Delaware Statutory Trust (DST) Investor FAQs

A Delaware Statu­to­ry Trust is a legal trust struc­ture formed under Delaware law that can own real estate and oth­er assets.

In a typ­i­cal real estate DST offer­ing, the trust owns one or more prop­er­ties and investors pur­chase ben­e­fi­cial inter­ests in the trust. Investors there­fore par­tic­i­pate eco­nom­i­cal­ly in the under­ly­ing real estate with­out indi­vid­u­al­ly pur­chas­ing and man­ag­ing the entire prop­er­ty them­selves.

DSTs may hold mul­ti­fam­i­ly, indus­tri­al, med­ical office, retail, self-stor­age, senior hous­ing, stu­dent hous­ing, man­u­fac­tured hous­ing, net-leased prop­er­ties, and oth­er types of com­mer­cial real estate.

A DST spon­sor typ­i­cal­ly iden­ti­fies and acquires the prop­er­ty, arranges financ­ing when applic­a­ble, struc­tures the offer­ing, and over­sees the invest­ment.

Investors pur­chase frac­tion­al ben­e­fi­cial inter­ests in the trust. The DST owns the real estate while each investor owns an inter­est rep­re­sent­ing a pro­por­tion­ate eco­nom­ic inter­est in the under­ly­ing prop­er­ty.

If the prop­er­ty pro­duces dis­trib­utable cash flow, investors may receive peri­od­ic dis­tri­b­u­tions. When the prop­er­ty is even­tu­al­ly sold, investors gen­er­al­ly receive their pro­por­tion­ate share of avail­able net sale pro­ceeds after applic­a­ble expens­es and lia­bil­i­ties.

Income, dis­tri­b­u­tions, appre­ci­a­tion, hold­ing peri­ods, and sale pro­ceeds are not guar­an­teed.

No. A Delaware Statu­to­ry Trust and a Real Estate Invest­ment Trust, or REIT, are dif­fer­ent struc­tures.

A DST gen­er­al­ly owns a spe­cif­ic prop­er­ty or port­fo­lio of prop­er­ties and offers ben­e­fi­cial inter­ests to investors. A REIT may own a sig­nif­i­cant­ly larg­er port­fo­lio and may be pub­licly trad­ed, non-trad­ed, or pri­vate­ly offered.

For Sec­tion 1031 pur­pos­es, shares of a REIT gen­er­al­ly are secu­ri­ties rather than direct inter­ests in real prop­er­ty and ordi­nar­i­ly can­not be acquired direct­ly as replace­ment prop­er­ty in a 1031 exchange.

Cer­tain prop­er­ly struc­tured DST inter­ests, how­ev­er, may poten­tial­ly qual­i­fy as inter­ests in real prop­er­ty for Sec­tion 1031 pur­pos­es.

Under the struc­ture addressed by IRS Rev­enue Rul­ing 2004–86, ben­e­fi­cial own­ers were treat­ed for fed­er­al income-tax pur­pos­es as own­ing pro­por­tion­ate inter­ests in the under­ly­ing real prop­er­ty.

That tax treat­ment is an impor­tant rea­son cer­tain prop­er­ly struc­tured DST inter­ests may poten­tial­ly qual­i­fy as replace­ment prop­er­ty in a Sec­tion 1031 exchange.

Investors should not assume that every trust or DST auto­mat­i­cal­ly receives the same tax treat­ment. The spe­cif­ic struc­ture and offer­ing doc­u­ments mat­ter.

Yes. Cer­tain prop­er­ly struc­tured DST inter­ests may poten­tial­ly qual­i­fy as replace­ment real prop­er­ty in a Sec­tion 1031 exchange.

IRS Rev­enue Rul­ing 2004–86 con­clud­ed that, under the facts described in the rul­ing, a tax­pay­er could exchange qual­i­fy­ing real prop­er­ty for an inter­est in the DST with­out recog­ni­tion of gain or loss under Sec­tion 1031, pro­vid­ed the oth­er require­ments of Sec­tion 1031 were sat­is­fied.

Pur­chas­ing a DST does not auto­mat­i­cal­ly cre­ate a valid exchange. The tax­pay­er must still prop­er­ly struc­ture and com­plete the Sec­tion 1031 trans­ac­tion.

Sec­tion 1031 gen­er­al­ly allows an own­er of qual­i­fy­ing real prop­er­ty held for invest­ment or pro­duc­tive use in a trade or busi­ness to exchange that prop­er­ty for oth­er qual­i­fy­ing like-kind real prop­er­ty and defer recog­ni­tion of eli­gi­ble gain.

