Why 1031 DST EXCHANGES ARE GROWING IN POPULARITY
1. Free yourself from the three Ts of active management – tenants, toilets and trash. Many investors are attracted to Delaware Statutory Trusts because they offer the potential for a passive income stream. This feature is especially popular among those investors transitioning from an active real estate management role via a 1031 tax-deferred exchange. Active real estate management can be a time-consuming and tiring occupation which many property owners don’t want to continue into retirement. However, cashing out of a property held over a lifetime will usually incur a substantial capital gains tax hit that will erase much of the wealth that has been accumulated. Delaware Statutory Trusts allow an investor to utilize a 1031 exchange to acquire a professionally managed asset, which provides a potential stream of income without the headaches of property management and asset management.
2. Access to long-term triple net leased (NNN) properties – Depending on the specific investment, Delaware Statutory Trusts can offer investors access to triple net leased (NNN) properties that range from 5-20 years on the primary lease term. This provides a potential long-term income stream without the hassle and risks of over concentrating your net worth in one NNN property. This is particularly relevant for investors who are moving to a Delaware Statutory Trust from a multifamily, apartment or single-family rental investment. Instead of dealing with multiple tenants renewing (or not renewing) their lease once a year, a Delaware Statutory Trust investor may potentially have 5-20 years of income already pre-arranged for. This both reduces the headaches of property management and provides a potential cash flow stream to investors. It is important to note that long-term leased properties, although attractive, can have problems too, such as tenants going out of business. It is important to review the tenant’s business model, credit rating and future growth prospects to understand the level of risk one is assuming with a long-term leased property.
3. Potential for typically non-recourse debt – Most debt on Delaware Statutory Trusts is typically non-recourse which potentially limits an investor’s liability to the lender. This helps to potentially protect an investor’s other properties, investments, etc., should an investment fail. Especially for those investors switching to a Delaware Statutory Trust in retirement, non-recourse debt typically adds a layer of risk mitigation. Non-recourse debt is typically defined as a loan whereby the lender’s only remedy in case of a default is the subject property itself and not the investor’s other assets. Many investors that purchase commercial, multifamily and triple net leased properties on their own are often stuck with full or partial recourse loans from their lenders which increases overall risk substantially. With many DSTs, non-recourse debt is typically enjoyed by investors
4. Potential for diversification into smaller dollar amounts – Delaware Statutory Trusts give investors access to real estate for smaller dollar amounts. In contrast, higher quality triple net leased properties (which are often compared to Delaware Statutory Trusts) typically have a price floor around $1,500,000. This not only allows more potential investors access to Delaware Statutory Trusts, but also allows investors to spread risk across multiple assets instead of concentrating it in one property.
About Kay Properties and Investments, LLC:
Kay Properties and Investments, LLC is a national Delaware Statutory Trust (DST) investment firm with offices in Los Angeles, San Diego, San Francisco, Seattle, New York City and Washington DC. Kay Properties team members collectively have over 114 years of real estate experience, are licensed in all 50 states, and have participated in over $7 Billion of DST real estate. Our clients have the ability to participate in private, exclusively available, DST properties as well as those presented to the wider DST marketplace; with the exception of those that fail our due-diligence process. To learn more about Kay Properties please visit: www.kpi1031.com
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”). Please read the entire Memorandum paying special attention to the risk section prior investing. This email 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. IRC Section 1031, IRC Section 1033 and IRC Section 721 are complex tax codes therefore you should consult your tax or legal professional for details regarding your situation. This material is not intended as tax or legal advice.
There are material risks associated with investing in real estate, Delaware Statutory Trust (DST) properties and real estate securities including illiquidity, 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 and long hold periods. There is a risk of loss of the entire investment principal. Past performance is not a guarantee of future results. Potential cash flow, potential returns and potential appreciation are not guaranteed. For an investor to qualify for any type of investment, there are both financial requirements and suitability requirements that must match specific objectives, goals and risk tolerances.
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