Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
1031 exchange to DST, anybody?
Old 02-15-2018, 07:25 PM   #1
Thinks s/he gets paid by the post
Onward's Avatar
 
Join Date: Jul 2009
Posts: 1,745
1031 exchange to DST, anybody?

I'm considering doing a 1031 exchange into one or more Delaware Statutory Trusts.

I'm sure many here have done 1031 exchanges, but does anyone have experience with DSTs?

I plan to use one of the major Qualified Intermediary firms, and the DST marketplace I'm looking at is Kay Properties & Investments.

The amount of the exchange is roughly $150k.
__________________

__________________
And if I claim to be a wise man, it surely means that I don't know.
Onward is online now   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 02-15-2018, 07:31 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
calmloki's Avatar
 
Join Date: Jan 2007
Location: Independence
Posts: 5,653
Also curious. would like to continue a move toward divesting of the rentals and into an investment that I can control annual income. Don't want to have heirs dealing with sale of properties (mostly because I don't feel they would maximize value but also because money or an investment that is rapidly liquidated is easier for them).
__________________

calmloki is offline   Reply With Quote
Old 02-15-2018, 08:15 PM   #3
Full time employment: Posting here.
Luck_Club's Avatar
 
Join Date: Dec 2016
Posts: 549
Following. I did a 1031 exchange many years ago and had an intermediary company hold the funds. IIRC, they would park the funds in another property earning a % for as long as I needed it.

The attorney I used said it was one of the lowest fees he had seen to do a 1031 exchange. I'll dig through the records and see if I can find the company in the AM.
__________________
2017 dry run spending: 2018 accelerate debt elimination: 2019 RV procurement & 1MY begins: 6/19 DW last month went early: 9/19 start cross country loop: 1/20 first reinforcements arrive. 6/20 sell business or shut doors. 9/20 begin globe trot: 4/26 401K reinforcement.
Luck_Club is offline   Reply With Quote
Old 02-16-2018, 10:06 AM   #4
Recycles dryer sheets
 
Join Date: Apr 2016
Posts: 101
We (my wife and I through a trust) have owned several DST properties for about 4 years now. We got tired of managing our rental and are actually earning more money through the DST than we did with our rental.

A DST is similar to a TIC (tenant-in-common) which provides an easy method to buy a portion of a property, or the entire property. The TIC is handicapped by the fact that ALL the members must agree on any change in plan, which is nearly impossible to achieve in practice. The DST is restricted by law and the PPM as to what it can actually change or how it operates.

We ended up owning parts of 4 different DSTs, all bought through Kay Properties and Investments (KPI). We paid no fees to them and were pleased with their support. The DSTs are conservative in operation, with large reserves and relatively low monthly distributions. We are getting 5% - 7% annual distributions paid monthly and expect IRRs of 10-14% at sale. The exit strategy is usually a sale within 7-10 years whereupon another 1031-exchange will put us in another property, hopefully with a larger stake. Eventually, they will pass to our heirs with a stepped-up basis. Capital preservation is critical. We also own some shares of properties in LLCs, but since I retired, I find the steady cash flow of the DST is much preferred to the lumpiness of the LLCs distributions. Many of the DST sponsors are excellent managers.

I understand that a few DSTs made capital calls in the great recession, which means the investors were forced to come up with more money to offset loss of operating income and to preserve the investment. This risk should be thoroughly understood for the property you are considering. IIRC, Passco was the only sponsor which made no capital calls during that time, but you should check my memory with your broker (KPI).

Some of the bigger DST sponsors are Capital Square Realty Associates (CSRA), ExchangeRight, Inland, Passco.

Here's a summary of our investments and how they've fared so far:
1. Made a cash purchase in a CVS on the Vegas strip through CSRA. This property has been vacated by CVS, but they must continue to maintain the property and pay rent through the lease end in 2029. They are trying to sublet it. There is some small risk that the lender will hold all the income in reserve, but this has not happened so far. We continue getting monthly payments from them. CVS, being investment grade, guarantees the lease and is not at risk of bankruptcy, so the property should continue to provide income.

We broke the proceeds from our rental sale into 3 different DSTs via 1031:
1. ExchangeRight5 - an assortment of 12-14 retail properties in many locations throughout the midwest and south. They are all neccessity retail, which means auto parts, drug stores, grocery stores, etc. There were some reports of hurricane damage to one or two properties last fall, but there was no interruption to cash flow.
2. ExchangeRight6 - similar to ER5 above. I really like the geographical diversity and mix of tenants provided by these large DSTs.
3. A multifamily property run by Bluerock in NC. This property is being sold (early in the cycle IMO) and we're looking to flip via 1031. We got about 7% IRR which was mostly the monthly distribution of 5.75%. I may have made a poor choice on location with this one because I was stretching for yield. Lesson learned.