The tax is gen­er­al­ly deferred rather than per­ma­nent­ly elim­i­nat­ed.

The tax basis of the replace­ment prop­er­ty gen­er­al­ly reflects the deferred gain, sub­ject to applic­a­ble tax rules and adjust­ments.

In a deferred Sec­tion 1031 exchange, replace­ment prop­er­ty gen­er­al­ly must be prop­er­ly iden­ti­fied with­in 45 days after the relin­quished prop­er­ty is trans­ferred.

The 45-day iden­ti­fi­ca­tion peri­od is strict.

This is one rea­son investors may eval­u­ate DSTs as poten­tial replace­ment prop­er­ties. DST offer­ings are gen­er­al­ly already struc­tured around iden­ti­fied real estate, which can pro­vide anoth­er alter­na­tive dur­ing the replace­ment-prop­er­ty search.

Avail­abil­i­ty should nev­er sub­sti­tute for invest­ment due dili­gence.

Replace­ment prop­er­ty gen­er­al­ly must be received by the ear­li­er of:

180 days after the trans­fer of the relin­quished prop­er­ty, or

the due date of the tax­pay­er’s fed­er­al income-tax return, includ­ing exten­sions, for the tax year in which the trans­fer occurred.

Investors should ver­i­fy all applic­a­ble dead­lines with their qual­i­fied inter­me­di­ary and tax pro­fes­sion­als.

In a typ­i­cal delayed Sec­tion 1031 exchange, a Qual­i­fied Inter­me­di­ary, com­mon­ly referred to as a QI, is used so the sell­er does not have actu­al or con­struc­tive receipt of the exchange pro­ceeds.

The QI gen­er­al­ly receives the pro­ceeds from the sale of the relin­quished prop­er­ty and sub­se­quent­ly trans­fers those funds for acqui­si­tion of qual­i­fy­ing replace­ment prop­er­ty.

The exchange struc­ture and QI doc­u­ments gen­er­al­ly need to be estab­lished before the relin­quished prop­er­ty clos­es.

Gen­er­al­ly, receiv­ing or con­trol­ling the pro­ceeds can cre­ate a seri­ous prob­lem for a Sec­tion 1031 exchange.

Actu­al or con­struc­tive receipt of the sale pro­ceeds may pre­vent the trans­ac­tion from qual­i­fy­ing as a deferred exchange.

Prop­er­ty own­ers con­tem­plat­ing a Sec­tion 1031 exchange should estab­lish the appro­pri­ate exchange struc­ture with a qual­i­fied inter­me­di­ary before the relin­quished prop­er­ty clos­es.

Not nec­es­sar­i­ly, but retain­ing mon­ey or oth­er­wise fail­ing to sat­is­fy the applic­a­ble require­ments for full defer­ral may cause some gain to become tax­able.

Mon­ey or non-like-kind prop­er­ty received as part of an oth­er­wise qual­i­fy­ing exchange can result in rec­og­nized gain under applic­a­ble tax rules.

Investors seek­ing full tax defer­ral gen­er­al­ly struc­ture their replace­ment-prop­er­ty acqui­si­tions accord­ing­ly with guid­ance from their tax pro­fes­sion­als.

Not nec­es­sar­i­ly.

This issue is some­times over­sim­pli­fied as a require­ment to replace debt dol­lar-for-dol­lar.

Lia­bil­i­ties, equi­ty rein­vest­ed, addi­tion­al cash con­tributed, replace­ment-prop­er­ty val­ue, and mon­ey or oth­er prop­er­ty received can all affect whether gain is rec­og­nized.

Depend­ing on the cir­cum­stances, addi­tion­al cash may com­pen­sate for a reduc­tion in replace­ment-prop­er­ty debt.

The tax­pay­er’s CPA or tax attor­ney should deter­mine the appro­pri­ate cal­cu­la­tion based on the actu­al trans­ac­tion.

Poten­tial­ly, yes.

For exam­ple, an investor might allo­cate a por­tion of exchange pro­ceeds to a direct­ly owned replace­ment prop­er­ty and anoth­er por­tion to one or more qual­i­fy­ing DST inter­ests.

This can pro­vide flex­i­bil­i­ty when build­ing a replace­ment-prop­er­ty strat­e­gy.

The iden­ti­fi­ca­tion and acqui­si­tion of all replace­ment prop­er­ties must still sat­is­fy applic­a­ble Sec­tion 1031 require­ments.

