We Focus on 1031 DST exchanges
NexTrend Securities is unique in that our focus is concentrated on 1031 DST exchanges.
What is a Delaware Statutory Trust?
A Delaware Statutory Trust (DST) is a distinct legal entity created under Delaware law that permits fractional ownership of real estate assets that may be used in a 1031 Exchange. However, to use a DST in a 1031 Exchange syndication program, it must comply with the requirements of IRS Revenue Ruling 2004-86, so that a beneficial interest in the trust is treated as an undivided fractional interest in real estate for federal income tax purposes (as opposed to a security or other prohibited interest under Section 1031). An Exchanger can defer taxes by investing in a DST rather than in a whole property.
Why Consider a DST?
- Potential to own institutional quality real estate
- Ability to diversify by property type and location
- Turnkey solution: Sponsor is responsible for sourcing, due diligence, structuring and financing of debt, property and program management
- Fast and efficient closing process to meet timing requirements
- Certainty of closing on acquisition of replacement property
- Elimination of property management responsibilities
- Potential for monthly income
- Long-term, non-recourse financing in place
- Access to more investors (Maximum 1,999 investors)
- Lower minimum investment amount
- Simple and efficient investment process
- Lender only needs to make one loan because the DST owns 100% of the real estate (for non-tax purposes)
- Loan carve-outs apply to sponsors, not investors
- Lender does not underwrite each investor
- Sponsor makes decisions on behalf of the investors
- Investors cannot cause a default on the entire loan
- Investors do not need separate special purpose entities (SPEs)
Why Invest Cash into DSTs?
The potential benefits of a DST program are not restricted to 1031 Exchange funds. Investors may also choose to invest directly into a DST, which may provide the following potential benefits:
- Tax-deferral strategy
- Rental income paid monthly
- Ownership in institutional-quality real estate
- No management responsibilities/passive ownership
- Build your own diversified real estate portfolio
- Depreciation of real estate can help to offset taxable income
Limitations on a DST
The DST must adhere to the following prohibitions, which are commonly referred to as the Seven Deadly Sins (See IRS Revenue Ruling 2004-86):
- Once the offering is closed, there can be no further capital contributions to the DST by either existing or new investors
- The DST cannot renegotiate existing loans or borrow more funds (except in the case of a tenant's bankruptcy or insolvency)
- The DST cannot reinvest proceeds from the sale of its real estate
- The DST is limited to making minor, nonstructural capital improvements, in addition to those required by law.
- Any reserves or cash held between distribution dates can only be invested in short-term debt obligations
- All cash, other than necessary reserves, must be paid out to investors.
- The DST cannot renegotiate existing leases or enter into new leases (except in the case of a tenant's bankruptcy or insolvency)