avail­abil­i­ty of the DST assets at any­one may change.  Asset class­es are gen­er­al­ly mul­ti-fam­i­ly res­i­den­tial, sin­gle fam­i­ly res­i­den­tial, stu­dent hous­ing, senior hous­ing, man­u­fac­tured hous­ing, indus­tri­al, retail, office, Office Med­ical, Self-Stor­age, and a new asset class Life Sci­ence. The scope of each asset will be cov­ered in addi­tion­al edu­ca­tion­al mate­ri­als. In 2021 we reviewed 150 DST offer­ings over the course of the year. Review­ing as many offer­ings as pos­si­ble pro­vides advi­sor with insight to prop­er­ly eval­u­ate poten­tial replace­ment prop­er­ties.

Remem­ber all IRS Sec­tion 1031 Exchange defer cap­i­tal gains. The cap­i­tal gains (as well as recap­ture of depre­ci­a­tion) will still be due unless the investor pass­es away and the heirs inher­it the prop­er­ty. At that time there will be a step up in basis to cur­rent val­ue and no cap­i­tal gains will be due.

We are not CPAs or can­not we offer tax advice. We have some gen­er­al cap­i­tal gains cal­cu­la­tors on our web­site DSTNews.org

Look for Part 5: DST Fees… Com­ing Soon

DST’s (Delaware Statu­to­ry Trusts) are for accred­it­ed investors only.  Con­tact your invest­ment advis­er for addi­tion­al details on how a DST may be a solu­tion to your 1031 Exchange and com­pli­ment your finan­cial objec­tives. 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 or email adinicola@namcoa.com. This is not an offer to pur­chase or solic­i­ta­tion to pur­chase any secu­ri­ty, as such be made only through an offer­ing mem­o­ran­dum or prospec­tus.  Invest­ing in secu­ri­ties, real estate, or any invest­ment, in any form, involves risk, includ­ing but not lim­it­ed to the poten­tial of los­ing some or all of your invest­ment dol­lars when you invest in secu­ri­ties. You should review any planned finan­cial trans­ac­tions that may have tax or legal impli­ca­tions with your per­son­al tax or legal advi­sor.   NAMCOA, LLC is a Reg­is­tered Invest­ment Advi­sor, reg­u­lat­ed by SEC (Secu­ri­ties and Exchange Com­mis­sion). Our cor­po­rate office is locat­ed at 999 Van­der­bilt Beach Road, Suite 200, Naples Flori­da 34108. Secu­ri­ties Offered through MSC-BD, LLC, Mem­ber of FINRA/SIPC. 410 Peachtree Park­way Suite 4245, Cum­ming, GA 30041. MSC-BD, LLC and NAMCOA are inde­pen­dent­ly owned and are not affil­i­at­ed.