Yes, sub­ject to offer­ing avail­abil­i­ty, investor eli­gi­bil­i­ty, suit­abil­i­ty con­sid­er­a­tions, and applic­a­ble Sec­tion 1031 iden­ti­fi­ca­tion require­ments.

Some investors allo­cate exchange pro­ceeds among mul­ti­ple DST offer­ings to diver­si­fy across prop­er­ties, spon­sors, ten­ants, geo­graph­ic mar­kets, or real estate sec­tors.

Diver­si­fi­ca­tion may help spread cer­tain risks but does not elim­i­nate invest­ment risk.

DST offer­ings may include mul­ti­fam­i­ly apart­ments, indus­tri­al and logis­tics facil­i­ties, med­ical office prop­er­ties, net-leased prop­er­ties, gro­cery and neces­si­ty retail, self-stor­age, stu­dent hous­ing, senior hous­ing, man­u­fac­tured hous­ing com­mu­ni­ties, sin­gle-fam­i­ly rental and build-for-rent com­mu­ni­ties, hos­pi­tal­i­ty, and oth­er spe­cial­ized real estate sec­tors.

A DST is an own­er­ship structure—not an asset class.

Investors should eval­u­ate the under­ly­ing real estate on its own mer­its.

Min­i­mum invest­ments vary by spon­sor and offer­ing.

Many DST offer­ings have his­tor­i­cal­ly used min­i­mum invest­ments around $100,000, although some offer­ings may per­mit low­er amounts and oth­ers may require sig­nif­i­cant­ly more.

Investors should con­firm the actu­al min­i­mum in the offer­ing doc­u­ments for the spe­cif­ic DST being con­sid­ered.

Many DST offer­ings are pri­vate-place­ment secu­ri­ties avail­able pri­mar­i­ly or exclu­sive­ly to accred­it­ed investors.

Accred­it­ed investor qual­i­fi­ca­tion can be based on finan­cial cri­te­ria or cer­tain pro­fes­sion­al qual­i­fi­ca­tions.

For indi­vid­u­als, com­mon­ly used finan­cial tests include qual­i­fy­ing income lev­els or net worth exceed­ing $1 mil­lion, exclud­ing the val­ue of the investor’s pri­ma­ry res­i­dence.

The eli­gi­bil­i­ty require­ments of each par­tic­u­lar offer­ing should be reviewed inde­pen­dent­ly.

DSTs are gen­er­al­ly designed to pro­vide sub­stan­tial­ly more pas­sive real estate own­er­ship than per­son­al­ly man­ag­ing an indi­vid­ual rental prop­er­ty.

The spon­sor, trustee, asset man­ag­er, and prop­er­ty man­ag­er typ­i­cal­ly han­dle sig­nif­i­cant oper­a­tional respon­si­bil­i­ties.

Investors ordi­nar­i­ly are not respon­si­ble for ten­ant calls, repairs, leas­ing, main­te­nance, prop­er­ty-lev­el account­ing, or dai­ly man­age­ment.

Pas­sive man­age­ment does not mean pas­sive risk. The investor remains exposed to the eco­nom­ic per­for­mance of the under­ly­ing real estate.

Many DST pro­grams are struc­tured to make peri­od­ic dis­tri­b­u­tions, which may be month­ly or fol­low anoth­er pay­ment sched­ule.

Dis­tri­b­u­tions are not guar­an­teed.

Cash flow may change because of occu­pan­cy, rent col­lec­tions, ten­ant defaults, oper­at­ing expens­es, financ­ing costs, cap­i­tal require­ments, eco­nom­ic con­di­tions, or oth­er fac­tors affect­ing the prop­er­ty.

Pro­ject­ed dis­tri­b­u­tion rates should not be inter­pret­ed as guar­an­teed returns.

No.

A dis­tri­b­u­tion rep­re­sents cash paid to the investor.

An investor’s total return can also be affect­ed by prop­er­ty appre­ci­a­tion or depre­ci­a­tion, financ­ing, prin­ci­pal repay­ment, fees, tax­es, and the even­tu­al sale price of the prop­er­ty.

A rel­a­tive­ly high dis­tri­b­u­tion rate does not nec­es­sar­i­ly mean the invest­ment will gen­er­ate a high total return.

DST invest­ments involve real estate and secu­ri­ties risks.

