Investment real estate presents a tremendous opportunity for individuals to grow their net worth through time, value-add work and smart management. We have worked with dozens of clients who have acquired and managed multiple investment properties while maintaining their day-jobs. Ultimately, these real estate holdings end up serving as our client’s “Personal Property Pension Plan,” providing them financial security and funds to live on during their retirement years. This is, in large part a key component of the “American Dream” – we work hard to put away enough resources to enjoy the last 25 years of life comfortably, with sufficient money and time to enjoy friends, family, travel and whatever else may be of interest.
When investment real estate owners transition from the 3rd to the 4th quarters of life, defined as 60-65 years and older, their investment objectives and risk tolerance change. During these years we regularly hear owners place greater emphasis on cash flow/income and preservation of value, while reducing the amount of time required to manage the property. As a result, some owners move toward third-party management of their properties. Unfortunately, third-party management can dilute cash flow and does not address the fact that a significant portion of the owners’ net worth may be held in a concentrated property type (e.g. rental homes/multi-family) in a single market (generally the Greater Puget Sound). At this point, performing a tax-deferred 1031 exchange into a diversified portfolio of Delaware Statutory Trust (DST) properties becomes a very attractive option worth considering, if suitable.
Delaware Statutory Trusts (DSTs) are portfolios of institutional quality property that owners can exchange their investment property into. They are structured by real estate firms with significant experience and strong operational resumes. Due to the fact that they have relatively low minimum investments of $100k and utilizing the 1031 exchange replacement property rules, owners can exchange the proceeds from a single property into multiple DSTs – creating a portfolio of diverse properties that is composed of different fund sponsors, property types and provides geographical diversification – thus serving to help reduce the risk inherent in concentrated assets.
Delaware Statutory Trusts enable owners to reap all the potential benefits we know and enjoy from real estate, which may include:
- Regular cash flow/income potential
- Continued tax deferral through 1031 exchanges
- Potential for appreciation
- Sheltering income from taxes through depreciation
- Hedging against inflation
- Maintaining the opportunity for appreciation
- Providing a full step-up in tax basis upon the death of an owner
Furthermore, DSTs have the potential to be an effective estate planning tool as they require no active management and can be handed to beneficiaries through the processing of relatively simple and straight forward form.
Ownership of beneficial interests in Delaware Statutory Trusts presents many of the same risks inherent in owning real estate as an asset class, including lack of liquidity, interest rate risk, financing risk, costs and fees, market conditions, etc. DSTs are regulated by the Securities and Exchange Commission (SEC) and are subject to extensive due diligence before being presented to accredited investors. Accreditation is necessary for investment eligibility and is defined as having a net worth in excess of $1 million, excluding your primary residence. Alternatively, accreditation can be reached through $200,000 of annual income individually or $300,000 jointly for the last three years. It is important to consider all risks when determining suitability of an investment.
Delaware Statutory Trusts are a popular solution that can be used to address the changing nature of investment property owner’s objectives as they age. We work diligently to understand investment property owner’s goals and objectives, then educate them on various solutions that best position them to realize their objectives. Priorities change as we age. As an owner, it is important to consider what your priorities are. Our firm is built on decades of experience with investment real estate and our team includes an on-staff CPA to help navigate the tax-code and present options that best address investment property owner’s financial and lifestyle goals.
The information herein has been prepared for educational purposes only and does not constitute an offer to purchase or sell securitized real estate investments. Such offers are only made through the sponsors Private Placement Memorandum (PPM) which is solely available to accredited investors and accredited entities. DST 1031 properties are only available to accredited investors (generally described as having a net worth of over $1 million dollars exclusive of primary residence) and accredited entities only. If you are unsure if you are an accredited investor and/or an accredited entity please verify with your CPA and Attorney. There are risks associated with investing in real estate and Delaware Statutory Trust (DST) properties including, but not limited to, loss of entire investment principal, declining market values, tenant vacancies and illiquidity. Potential cash flows/returns/appreciation are not guaranteed and could be lower than anticipated. Diversification does not guarantee profits or guarantee protection against losses. Because investors situations and objectives vary this information is not intended to indicate suitability for any particular investor. This material is not to be interpreted as tax or legal advice. Please speak with your own tax and legal advisors for advice/guidance regarding your particular situation. Securities offered through Concorde Investment Services, LLC (CIS), member FINRA/SIPC. Advisory services through Concorde Asset Management, LLC (CAM), an SEC registered investment adviser. Real Estate Transition Solutions is independent of CIS and CAM.