The Benefits of Completing a 1031 Exchange with a Delaware Statutory Trust
by Dwight Kay, Founder & CEO, Kay Properties & Investments, LLC
A 1031 exchange is considered by many to be the most effective tax deferral tool available. Under IRS code section 1031, investment real estate owners are able to defer the capital gain tax on the sale of appreciated investment property if they reinvest in “like-kind” property. Real estate held for business or investment purposes can qualify as “like-kind” property. This includes single-family rentals, apartment complexes, office buildings, storage facilities, industrial buildings and many other types of commercial properties.
Although you may be familiar with a 1031, we’ve found that a surprising amount of professionals we’ve worked with, including real estate investors, CPAs, real estate brokers and even real estate attorneys, do not know about the use of a Delaware Statutory Trust (DST) to complete a 1031 exchange without the hassle of taking on the management responsibilities that come with typical 1031 exchanges into traditional real estate.
A DST 1031 investment offers many potential benefits for someone who is looking to sell their appreciated real estate. Not only does it allow the seller to defer the Capital Gains Tax if they use it to complete their 1031 exchange, a DST can also offer the following potential benefits:
No more management responsibilities – tenants, toilets, trash, etc. all gone! – a DST is professionally managed
Diversification into multiple properties in more than one market, which can potentially lower risk and concentration exposure if you invest in DSTs with multiple properties that are located in different geographic markets (think, “what if my main asset is destroyed in an earthquake, or the local government imposes sweeping rent control destroying millions in built up apartment owners equity?”)
Access to high quality real estate – DST 1031 investments are often comprised of 10-50 million dollar multifamily apartment buildings in dynamic and growing markets throughout the country. 1031 DST investments can also hold long term net leased properties to tenants such as Walgreens and FedEx
Low minimum investment amounts – often times the minimum investment for a 1031 DST exchange property is only $100k
Predictability and flexibility when closing – DSTs often close in 3-5 business days
Non-recourse financing is often locked and in place for those who need to replace the value of a mortgage they paid off on their relinquished property via a 1031 exchange
All-Cash/Debt-Free DSTs – certain DSTs have no loans and are owned free and clear completely eliminating the risk of a lender foreclosure. These debt-free DSTs can potentially be an appropriate option for investors who have already paid off their properties, owning them free and clear. When making a 1031 Exchange, these investors have no need for purchasing a DST with debt. Staying All-Cash/Debt-Free lowers the risk potential and profile for these investors.
At Kay Properties and Investments, LLC we specialize in 1031 DST investments and work with clients all over the country to help them understand if a 1031 exchange into DST investments makes sense for them.
Please visit www.kpi1031.com to register for a free consultation and receive a free listings menu of our currently available 1031 DST investments.
Dwight Kay is the Founder and CEO of Kay Properties and Investments, LLC. Dwight is a published author with multiple published white papers and articles on 1031 exchanges, Delaware Statutory Trust (DST) properties and real estate securities. He has been interviewed on local and nationally syndicated radio stations on the matters of 1031 exchanges and replacement properties. He also is the author of the published book “Delaware Statutory Trust (DST) Properties: An Introduction to DST Properties for 1031 Exchange Investors.” Dwight began his career in commercial real estate working for a national commercial real estate brokerage firm focusing on multifamily and commercial real estate.
Investors should keep in mind that real estate and Delaware Statutory Trust (DST) properties are available to accredited investors only (generally described as having a net worth of over $1 million dollar exclusive of primary residence) and accredited entities only. DSTs may include risks such as, but not limited to, loss of entire investment principal, declining market values, tenant vacancies and illiquidity. Please remember that because all investors’ situations vary, one should speak with their CPA and attorney for tax and legal advice prior to making any investment decisions, as this is not meant to be interpreted as tax or legal advice.
This material does not constitute an offer to sell nor a solicitation of an offer to buy any security. Such offers can be made only by the confidential Private Placement Memorandum (the “Memorandum”). All offerings are subject to availability. There can be no assurance that any offering will be available for investment. Please be aware that this material cannot and does not replace the Memorandum and is qualified in its entirety by the Memorandum. This material is not intended as tax or legal advice so please do speak with your attorney and CPA prior to considering an investment. This material contains information that has been obtained from sources believed to be reliable. However, Kay Properties and Investments, LLC, WealthForge Securities, LLC and their representatives do not guarantee the accuracy and validity of the information herein. Investors should perform their own investigations before considering any investment. There are material risks associated with investing in real estate, Delaware Statutory Trust (DST) and 1031 Exchange properties. These include, but are not limited to, tenant vacancies, declining market values, potential loss of entire investment principal. Past performance is not a guarantee of future results: potential cash flow, potential returns, and potential appreciation are not guaranteed in any way and adverse tax consequences can take effect. Real estate is typically an illiquid investment. Please read carefully the Memorandum and/or investment prospectus in its entirety before making an investment decision. Please pay careful attention to the “Risk” section of the PPM/Prospectus. All photos are representative of the types of properties that Kay Properties has worked with in the past. Investors will not be purchasing an interest in any of the properties depicted unless otherwise noted. IRC Section 1031, IRC Section 1033, and IRC Section 721 are complex tax codes; therefore, you should consult your tax and legal professional for details regarding your situation. Securities offered through registered representatives of WealthForge Securities, LLC, Member FINRA / SIPC. Kay Properties and Investments, LLC and WealthForge Securities, LLC are separate entities. DST 1031 properties are only available to accredited investors (generally described as having a net worth of over one million dollars exclusive of primary residence) and accredited entities only (generally described as an entity owned entirely by accredited individuals and/or an entity with gross assets of greater than five million dollars). If you are unsure if you are an accredited investor and/or an accredited entity, please verify with your CPA and Attorney prior to considering an investment. You may be required to verify your status as an accredited investor.