Feb 13, 2022 DST Educational Series A‑Part 7: Cost of Acquisition

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 Al DiNi­co­la, AIF® Feb 13, 2022

Behind the scenes the cost of acqui­si­tion in many reg­u­lar real estate trans­ac­tions are sim­i­lar to DST.  There may be find­ers’ fees for locat­ing and nego­ti­at­ing prop­er­ties acquired by the spon­sor to be pack­aged as a DST. There may also be loan fees paid on the financ­ing if there is a debt com­po­nent on the DST acqui­si­tion.

What is a “load”? When an indi­vid­ual or investors pur­chase real estate there are cost that are added to the pur­chase price to come up with the total cost. This cost may be title insur­ance, inspec­tion cost, fees for the loan that may be place on the prop­er­ty to pur­chase the prop­er­ty. Add to that poten­tial escrow for insur­ance, tax­es and oth­er cost do add addi­tion­al cost to the pur­chase. Many investors who reg­u­lar­ly pur­chase real estate chalk these cost up to the nor­mal course of acquir­ing a prop­er­ty. First time buy­ers of nor­mal real estate are sur­prised at the addi­tion­al out of pock­et costs that add to the deposit or cash need­ed to close.  DSTs also have addi­tion­al cost but are pack­aged a lit­tle dif­fer­ent­ly. There is a need for fund­ing or cap­i­tal to fund reserve accounts and oth­er fees asso­ci­at­ed with the ini­tial acqui­si­tion of the prop­er­ty that will be pack­ages as a DST.  All of these costs are con­sid­ered a “load”. Over time reg­u­lar real estate had a rule of thumb that you would need to hold your prop­er­ty for 5 years to break even to cov­er all your acqui­si­tion cost giv­en what a typ­i­cal appre­ci­a­tion may be on real estate.  Cov­er­ing your cost should be con­sid­ered so that you have all your cap­i­tal returned when the property/asset is sold at the end of the hold­ing peri­od. The more fees added to the acqui­si­tion price requires a high­er sales price for the under­ly­ing assets owned by the DST. Investors should focus on not only a prof­it at the end of the terms but the preser­va­tion of the invest­ment cap­i­tal. Cap­i­tal preser­va­tion would need to include sell­ing for enough prof­it to cov­er the “load”.   Own­ing real estate on your own also may require the hir­ing of a prop­er­ty man­ag­er who over sees the asset. One of the ben­e­fits for poten­tial investors in a DST is the full dis­clo­sure of the fees asso­ci­at­ed with the acqui­si­tion of the cost.  These are eas­i­ly review­able in the Pri­vate Place­ments Mem­o­ran­dum (PPM).  All investors must receive and review the PPM pri­or to invest­ing in a DST.

Look for Part 8: Lim­i­ta­tions on a DST

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.