Poten­tial risks include loss of prin­ci­pal, real estate mar­ket risk, illiq­uid­i­ty, ten­ant and lease risk, vacan­cy, spon­sor and man­age­ment risk, inter­est-rate risk, financ­ing and refi­nanc­ing risk, lever­age, geo­graph­ic or sec­tor con­cen­tra­tion, unex­pect­ed cap­i­tal expen­di­tures, eco­nom­ic down­turns, reg­u­la­to­ry or tax-law changes, con­flicts of inter­est, and uncer­tain­ty regard­ing the even­tu­al dis­po­si­tion.

Investors should care­ful­ly review the com­plete risk dis­clo­sures con­tained in the offer­ing doc­u­ments.

Yes.

DSTs are real estate invest­ments and secu­ri­ties, and investors can lose some or all of their invest­ed cap­i­tal.

Nei­ther tax defer­ral nor own­er­ship of high-qual­i­ty com­mer­cial real estate elim­i­nates invest­ment risk.

An investor should not pur­chase a DST sole­ly because it may help com­plete a Sec­tion 1031 exchange.

Gen­er­al­ly, no.

DST inter­ests are typ­i­cal­ly designed as long-term, illiq­uid invest­ments.

There may be no estab­lished pub­lic mar­ket where an investor can read­i­ly sell an inter­est.

A sec­ondary-mar­ket trans­ac­tion may some­times be pos­si­ble, but investors should not assume that a buy­er will be avail­able or that an inter­est can be sold at its orig­i­nal pur­chase price.

Poten­tial­ly, but there can be sig­nif­i­cant lim­i­ta­tions.

Pri­vate DST inter­ests gen­er­al­ly do not trade on a pub­lic exchange.

Sec­ondary-mar­ket buy­ers may occa­sion­al­ly pur­chase DST inter­ests, but pric­ing may be below the investor’s orig­i­nal pur­chase price or esti­mat­ed prop­er­ty val­ue.

Trans­fer restric­tions, secu­ri­ties laws, lender require­ments, trust doc­u­ments, and spon­sor pro­ce­dures can also affect a pro­posed trans­fer.

Investors should gen­er­al­ly be finan­cial­ly pre­pared to hold the invest­ment until the under­ly­ing prop­er­ty is sold.

Depend­ing on the offer­ing, DST expens­es and com­pen­sa­tion may include sell­ing com­mis­sions, deal­er-man­ag­er fees, place­ment or mar­ket­ing expens­es, orga­ni­za­tion­al and offer­ing expens­es, acqui­si­tion fees, financ­ing expens­es, asset-man­age­ment fees, prop­er­ty-man­age­ment fees, dis­po­si­tion fees, and oth­er spon­sor or affil­i­ate com­pen­sa­tion.

Fee struc­tures vary sig­nif­i­cant­ly among offer­ings.

Investors should care­ful­ly review the sources-and-uses table and com­pen­sa­tion dis­clo­sures in the applic­a­ble offer­ing doc­u­ments.

Cost of acqui­si­tion helps an investor under­stand the rela­tion­ship between the cap­i­tal raised from investors and the under­ly­ing real estate, reserves, financ­ing costs, offer­ing expens­es, fees, com­mis­sions, and oth­er trans­ac­tion costs.

Two DST offer­ings with sim­i­lar prop­er­ties and dis­tri­b­u­tion rates can have mate­ri­al­ly dif­fer­ent acqui­si­tion eco­nom­ics.

Investors should under­stand not sim­ply how much they are invest­ing, but what their cap­i­tal is actu­al­ly pur­chas­ing.

Some DSTs use financ­ing while oth­ers are struc­tured as all-cash invest­ments.

For lever­aged offer­ings, investors should eval­u­ate the amount of debt, loan-to-val­ue ratio, inter­est rate, matu­ri­ty, amor­ti­za­tion, pre­pay­ment pro­vi­sions, refi­nanc­ing require­ments, and whether the financ­ing is fixed or float­ing rate.

Lever­age may enhance returns when an invest­ment per­forms well, but it can also increase loss­es and finan­cial risk.

Not auto­mat­i­cal­ly.

An all-cash DST elim­i­nates cer­tain mort­gage-relat­ed risks such as refi­nanc­ing risk and prop­er­ty-lev­el fore­clo­sure result­ing from mort­gage debt.

How­ev­er, the invest­ment remains exposed to prop­er­ty val­ues, ten­ants, occu­pan­cy, oper­at­ing expens­es, spon­sor per­for­mance, mar­ket con­di­tions, liq­uid­i­ty, and oth­er real estate risks.