After almost 4 years of mailbox money with no concerns and regular status reports, we're now getting back into the details to make the best choice for the proceeds from the multifamily property. We are considering if we want to stay in the multifamily sector or pick another sector which may experience more growth in a growing economy. Industrial, office, self-storage, medical, retail are some examples.

I realize all of these are at risk if we go through another great recession, but hopefully have picked my spots carefully enough to avoid getting roasted. The risks are all identified in the PPM (private-party memorandum) which you should get from KPI.

You may hear on this forum that that there are no good investments mass-marketed to individuals and you must be an insider to profit. The landscape really changed in 2012, with the passage of the JOBS Act, which now allows sponsors and operators to publicly advertise these investments. Prior to that there had to be a personal relationship between sponsor and investor, which really cut down on activity and rewarded insiders. I've never really been an insider and have benefited from the new openness. I hope you do too.

Another benefit of the JOBS Act was to open many of these investments up to non-accredited investors. Previously, they were restricted to accredited investors who met net worth or income requirements. Now, it's far more open, although there are limits on how much you can invest.
Bruceski44 is offline   Reply With Quote
Old 02-16-2018, 02:37 PM   #5
Recycles dryer sheets
BeachOrCity's Avatar
 
Join Date: Jun 2016
Posts: 166
If you are looking for a fee laden investment that is sure to make KPI money but leave you with an investment with weak returns by all means go ahead.

Can the author of the above reply confirm they have no inherent bias in promoting DSTs? I ask because your reply looked extremely time consuming to write and in another forum I read recently the consensus of the informed investors (all of us being accredited) was that DSTs basically “suck”.

Sorry to be so harsh in my reply but I have never heard of anyone who knows and has experience with jobs act based accredited investments thinking DSTs are the way to go.

As for what to do with your 1031, unfortunately there are few good choices as TICs have their own issues. If you are unwilling to replace it with a self managed or hire your own manager type property you will most likely end up giving much of your return to others. There is no free lunch. Unless of course you call KPI who hosts many steak dinners paid for by the fees they earn.
BeachOrCity is offline   Reply With Quote
Old 02-16-2018, 07:15 PM   #6
Recycles dryer sheets
 
Join Date: Apr 2016
Posts: 101
How can I possibly refute that which you and all your friends have found to be a fact?

I can hear BeachOrCity saying to himself:
" Hmmm, here's someone who understands his topic and expresses himself clearly.
And he's uncovered something which I do not understand or approve of.
So he must be a... Communist SPY! No, no wait, he's a shill, yeah that's it-
HE'S A SHILL!
Must.... warn.... everyone."

As for my post you can take it or leave it.

After my last go-round on this forum, I vowed to never post on here again. I would just lurk in the hopes of picking up something useful. Then I saw this thread and thought that's something I have knowledge of and experience in. But then I remembered how my posts got picked apart, taken out of context and ridiculed. But overnight, my conscience spoke to me and I realized I had good info which may help others. So I posted, not because I'm a shill or have a stake, but because, as a regular guy, I found a way to make money which works for me. I was hopeful that readers might learn from my experience and grow their wealth in the same manner I did. But then another thread dog comes along and instead of discussing my points rationally, exposes his conceit and narrow-mindedness by picking apart my post and concluding I'm a shill.

Everything I posted is public knowledge; you can check it all out for yourselves.

There are billions of dollars invested in DSTs and millions being paid out every year as income, but don't listen to me. By all means get your info from all the other posters on this forum who know it cannot be done.
Bruceski44 is offline   Reply With Quote
Old 02-16-2018, 07:44 PM   #7
Thinks s/he gets paid by the post
Onward's Avatar
 
Join Date: Jul 2009
Posts: 1,745
Wow. Fireworks already.

Bruceski44, thank you for your detailed post. It is very helpful to me, especially since you also used Kay.

BeachOrCity, I appreciate your opposing view too. One knock I've heard on DSTs is that they're fee-heavy. Do you have any numbers to share? What's that other discussion of DSTs you referred to? I'd like to check it out.

In the end I'm going to have to eat some fees. But it may be worth it, in order to defer fed + state tax on the gain. That's what I'm trying to gauge.
__________________
And if I claim to be a wise man, it surely means that I don't know.
Onward is online now   Reply With Quote
Old 02-16-2018, 07:59 PM   #8
Full time employment: Posting here.
 
Join Date: Jun 2017
Location: Western NC
Posts: 587
yeah, what are the fees?

if the return is 7% after fees that's nothing to sneeze at.
ncbill is offline   Reply With Quote
Old 02-17-2018, 09:40 AM   #9
Recycles dryer sheets
 
Join Date: Oct 2007
Posts: 131
I am not trying to hijack this very informative thread, but I am trying to decide for myself whether to participate in 1031 Exchange or NOT. If I do this, it will be my very first attempt.

