INFORMATION BOOKLET – PASSIVE REAL ESTATE INVESTING

Interested in learning more about how alternative investments could fit into your financial plan? Click below to download our informational booklet to learn the major benefits of a DST and why they have become an investment vehicle for accredited investors* who want the benefits of owning real estate without becoming a “landlord”.

WHAT IS A DST?

Delaware Statutory Trusts (DSTs) allow owners of real estate to sell their investment real estate and potentially defer capital gains taxes. DSTs are derived from Delaware Statutory law as a separate legal entity and formed as private governing agreements for the purposes of managing, administering, investing, and/or operating real, tangible, and intangible property; or business or professional activities for profit that are carried on by one or more individuals who act as trustees for the benefit of a party who is entitled to a beneficial interest in the trust property.

Though Delaware Statutory Trusts are not new, in 2004 the IRS came out with an official Revenue Ruling detailing how a DST could be structured in such a way that it would qualify as a property replacement vehicle for 1031 Exchanges. Well known to real estate investors, a 1031 like-kind exchange allows you to defer the capital gains tax on the sale of investment property by reinvesting the proceeds into a similar qualifying property.

As a result DSTs have become an investment vehicle for investors who want the benefits of owning real estate without becoming a “landlord”, as well as current real estate investors who no longer want the responsibilities of being a landlord.

HOW DO THEY WORK?

A property is identified and acquired under a DST by a sponsoring real estate investment firm. The same firm, also acting in the capacity as the master tenant, opens up the trust for potential investors to purchase a beneficial interest. In this realm an accredited investor would have an opportunity to own a beneficial interest in a property that would normally be out of reach to them from an investment standpoint. Additionally, they would also benefit from a professionally managed property without any of the associated landlord responsibilities.

WHAT ARE THE BENEFITS OF A DST?

  • Receive passive income from real estate minus the work
  • Own shares of major commercial real estate properties that currently produce income
  • Cash out the equity on your highly appreciated property into an income producing property AND potentially defer your capital gains with a 1031 exchange
  • Get the benefits of real estate ownership and income without the stress and hassles of property management
  • Create an easily dividable asset for your heirs

WHY DST’S?

Do you own highly appreciated investment property?

  • Many people who own highly appreciated investment property feel trapped from cashing out due to the high tax bills they face on their gains. A DST qualifies as a 1031 like-kind exchange. That means you may be able to defer your tax bill AND still be invested in an income producing property without any property management responsibilities.

Are you interested in investing in income producing properties?

  • If suitable in light of your other holdings and risk tolerance, a DST can be a great addition to your portfolio whether you are a seasoned real estate investor or new to investing in real estate. The sponsoring firms make it easy to choose from a portfolio of properties to find one that best suits your investment strategy. There are also opportunities to invest in properties that are currently producing income.

Are you a current landlord tired of the responsibilities and dealing with the Terrible Ts?

  • A DST can be a great way to enjoy the benefits of real estate ownership without dealing with the Terrible Ts of being a landlord: Tenants, Trash, and Toilets. As an investor in a DST, you are not responsible for the property management. In fact, many of the properties have professional property management companies already in place so you no longer need to be involved in the upkeep and maintenance.

Are you looking for an easily divisible asset to leave your heirs?

  • Owning property can be a wonderful investment but challenging to split up amongst loved ones. A DST is a real estate investment where you buy a fractional ownership interest that can be easily divided amongst your heirs avoiding potential family squabbles.

Did you just sell your highly appreciated investment property and can’t find a like-kind replacement?

  • A DST qualifies as a like-kind 1031 exchange, so if you have sold your property and are almost out of time to find a suitable replacement, you can invest in a DST and defer your taxes on the gains. When it comes to investing in real estate, finding the right property is crucial. Don’t rush into it just because you may be running out of time. Invest in an income producing property that qualifies as a 1031 like-kind exchange.

What would be a reason not to do a DST?

  • Liquidity – You are not in control of the decision as to when the assets will be sold. If you need liquidity in less than 10 years from your real estate investments, The DST may not be a good alternative for you. Many investors however wish to keep their 1031 exchanges going until there is eventually a step up in basis. Also, you may not be ready to retire from building your real estate empire. For instance, if you are younger and a successful real estate developer, you may have a much higher potential investment return continuing your building of real estate equity as an active investor rather than as a passive investor using the DST.