The absence of debt is one com­po­nent of invest­ment analysis—not a guar­an­tee of safe­ty.

The spon­sor is an impor­tant part of the invest­ment analy­sis.

The spon­sor gen­er­al­ly iden­ti­fies the prop­er­ty, struc­tures the offer­ing, arranges financ­ing when applic­a­ble, coor­di­nates prop­er­ty and asset man­age­ment, com­mu­ni­cates with investors, over­sees the busi­ness plan, and par­tic­i­pates in deci­sions sur­round­ing dis­po­si­tion.

Investors should eval­u­ate the spon­sor’s expe­ri­ence, track record, finan­cial con­di­tion, acqui­si­tion dis­ci­pline, prop­er­ty-man­age­ment capa­bil­i­ties, use of lever­age, investor report­ing, pri­or dis­po­si­tions, con­flicts of inter­est, and fee struc­ture.

Investors should care­ful­ly review the com­plete Pri­vate Place­ment Mem­o­ran­dum and sup­port­ing due-dili­gence mate­ri­als.

Impor­tant areas include:

Prop­er­ty fun­da­men­tals: Loca­tion, occu­pan­cy, ten­ants, leas­es, rents, com­pe­ti­tion, and mar­ket con­di­tions.

Finan­cial per­for­mance: His­tor­i­cal oper­a­tions, net oper­at­ing income, pro­ject­ed cash flow, and reserves.

Financ­ing: Debt amount, loan-to-val­ue ratio, inter­est rate, matu­ri­ty, amor­ti­za­tion, and refi­nanc­ing risk.

Spon­sor: Expe­ri­ence, track record, pri­or pro­grams, man­age­ment capa­bil­i­ties, and finan­cial strength.

Fees: Offer­ing expens­es, com­mis­sions, acqui­si­tion costs, man­age­ment fees, and oth­er com­pen­sa­tion.

Exit strat­e­gy: Antic­i­pat­ed hold­ing peri­od, dis­po­si­tion assump­tions, and pro­ject­ed sale eco­nom­ics.

Risks: Prop­er­ty, mar­ket, ten­ant, financ­ing, tax, spon­sor, liq­uid­i­ty, and oth­er mate­r­i­al risks.

Investors should under­stand the invest­ment well enough to explain what could go wrong—not only what could go right.

Hold­ing peri­ods vary by offer­ing.

A spon­sor may project a par­tic­u­lar invest­ment hori­zon, but the actu­al dis­po­si­tion could occur soon­er or lat­er depend­ing on prop­er­ty per­for­mance, mar­ket con­di­tions, financ­ing, buy­er demand, and the spon­sor’s busi­ness plan.

A pro­ject­ed hold­ing peri­od should nev­er be inter­pret­ed as a guar­an­teed sale date.

The spon­sor, trustee, or oth­er par­ties autho­rized under the trust and offer­ing doc­u­ments gen­er­al­ly make the dis­po­si­tion deci­sion.

Indi­vid­ual investors usu­al­ly do not have the same abil­i­ty as direct prop­er­ty own­ers to decide inde­pen­dent­ly when the prop­er­ty will be sold.

This lim­it­ed con­trol is an impor­tant char­ac­ter­is­tic of DST own­er­ship.

When the under­ly­ing prop­er­ty is sold, the DST gen­er­al­ly sat­is­fies applic­a­ble prop­er­ty-lev­el lia­bil­i­ties and trans­ac­tion expens­es and then dis­trib­utes avail­able net pro­ceeds to investors accord­ing to their pro­por­tion­ate inter­ests.

The dis­po­si­tion may cre­ate tax­able gain depend­ing on the investor’s tax basis and cir­cum­stances.

An investor seek­ing con­tin­ued tax defer­ral may poten­tial­ly eval­u­ate anoth­er qual­i­fy­ing Sec­tion 1031 exchange.

Poten­tial­ly, yes.

If the invest­ment and trans­ac­tion oth­er­wise qual­i­fy, an investor may be able to use pro­ceeds from the dis­po­si­tion of a DST inter­est to acquire new qual­i­fy­ing replace­ment real estate through anoth­er Sec­tion 1031 exchange.

The applic­a­ble exchange require­ments, includ­ing qual­i­fied-inter­me­di­ary arrange­ments and the iden­ti­fi­ca­tion and acqui­si­tion dead­lines, must again be fol­lowed.