We have a Contract on selling our paid up Office Building of which we became Default Landlords after retirement & that Landlord role does not suit me at this point in my retired life.

Essentially I will be saving around $110k (Confirmation Needed below) of Taxes if I Exchange.
But I do not understand DSTs, I understand they lead to Mail Box Money without too many responsibilities on my part, is that right ??
I am reading & trying to learn on 1031 Exchange & DSTs as much as I can.

As many of you have gone through property sales, please help me eyeballing my taxes on this sale, the particulars are -

Cost Basis of Building in 1999 (Land not included) = 445000
Depreciation taken including 2017 = 206000
________
Adjusted Cost Basis = 239000

Depreciation Tax @ Flat 25% = 206000 x 0.25 = $ 51500

Sale Price = $785000
Basis = $445000
Selling Costs = $50000


Capital Gains = 290000

Long Term Cap Gains Tax 290000 @20% = $ 58000

Total Tax to Pay = $109500

Net Proceeds = Sale Price 785000 - All Taxes 109500 TAKE HOME = $ 675000

Please let me know if any other information is needed

Thanks in advance & for the collective wisdom of this Forum

I am also researching Kay Properties among other providers
rkser is offline   Reply With Quote
Old 02-17-2018, 10:10 AM   #10
Recycles dryer sheets
 
Join Date: Jun 2016
Posts: 83
I'm very new to DST's (this is only the second time I've heard them mentioned).
What's the value of a DST over a REIT?
Spock is offline   Reply With Quote
Old 02-17-2018, 10:38 AM   #11
Recycles dryer sheets
knucklehead 61's Avatar
 
Join Date: Nov 2008
Posts: 151
just about the worst financial decision i ever made was buying into a DST/TIC.

sold a house & netted 360k using 1031 exchange & put it into a DST/TIC that was paying 7.5% dividends paid monthly ($27,000/yr) this only happened for the first year & a half...then we would get a few bucks hear & there until it totally dried up. we got zero $ for about 5 years, the owners (us investors) got together, hired a law firm to try to replace the management team. we paid about 10k into the legal fund pot. of course we lost. a couple years later the management team sold the property (bought for 47mm) for about 46mm & we were given back only 220k. the management team was paid out a huge amount, 7 or 8mm that the owners couldn't dispute.
when we finally got the 220k i paid cash for a beach town house & put the rest down on a duplex with a small mortgage, again using 1031 exchanges.

i would have been FAR better off never getting involved with the DST/TIC.
you have zero control of your money. you are 100% at the mercy of the management.
typically you can not liquidate your position until they decide to do it & you have no say as to when or what price.
now that i am older & wiser i prefer to be in control of my money.
__________________
Early Retired on 12/18/15 at 49.
very comfortably living off of my rental income while my ira collects dust...& compounding interest!
knucklehead 61 is offline   Reply With Quote
Old 02-17-2018, 12:30 PM   #12
Recycles dryer sheets
 
Join Date: Oct 2007
Posts: 131
I am sorry for your sour experience with DSTs,

We are selling a office building & netting $ 625k after selling costs of 50k + All taxes of 110k.

We are considering a 1031 Exchange in an effort to postpone the taxes of 110k, and in the interest of not being the Landlord anymore looking into DSTs.
We realize we will not have any control of the management decisions in a DST, but we will not have the headaches of being the Landlord in our retirement either.

If we can learn anything from your experience, what would you do different in selecting DST/Property or if you are in our shoes

Thanks in advance
rkser is offline   Reply With Quote
Old 02-17-2018, 02:24 PM   #13
Thinks s/he gets paid by the post
Onward's Avatar
 
Join Date: Jul 2009
Posts: 1,745
Quote:
Originally Posted by Spock View Post
What's the value of a DST over a REIT?
The IRS approves tax-deferred exchanges into a DST. It doesn't allow tax-deferred exchanges into a REIT.

Quote:
Originally Posted by knucklehead 61 View Post
just about the worst financial decision i ever made was buying into a DST/TIC.
You've just described my worst nightmare (other than non-paying, legally savvy tenants).

knucklehead, may I ask who the DST's sponsor was, and who the broker?

