TAX DEFERRAL -- it’s all about deferring federal and state taxes.

 

TAX FORGIVENESS  -- the heirs of an investor receive a “step up” in tax basis on death.  This means that the heirs can sell without taxation, converting deferral of taxation under Section 1031 into complete forgiveness.

 

ABILITY TO ACQUIRE INVESTMENT-GRADE REPLACEMENT PROPERTY – an investor can potentially acquire an interest in an investment grade replacement property.

 

POTENTIALLY ACQUIRE HIGHER QUALITY PROPERTY -- the DST structure permits a small investor to potentially acquire higher quality replacement property than they could afford to purchase on their own.

 

DIVERSIFY TO REDUCE SINGLE ASSET RISK  -- DSTs can have low minimum investment amounts, which means that investors can acquire a number of DST replacement properties vs a single property; diversification reduces concentration risk from owning a single property.

 

POTENTIAL HASSLE FREE INVESTING – the sponsor does most of the work.  The sponsor sources the property, conducts the due diligence, negotiates the loan, closes the purchase, manages the property, and sells the property for the investor at the end of the holding period.  The sponsor provides quarterly reports and an annual tax package.

 

STRICT DUE DILIGENCE PROCESS – the sponsor conducts a rigorous due diligence on each property.  Investors can review as much of the due diligence as they want via internet-based portal, including appraisal, property condition report, environmental reports, title report, survey, zoning report, etc.

 

LIABILITY PROTECTION  -- the DST protects each investor from liabilities associated with the property. However, the investor could potentially lose their investment.

 

DEBT REPLACEMENT – the sponsor sources debt needed by most investors to complete their exchange; the loans are nonrecourse – the investors are not personally liable for the debt.  Investors do not submit financial information to lenders; the sponsor is the key principal for lenders.

 

DSTs CAN POTENTIALLY PRODUCE MONTHLY CASH FLOW  – Subject to the investment risks mentioned here, rental cash flow is structured to be paid monthly in many programs and DST investors can potentially receive a percentage of their cash flow on a tax-preferred basis through depreciation pass-through and mortgage interest deductions. An investor should consult with their tax advisor regarding the income tax implications of a DST investment. An investor could potentially experience appreciation over the time that he or she holds the investment in the property. Of course, net rental income and appreciation are not guaranteed and depend upon, among other things, the real estate market and local economy where the underlying DST property is located (which can naturally affect occupancies and rental income).

 

DSTs FREE INVESTORS FROM TENANTS, TOILETS AND TRASH – DSTs are a passive investment; freeing investors from the hassles of property management

 

ABILITY TO SHELTER DISTRIBUTIONS – through use of cost segregation study or trade in with debt, investors may shelter their distributions from taxes.

 

WHAT TO CONSIDER BEFORE INVESTING IN A DST – Investors should not invest in DST’s if they cannot afford to lose their entire investment. Due to the lack of liquidity in every DST investment, DSTs are long term investments.  Investing in a Delaware Statutory Trust - DST property carries all the potential risks and potential benefits associated with real estate investing, with additional DST specific risks. There is no guarantee that DST net income will flow to an investor as originally projected. There is no guarantee that a DST property will appreciate in value, or that it won’t go down in value. DST investments are illiquid assets, and there is currently no established secondary market.

Once the DST offering is closed, there can be no future contributions to the DST by either current or new investors. The trustee cannot renegotiate the terms of the existing loans nor can it initiate any new secured loans from any party. Two exceptions are if the current loan is in default or in imminent danger of being in default, or if the tenant is insolvent or bankrupt.

The trustee is limited to making capital expenditures with respect to the property to those for a) normal repair and maintenance, b) minor non-structural capital improvements and c) those required by law.