Can I do a 1031 exchange from a Delaware Statutory Trust?
Key points to remember:
• Investors can trade 1031 on their DST investments
• What does it mean to have a full cycle DST 1031 exchange?
• Investors must comply with all 1031 rules when a DST goes full cycle
• What is the Kay Properties DST secondary market?
Many investors who have participated in or are considering a DST 1031 exchange with Kay Properties often ask us, is it possible to exchange 1031 from a Delaware Statutory Trust? If you are looking for a clear and concise answer to this question, here it is: Yes, you can trade 1031 from a DST. But let’s dig a little deeper into this topic.
First things first: what is a DST?
Let’s first see exactly what a Delaware Statutory Trust (DST) is? DSTs are passive real estate ownership vehicles that allow investors to get away from the day-to-day headaches of property management as well as the opportunity to diversify* their equity with the aim of potentially reducing risk. Each individual investor owns their own share, sometimes referred to as a “beneficial interest”, including potential income, tax benefits and appreciation of the DST property. A longer, more detailed article on what exactly a Delaware Statutory Trust is and why so many real estate investors are drawn to them can be found by visiting www.kpi1031.com.
Now the question “Can I swap 1031 from a DST?” can be approached from two different angles. The first perspective concerns when a DST property itself goes into “full cycle”. The term “full cycle” is used to describe a Delaware Statutory Trust asset that has been bought and then sold on behalf of a group of accredited investors after a period of time. Once the DST sponsor has sold the asset in accordance with the DST business plan, each individual investor then has the same options they had when they first traded in the DST: they must use a qualified intermediary , identify the positive leg within 45 days of the abandoned property closing and close higher within 180 days of the abandoned property closing. If they choose to cash out after the full cycle investment, they are liable to pay their taxes.
A good example of a Kay Properties DST investment that has gone through a full cycle is the Alexander Pointe Multifamily DST in Orange Park, Florida.
Trading a DST before the investment is complete is a bit more detailed. Because DSTs are real estate investments, they are considered illiquid. There is no stock exchange that allows you to go online and quickly sell your DST investment. Therefore, investors should only purchase a DST through a 1031 exchange if they are willing to hold it for the life of the investment, which could be 5-10+ years.
However, it may be possible to sell your share of a DST and cash out or pursue another 1031 exchange. Although DST interests can be sold and transferred to an accredited investor, the most obvious buyers of DST interests are other investors, either in the same DST or outside investors who wish to acquire interests in the particular DST.
Please note that exchanging out of a DST before the investment is complete means that the investor must follow the same rules as any traditional 1031 exchange. In other words, investors must use a Qualified Intermediary, they must identify their rising leg within 45 days of closing their abandoned property, and they must close their rising leg within 180 days of closing your abandoned property.
Kay Properties Secondary Market
Because Kay Properties understands that investors might need to exit a DST prematurely, they have created a secondary DST market where investors who wish to sell early have a potential market available to buy their interest in the DST investment. The Kay DST secondary market is made possible by the fact that Kay Properties works with many DST buyers on a daily basis. Kay Properties has helped clients purchase approximately $30 billion in DST investments since its inception. This volume allows us to be a resource for those wishing to sell a DST investment early on, as we work with so many DST buyers nationwide. Again, there is no guarantee that you will be able to sell your DST investment on the secondary Kay DST market, but it may be a potential option.
For a list of 1031 DST properties, please visit www.kpi1031.com as well as you will find more useful articles and resources as you are considering 1031 DST exchange properties.
Dwight Kay is the CEO and Founder of Kay Properties and Investments, LLC, New York, NY
Kay Properties is a national investment company of the Delaware Statutory Trust (DST). The www.kpi1031.com platform provides market access to DSTs from over 25 different corporate sponsors, custom DSTs only available to Kay clients, independent advice on corporate sponsor DSTs, comprehensive due diligence and verification of each DST (usually 20 to 40 DST) and an aftermarket DST. Members of the Kay Properties team collectively have over 150 years of real estate experience, are licensed in all 50 states, and have participated in over $30 billion in DST 1031 investments.
This document does not constitute an offer to sell or a solicitation of an offer to buy any securities. Such offers can only be made through the Confidential Private Placement Memorandum (the “Memorandum”). Please read the entire Memorandum paying particular attention to the risk section before investing. IRC Section 1031, IRC Section 1033 and IRC Section 721 are complex tax codes, so you should consult your tax or legal advisor for more details regarding your situation. There are significant risks associated with investing in real estate securities, including illiquidity, vacancies, general market conditions and competition, lack of operating history, interest rate risks, general risks of owning/operating commercial and multi-family properties, financing risks, potential adverse tax consequences, general economic risks, development risks and long holding periods. There is a risk of losing all the capital invested. Past performance is not indicative of future results. Potential cash flows, potential returns and potential appreciation are not guaranteed.
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