Looking back is there any way a DST investor could reduce the odds of a similar disaster?
__________________
And if I claim to be a wise man, it surely means that I don't know.
Onward is online now   Reply With Quote
Old 02-18-2018, 05:27 AM   #14
Recycles dryer sheets
 
Join Date: Oct 2007
Posts: 131
Bump
rkser is offline   Reply With Quote
Old 02-18-2018, 07:22 AM   #15
Recycles dryer sheets
 
Join Date: Jan 2012
Posts: 272
Quote:
Originally Posted by knucklehead 61 View Post
just about the worst financial decision i ever made was buying into a DST/TIC.

sold a house & netted 360k using 1031 exchange & put it into a DST/TIC that was paying 7.5% dividends paid monthly ($27,000/yr) this only happened for the first year & a half...then we would get a few bucks hear & there until it totally dried up. we got zero $ for about 5 years, the owners (us investors) got together, hired a law firm to try to replace the management team. we paid about 10k into the legal fund pot. of course we lost. a couple years later the management team sold the property (bought for 47mm) for about 46mm & we were given back only 220k. the management team was paid out a huge amount, 7 or 8mm that the owners couldn't dispute.
when we finally got the 220k i paid cash for a beach town house & put the rest down on a duplex with a small mortgage, again using 1031 exchanges.

i would have been FAR better off never getting involved with the DST/TIC.
you have zero control of your money. you are 100% at the mercy of the management.
typically you can not liquidate your position until they decide to do it & you have no say as to when or what price.
now that i am older & wiser i prefer to be in control of my money.
Thank you for sharing your experience....feel really bad for you!

Last year when we sold our hotel property, we were introduced to DST's in order to do a 1031 exchange. With over 50% of our net worth coming from the sale of our commercial property, we did not feel comfortable losing control of it all to DSt managers and decided against 1031 exchange, consequently will pay a hefty tax bill this year which I do not regret for a moment.

We invested the funds in Index funds instead with a 60/40 asset allocation. The fixed income portion was invested in Tax Free Muni Bond Funds ...We are happy to have total control of our money in retirement and not be dependent on some unknown DST managers to provide us with 5-7% return (if they choose to).
Thanks
Rickt is offline   Reply With Quote
Old 02-18-2018, 02:07 PM   #16
Recycles dryer sheets
 
Join Date: Oct 2007
Posts: 131
Does anyone has experience with any of the many Crowd Funding Sites for real estate, where they say they vet the Sponsors?

Their yields are much better than our Vanguard REIT, ofcourse there is more risk, but so is the risk of a DST .

One can diversify into many Reits with these sites & the minimums are quite low.

Anyone ??
rkser is offline   Reply With Quote
Old 02-18-2018, 03:32 PM   #17
Thinks s/he gets paid by the post
Onward's Avatar
 
Join Date: Jul 2009
Posts: 1,745
I've done some token investing with Fundrise, PeerStreet, and Rich Uncles.

Of those, only PeerStreet offers DSTs, as best as I can tell.
__________________
And if I claim to be a wise man, it surely means that I don't know.
Onward is online now   Reply With Quote
Old 02-18-2018, 04:03 PM   #18
Recycles dryer sheets
BeachOrCity's Avatar
 
Join Date: Jun 2016
Posts: 166
Quote:
Originally Posted by rkser View Post
Does anyone has experience with any of the many Crowd Funding Sites for real estate, where they say they vet the Sponsors?

Their yields are much better than our Vanguard REIT, ofcourse there is more risk, but so is the risk of a DST .

One can diversify into many Reits with these sites & the minimums are quite low.

Anyone ??
Go to crowddd.com and look at the info on offer. This site is to share info, not to sell anything. Lots of good info there. Most sponsors mentioned on this site CANNOT do 1031 but a few can via TIC. The sponsors on this are mostly non Dst but a few have them.

A public traded REIT thru Vanguard is a totally different animal than a DST, TIC OR crowdfunded syndicate. The website above will help you get a basic understanding of the crowdfunding options including ratings.
Alot of crowdfunding platforms that were hot just two years ago have big problems now.

Based on your question you should procede slowely and get yourself educated before you dive in. There is much potential to pick a bad sponsor or project. Be careful!
BeachOrCity is offline   Reply With Quote
Old 02-19-2018, 05:06 AM   #19
Recycles dryer sheets
 
Join Date: Oct 2007
Posts: 131
Thank you Beachorcity & Onward, I will do that
__________________

rkser is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
1031 exchange option? stephenson FIRE and Money 6 08-14-2014 09:58 AM
DST is here again. frayne Other topics 0 03-09-2013 08:03 AM
Land Sale & AMT - should have done a 1031! bearkeley FIRE and Money 25 03-29-2006 09:28 AM
Anyone ever done a 1031 exchange? brewer12345 FIRE and Money 10 06-13-2005 12:15 PM
Experience with 1031 Exchange? Rich FIRE and Money 8 02-03-2005 08:21 AM

 

 
All times are GMT -6. The time now is 06:55 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2018, vBulletin Solutions, Inc.