Some DST pro­grams are designed with the poten­tial for a future con­tri­bu­tion of real estate into an oper­at­ing part­ner­ship asso­ci­at­ed with a REIT, often described as a DST-to-721 or UPREIT strat­e­gy.

This is dif­fer­ent from a tra­di­tion­al Sec­tion 1031 exchange.

Not every DST offers a Sec­tion 721 strat­e­gy, and a con­tem­plat­ed future trans­ac­tion should nev­er be assumed to occur.

Investors con­sid­er­ing this approach should review the poten­tial REIT or oper­at­ing part­ner­ship, val­u­a­tion method­ol­o­gy, fees, tax con­se­quences, liq­uid­i­ty pro­vi­sions, hold­ing require­ments, redemp­tion restric­tions, and whether par­tic­i­pa­tion is option­al or manda­to­ry.

DSTs are fre­quent­ly eval­u­at­ed by investors who are sell­ing appre­ci­at­ed invest­ment real estate, con­sid­er­ing a Sec­tion 1031 exchange, seek­ing to reduce active man­age­ment respon­si­bil­i­ties, inter­est­ed in pas­sive real estate own­er­ship, seek­ing expo­sure to dif­fer­ent mar­kets or prop­er­ty sec­tors, or want­i­ng to allo­cate exchange pro­ceeds among mul­ti­ple replace­ment prop­er­ties.

DST own­er­ship gen­er­al­ly requires a longer invest­ment hori­zon and tol­er­ance for lim­it­ed liq­uid­i­ty.

These char­ac­ter­is­tics do not auto­mat­i­cal­ly make a DST appro­pri­ate for any par­tic­u­lar investor.

A DST may not be appro­pri­ate for an investor who requires short-term liq­uid­i­ty, wants direct oper­a­tional con­trol over the prop­er­ty, wants to per­son­al­ly deter­mine when the prop­er­ty is sold, can­not tol­er­ate real estate invest­ment risk, needs guar­an­teed income, has a short invest­ment hori­zon, or is uncom­fort­able own­ing pri­vate secu­ri­ties.

An investor should also be cau­tious about pur­chas­ing an invest­ment pri­mar­i­ly because a Sec­tion 1031 iden­ti­fi­ca­tion dead­line is approach­ing.

An exchange dead­line should not turn an unsuit­able invest­ment into a suit­able one.

Nei­ther approach is auto­mat­i­cal­ly bet­ter.

Direct own­er­ship may pro­vide greater con­trol, flex­i­bil­i­ty, financ­ing choic­es, and the abil­i­ty to deter­mine when and how a prop­er­ty is oper­at­ed or sold.

A DST may pro­vide pas­sive own­er­ship, pro­fes­sion­al man­age­ment, frac­tion­al invest­ment siz­ing, and access to prop­er­ties an indi­vid­ual investor might not pur­chase inde­pen­dent­ly.

The appro­pri­ate choice depends on the investor’s objec­tives and cir­cum­stances.

Some investors may decide to com­bine direct own­er­ship and DST inter­ests with­in an over­all real estate strat­e­gy.

No.

Dis­tri­b­u­tion rate is only one com­po­nent of invest­ment analy­sis.

Investors should also eval­u­ate the prop­er­ty pur­chase price, val­u­a­tion, cost of acqui­si­tion, lease eco­nom­ics, ten­ant qual­i­ty, occu­pan­cy, debt, reserves, spon­sor, mar­ket con­di­tions, cap­i­tal expen­di­tures, pro­ject­ed hold­ing peri­od, exit assump­tions, total-return poten­tial, and down­side risks.

A high­er dis­tri­b­u­tion rate can some­times accom­pa­ny high­er invest­ment risk.

No. This dis­tinc­tion is extreme­ly impor­tant.

A Sec­tion 1031 exchange is pri­mar­i­ly a tax-defer­ral strat­e­gy.

Suc­cess­ful­ly defer­ring tax does not auto­mat­i­cal­ly cre­ate invest­ment val­ue.

An investor could suc­cess­ful­ly com­plete the tech­ni­cal require­ments of a Sec­tion 1031 exchange while acquir­ing an over­priced, poor­ly financed, illiq­uid, or under­per­form­ing replace­ment invest­ment.

The objec­tive should not sim­ply be:

“How do I avoid pay­ing tax?”

A more com­pre­hen­sive ques­tion is:

“How do I allo­cate my tax-deferred cap­i­tal into invest­ments that appro­pri­ate­ly serve my long-term finan­cial objec­tives?”

Tax defer­ral can pre­serve cap­i­tal.