NNN 1031 Choice Implodes:
DST Available for Identification in 1031 Exchange


Challenge

Clients of Kay Properties and Investments identified two whole properties and a number of DST (Delaware Statuary Trust) properties for their 1031 Tax Deferred Exchange using the 200% rule. The 200% rule allows an investor to identify up to 200% of the fair market value of the relinquished property instead of just choosing three properties. After the Identification Period expired, one of the whole properties the clients had under Letter of Intent was withdrawn and sold to another Purchaser.

Action

During the 45-day identification period, Kay’s clients determined which DSTs most closely met their investment criteria. Their next choice was determining which DSTs might be available for a long enough term to still have equity available if one of the whole properties did not make it to closing for any number of reasons including financing criteria, due diligence, and/or tenant’s Right of First Refusal. Because of Kay Properties having client-exclusive, off-market DSTs whereby we control the equity raise, these clients were able to choose from among the DSTs that they used as their back-up identification properties to complete their 1031 Exchange.

Result

As a result of having studied the DST market and then identifying DSTs that t the client’s criteria and investment goals, these clients were able to save their Exchange, even after a Seller withdrew without warning on one of their identified properties.

DST 1031 Exchange
Case Studies:


  • Challenge

    The client was a real estate investor that had paid off his rental properties completely over the years. When researching DST properties, financial advisors pitched a handful of properties with large balloon mortgages that would ultimately come due in 5-10 years. What the “financial advisors” failed to mention was that when those properties were sold he would then not be able to purchase any property at any loan-to-value, but that he would then have to take on “equal or greater debt” per the 1031 exchange IRS guidelines.

  • Result

    The client was thrilled to have been introduced to Kay Properties and Investments, LLC by his CPA, as he was able to learn the ramifications of going from an unleveraged position in his rental properties to a leveraged position in DST properties with 5-10 year balloon mortgages. At best, he would have had to replace the mortgages with equal or greater debt upon the DSTs sale.

    At worst, he would be looking at a potential foreclosure if things didn’t proceed as planned at the property and with the economy. The client opted to invest in a diversified portfolio of Kay Properties’ all-cash/debt-free DST properties. He now had the peace of mind of NOT having to take on debt upon the sale of the DSTs, NOT having the risk of a lender foreclosure and NOT having the risk of a 5-10 year balloon mortgage upon the DST’s sale. Through Kay Properties’ debt free DST properties, the client was able to stay in a completely debt free position as well as increase his projected cash flow considerably.

  • Challenge

    The client was looking for specialized and focused help in evaluating DST 1031 properties for her 1031 exchange. She had been introduced to a financial advisor that not only did not fully understand how 1031 exchanges and investment real estate work, but also only had two DST properties available.

    The client was then introduced by a family friend to Kay Properties and Investments, LLC. She was relieved to find a group that truly specialized in DST 1031 properties, had answers to her specific real estate related questions, had access to a full menu of over 20 DST 1031 properties and lastly was able to construct a portfolio that met her needs and objectives as opposed to what met her financial advisor’s.

  • Result

    In the end, the client was grateful to Kay Properties for helping her to avoid the higher risk asset classes in the marketplace such as student housing, hotels, oil and gas and saltwater drilling. The client was able to successfully complete her 1031 exchange into a diversified portfolio of DSTs that did not expose her to additional risk factors entailed in the exotic asset classes just mentioned.


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