DST investments offer the same benefits of individual property ownership minus the headaches associated with management. When the property is sold in its entirety, the investor is able to continue deferring tax through a subsequent 1031 exchange.
T.R. Winston has been involved with the top leaders in 1031 exchange programs in the country. As a Charter Member of the Alternative & Direct Investment Securities Association, we are able to take on an active role in advancing in the 1031 exchange industry. Through our network of sponsors, real estate, legal and tax professionals, we have access to the best products available in the industry. T.R. Winston has built unique expertise across all facets of this dynamic new industry. In addition to building relationships among professionals and investors, T.R. Winston is involved in several industry associations.
Our long history in the Real Estate Tax Deferred industry puts TR Winston in a unique position to assist with exchange needs and requirements. The firm and its executives over the past 12 years have been involved in significant transactions dealing with either acquisition, debt placement, equity raise or disposition.
Benefits of DST Ownership
Potentially higher cash flow: Properties producing little or no cash flow can be exchanged for professionally managed, institutional quality properties. DST investments are designed to provide stable, predictable cash flow.
No management burden: DST investments provide all of the benefits of real estate ownership without the need to personally oversee its daily operation. Properties are managed by professional property managers.
Institutional quality assets: Purchasing investment property under the DST model allows smaller investors the opportunity to invest in institutional quality properties.
Diversification: DST ownership provides the ability to diversify investment dollars across multiple markets and asset types, potentially increasing both the value and safety of the investment.
1031 exchange deadlines: Readily available DST properties take the risk out of meeting 1031 exchange timing deadlines. Prearranged financing limits the amount of time it takes to close.
Capitalizing on overpriced markets: DST investments provide investors with the opportunity to exchange highly appreciated properties in overpriced markets for properties in markets with future growth potential.
Risks Associated with DST Ownership
There is a degree of risk associated with real estate ownership and operation. It is impossible to accurately predict the results of an investment to an investor. Specific risks associated with a private securities offering include, but are not limited to, the use of leverage, risks associated with a private securities offering, certain tax risks, vacancy risks, expiration of leases, performance of lessees and loss of principal.
An investor should be aware of the Internal Revenue Code restrictions that apply to 1031 Exchanges. For example:
- Properties must be held for productive use in a trade, a business or as an investment.
- The investor must identify the replacement property or properties within 45 days from closing on the sale of a relinquished property, and the new property must be acquired within 180 days of this original sale.
- Properties must be exchanged solely for a “Like-Kind” property. Like-Kind properties include developed or undeveloped real estate (but need not be identical in type). The value, equity and/or debt on the replacement property must be equal to or greater in value than that of the relinquished property.
- The seller must not directly receive funds from the sale of his or her relinquished property. The IRS allows an investor to use a “Qualified Intermediary” to affect the exchange, serving in effect as an escrow agent that performs the exchange within the 180-day closing period.
- Properties that do not qualify for a 1031 exchange include stocks, notes and bonds, partnerships and a variety of other investment vehicles.
It is important for an investor to understand:
- An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities, including tax penalties.
DSTs are generally considered to be illiquid.
- In the event that a DST property unexpectedly loses tenants or sustains substantial damage, there is a potential for suspension of cash flow distributions (or rent).
- Costs associated with the DST transaction may impact investor returns and may outweigh the tax benefits. Examples of such costs include upfront charges and fees imposed by the sponsor, qualified intermediary, leasing/real estate agent, accountant, lawyer, and property manager.
- DTC properties employ professional asset and property management. DST co-owners do not have direct say over the day-to-day property management situations.
The statements contained herein are for educational purposes only. The Private Placement Memorandum ("PPM") should be carefully reviewed for each offering and are for Accredited Investors only. These risks, among other risks, should be discussed with your own legal, tax, and financial advisers. For more specific information on Risk Factors, please refer to the PPM.