I’M INTERESTED, LET’S GET STARTED

Frequently Asked Questions

While DSTs and REITs have some similarities and both invest in real estate, there are some major differences:

  • An DST qualifies as a 1031 like-kind exchange to defer the taxes on the sale of your highly appreciated property, a REIT does not
  • A REIT typically owns more properties than a DST
  • A REIT can be integrated to diversify part of your qualified retirement plan, a DST can not
  • A REIT can be a publicly traded entity, or a private placement investment
    • A DST is a private placement investment
  • A REIT generally is more liquid than a DST

A 1031 like-kind exchange allows an investor to potentially defer the capital gains tax on the sale of highly appreciated investment property by reinvesting the proceeds into qualifying investment real estate.

Yes, a DST qualifies as a 1031 like-kind exchange. That means you may be able to defer your tax bill AND still be invested in an income producing property.

REITs (publicly traded) are generally large, own older buildings, buildings are highly depreciated, and trade like a stock, therefore, are volatile in valuation.

Private REITs often own more newly acquired real estate that isn’t highly depreciated. Many are liquid after one year, on a quarterly basis. Private REITs may be preferable to public REITs and DSTs when an investor does not need a 1031 exchange.

A DST can be a great way to enjoy the benefits of real estate ownership without dealing with the Terrible T’s of being a landlord; Tenants, Trash, and Toilets. As an investor in a DST you are not responsible for the property management.

A DST also qualifies as a 1031 like-kind exchange which means you may be able to defer the taxes on the sale of your highly appreciated property.

A DST can preserve the ability for a step-up in basis, potentially eliminating capital gains and depreciation recapture from income tax permanently.

With a DST you can invest in properties that are already income producing.

A DST can be easily divided amongst your heirs as part of your legacy planning.

DSTs typically invest in newer properties that have little repairs or deferred maintenance issues.

DSTs can offer diversity by property type and geographic location.

No, in order to participate in a DST an investor must be an Accredited Investor. An Accredited Investor is defined as having a minimum of 1 million dollars of net worth (excluding the value of the investors primary residence) and or annual income of at least $200,000 individual, or $300,000 as spousal income.

Yes, you have the opportunity to select the property you want to invest in. Premiere partners with the Portfolio Manager, who has a team of CPAs that vet every Sponsor and every investment property and use a discipled set of investment criteria as part of their vetting process. This is all done before we present any opportunities to you.

Yes, each DST quotes a different yield which comes from collected rents. You will receive monthly net rent checks from each DST investment.

Yes, a DST is an easily divided asset you can leave to your heirs as part of your legacy plan.

Yes, depending on the property type. When the property is eventually sold you will receive your share of any appreciation and repair reserve balances.

Here is a list of the possible property types available. Usually there are 2-4 DST types available at any given time.

I. Apartment complexes

II. Office

III. Retail

IV. Self Storage

V. Medical

VI. Industrial

Not normally, one DST might own 4 apartment complexes in 4 states. DSTs have a minimum investment of $100,000 each, so you would likely want to diversify into several DSTs.

Usually about 4-5.25% net of fees on equity, plus appreciation on the DSTs.

Disclosure:

*To be an accredited investor, an individual must have had earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the prior two years and “reasonably expects the same for the current year,” according to the SEC. Or, the individual must have a net worth of more than $1 million, either alone or together with a spouse. With the passage of the Dodd-Frank Act, this now excludes a primary residence as being eligible as part of an investor’s net worth (investors who had existing accredited investments but who now fail the net-worth test without their residence being valued were grandfathered).

The information, suggestions, and opinions included in this material is for informational purposes only and cannot be relied upon for any financial, legal, tax, accounting or insurance purposes. Premiere Retirement Planning & Wealth Management will not be held responsible for any detrimental reliance you place on this information. Investments in a DST involve certain risks, including the potential lack of return, loss of principal and tax consequences.

Due to the risks involved in the ownership of real estate, there is no guarantee of any return on your investment, and you may lose all or a portion of your investment. This is neither an offer nor a solicitation to purchase any products, which may be done only with a current prospectus. Investors should consider their investment objectives and risks, along with the product’s charges and expenses before investing. Please read the prospectus carefully before investing.