The DST helped once again to be a realtor’s deal saver.
Sometimes we discover an immediate solution when we were least expecting it. I recently held a webinar for real estate agents where I discussed in detail the advantages of the 1031 ‘like-kind’ exchange structure for investment property owners considering a sale. Most realtors I know have a basic understanding of the 1031 exchange and recognize it as a transaction that enables sellers to defer capital gains tax.
But, as one attendee discovered in our webinar, the Delaware Statutory Trust (DST) is also considered a like-kind exchange by definition in the Internal Revenue Code and it has been used to help save many real estate deals that looked like they were falling apart. Here is a story of how one realtor with 35 years of experience learned about the DST and turned a diminishing opportunity into a property listing and sale.
The real estate agent (Joe) had a potential client (Carol) who had owned a rental property for years. It had recently been vacated by a long-term tenant and she was preparing it to be rented again. Her other choice was to sell the property. Carol faced challenges with either option.
As a widow on a fixed income, she relied on the income her rental generated. But she was tiring of the sole obligations that go along with managing and keeping up a rental property, and since her sons both lived out-of-state she would have to continue to own that responsibility if she re-rented. On the other hand, if she elected to sell the property, her estimated capital gains tax bill would be north of $100,000 which would reduce the amount she would be able to reinvest. And that reinvestment would likely be in the markets where she may not be able to get the same returns she had enjoyed with the rental. Neither option looked great to her.
Fortunately, Joe had recently attended one of my webinars where I had discussed the DST as an optional structure for suitable owners interested in selling a property and reinvesting in another. Joe found the DST to be immediately appealing because it would enable Carol to sell her property, avoid capital gains tax liability and to reinvest the entire proceeds from the sale into a passive investment where she would have no management responsibilities and have the potential to earn more income that she could in the market.
Joe mentioned this option to Carol, and she called me shortly thereafter. I explained how the DST works and the variety of different property types and geographic locations she would be able to choose from with this investment. Carol was very astute and asked great questions. She also consulted with her sons, whom I had conversations with as well. Collectively, they decided that selling her rental property and using the DST structure for a 1031 exchange was a suitable solution.
For Joe, not only was he able save a sale, he learned how a DST may help clients who are facing similar choices on what to do with rental properties that have lost tenants. In fact, looking back over his long and distinguished career at a real estate agent, Joe realized how few investment property owners are even aware of the 1031 exchange/DST option. Armed with a new arrow in his quiver, Joe has already identified two new prospects for which the DST could be a suitable solution. And all this from simply attending my webinar.
Please contact me at any time at 415-991-1031 to find out about upcoming events! Make sure to download my latest Ebook, The Top 11 Misconceptions about 1031 Exchanges.
This is for informational purposes only and does not constitute an offer to buy or sell an investment. Because investors situations and objectives vary this information is not intended to indicate suitability for any particular investor. DST 1031 properties are only available to accredited investors (typically have a $1 million net worth excluding primary residence or $200,000 income individually/$300,000 jointly of the last three years) 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 material risks associated with investing in DST properties and real estate securities including liquidity, tenant vacancies, general market conditions and competition, lack of operating history, interest rate risks, the risk of new supply coming to market and softening rental rates, general risks of owning/operating commercial and multifamily properties, short term leases associated with multi-family properties, financing risks, potential adverse tax consequences, general economic risks, development risks, long hold periods, and potential loss of the entire investment principal.
Securities offered through Concorde Investment Services, Inc. (CIS), member FINRA/SIPC. Insurance offered through Concorde Insurance Agency, Inc. (CIA) Thornwood Financial is independent of CIS, CAM and CIA.
