How Do I Invest in a Delaware Statutory Trust (DST)?

Investing in a Delaware Statutory Trust (DST) via a 1031 exchange can be an attractive option for real estate investors looking to defer capital gains taxes, diversify their portfolio and generate passive income. A DST is a legal entity that allows multiple investors to own a fractional interest in a real estate property or properties within a portfolio. DSTs can offer investors access to institutional-grade real estate assets minus the hassles of property management. With any investment, however, it’s important to understand the requirements and process. Here are the seven steps you’ll need to take to invest in a DST through a 1031 exchange once you’ve weighed the risks and benefits of doing so.

 

Seven steps for investing in DST through a 1031 exchange

 

Step 1: Contact Diversified Investment Strategies

The first step will be to contact one of our investment professionals at Diversified Investment Strategies. Along with the below steps, we’ll help you understand the process and answer any upfront questions you may have. Additionally, we can refer you to an accommodator/qualified intermediary (QI), a necessary professional needed to handle the documentation and financial portion of the exchange including holding the exchange proceeds during the transaction period. We will also discuss your goals and objectives for this exchange including your investment strategy, investment criteria income needs, estate planning options, potential liquidity needs, etc. For example, to qualify for some investments, the investor must be accredited, which comes with a distinct set of requirements. We can determine your eligibility upon our initial meeting.

 

Step 2: Select a Qualified Intermediary

Prior to the close of escrow, select and contact your QI to set up the exchange to receive and hold exchange funds. It is crucial to the 1031 exchange that you do not take receipt of the funds or the exchange will be disqualified and a potential taxable event will be created.

 

Step 3: Choose a Replacement Properties

Log into our list of available DST exchange properties to see what is available. Keeping in mind your determined investment strategy discussed earlier, we will narrow and help identify potential offerings of interest. Once you’ve identified a DST sponsor(s), our team will create a customized 1031 portfolio based on our discussion, feedback, your financial needs, etc. Then we will provide you with offering materials (the Private Placement Memorandum – PPM) that includes information about the investment property, the structure of the DST, the potential risks and rewards of the investment and the fees and expenses associated with the investment. Note that the replacement property must be identified within 45 days of closing and close within 180 days from the sale of the relinquished property.

 

Step 4: Review the Private Placement Memorandum (PPM)

Diversified Investment Strategies’ due diligence includes reviewing the PPM and the sponsor (if not done already earlier). The purpose of this step is to review the sponsor’s business plan, potential risk factors, appraisal value, loan terms, financial projections, etc.

 

Step 5: Prepare and Review Documents

Investment documents – sponsor and broker documents – will be prepared, reviewed, signed by the investor and then sent to a compliance team for their review and approval.

 

Step 6: Finalize the Exchange and Release Funds

Once the transaction is approved, the sponsor will contact your QI to exchange documents, prepare an estimated closing statement, purchase agreement, etc. The accommodator then prepares your final exchange documents and authorizes the funds to be released by wire transfer.

 

Step 7: Receive Distributions! Congratulations!

Your investment transaction is closed, and you will begin to receive information about updates, distributions, etc. These are typically paid monthly via direct deposit.

 

 

Diversified Investment Strategies represents a team of experienced and trusted professionals specializing in real estate investment and services – including buying, selling, leasing, retirement planning and wealth growth and management through strategic, informed investment choices and a meticulous real estate investment analysis. As knowledgeable replacement property professionals, they help clients build a customized strategy that identifies suitable investments pursuing successful completion of a 1031 Tax-Deferred Exchange. Visit them at www.diversified1031.com or call 949-379-2080.

 

*Example portfolio is hypothetical and for illustrative purposes only. Individual results will vary and are not guaranteed.

 

Because investor situations and objectives vary this information is not intended to indicate that an investment is appropriate for or is being recommended to any individual investor.

This is for informational purposes only, does not constitute individual investment advice, and should not be relied upon as tax or legal advice. Please consult the appropriate professional regarding your individual circumstance.

Potential cash flows/returns/appreciation are not guaranteed and could be lower than anticipated. Diversification does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk.

There are material risks associated with investing in private placements, Delaware Statutory Trusts (“DSTs”) and real estate securities including the potential loss of the entire investment principal, illiquidity, tenant vacancies impacting income and revenue, general and real estate market conditions, lack of operating history, interest rate risks, competition, including 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 investors should read the PPM carefully before investing paying special attention to the risk section.

DST 1031 properties are only available to accredited investors (typically defined as having a $1 million net worth excluding primary residence or $200,000 income individually/$300,000 jointly of the last two years; or have an active Series 7, Series 82, or Series 65).  Individuals holding a Series 66 do not fall under this definition) 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.

Securities offered through Concorde Investment Services, LLC (CIS), member FINRA/SIPC. Diversified 1031 is independent of CIS.

FOR ACCREDITED INVESTOR USE ONLY.