DST Cash Investments as a Substitute for Stock Market Investing

For accredited investors participating in a 1031 exchange, Delaware Statutory Trusts are a worthwhile investment option to consider. However, some investors are unaware that DST cash investments are also a viable option.

Why think about making a DST investment?

DSTs may provide a number of advantages to investors engaging in a 1031 exchange, including the possibility to postpone the realization of capital gains from the sale of investment real estate and the avoidance of some of the risks involved in finding a replacement property quickly.

However, there are additional potential DST advantages that can benefit investors as a complement to either outright real estate ownership or stock market trading.

Potential Advantage #1: Professionally managed passive income

Have your money working for you - DSTs are professionally managed by asset managers and property managers who are responsible for ensuring that the tenants pay their rent on time and delivering the investor a check, often every month (assuming funds are available). You never engage with any of the tenants and have no management duties as an investor.

Potential benefit #2: Geographic and real estate sector diversification

It's wonderful to make an investment and see it pay off. What if it doesn't, though? Any investment has the potential to experience losses, whether it be in real estate, equities, futures, commodities, jack's magic beans, etc. However, the risk is spread out when one diversifies their portfolio by making investments in several different things.

Investors have access to a variety of DST real estate investments from different DST sponsors, including multifamily, storage space, commercial, and NNN leases. Additionally, you can invest in a specific type of DST, like multifamily, across a number of different geographic areas of the nation, increasing the likelihood that other locations won't experience a downturn in their local economies or, at the very least, lowering the likelihood that they will due to diversification.

Benefit #3: Supported by tangible assets

The fact that real estate is permanently anchored to the earth makes it one of the reasons why so many investors adore it. Real estate also has an inherent value, which means that it is fundamentally a hard asset with at least some minimal value, as opposed to a firm, whose shares can possibly lose all of its value should the latter go bankrupt. Uncovered natural disasters and foreclosure are always a possibility, but as was already mentioned, no investment is without risk.


Potential benefit #4: traditionally less volatile and associated with the stock market

The stock market can be unpredictable, as we've recently witnessed during the coronavirus pandemic. On other days, market volatility in the double digits have been the norm. The link between real estate and the stock market, however, has historically been smaller. Real estate is typically much less affected by market turbulence than the equity markets, but that doesn't mean it can't be volatile and experience a downturn like we did during the Great Recession of 2008–2009.

Potential benefit number five: access to institutional real estate.

Real estate is a popular way to possibly accumulate money and has several advantages as an asset type. Real estate, however, is not created equal. Real estate is similar to how there are blue-chip stocks and "junk" bonds. There are DSTs that allow investors to purchase "institutional-level" real estate, which is generally real estate that is thought to be of a certain grade and class such that huge institutions and significant investment funds would consider it. The majority of people would find it challenging to access these kinds of real estate investments on their own, but the DST structure enables them to indirectly hold a portion of these investments that they would not otherwise be able to.

Potential Perk #6: Low Minimum Investment for Accredited Investors (sometimes as Low as $25,000)

Sometimes as little as $25,000 can be invested directly in a DST as the minimal amount. This gives them access to DST real estate assets that would normally cost millions of dollars to acquire, finance, and operate on a fractional basis and is not a princely sum for the majority of accredited investors.

Potential benefit #7: DSTs allow investors to perform a 1031 exchange when the investment property is sold, according to current IRS regulations.

Investors who buy in equities, for instance, must pay capital gains taxes on any profits they make (note: Opportunity Zones may provide an option to defer those gains). However, under the current IRS code, investors have the choice to do a 1031 exchange into another property into which they own 100% or another partial DST, so delaying any capital gains, once a DST asset has been sold. Of fact, if President Biden's economic plan is approved, changes to the IRS rules, such as those under it, could alter how future earnings are treated.

Potential Advantage #8: Cash investors do not need personal finance clearance.

In contrast to buying a property directly and potentially needing to obtain financing from a lender, DSTs provide investors with non-recourse loans that are not dependent on the investor's capacity to obtain financing.

The Benefits of DSTs for Real Estate Investors

What exactly is a DST (Delaware Statutory Trust)?

For authorized investors who want to make fractional real estate investments, a Delaware Statutory Trust, or DST, is a frequently used structure.

The main benefit of investing in a DST is that it qualifies for a 1031 Exchange, which enables investors who are selling a property to postpone paying capital gains tax by putting the profits into a DST, which the IRS has determined is an investment of "like kind."

National real estate corporations typically "sponsor," or bring to market and make available to accredited investors, DST offers. These offerings can be made available through third-party securities broker-dealers. The property(ies) to be offered under the trust are purchased by DST sponsors. In order to make sure the trust is eligible for 1031 exchange purposes, the DST sponsor will perform due diligence on the property, occasionally acquire long-term debt that is non-recourse to investors, and organize the necessary paperwork. The DST sponsor will then offer the asset(s) to accredited investors on a fractional ownership basis, and in exchange will get payment for organizing, supervising, and managing the investment on their behalf.

The Evolution of DSTs

Tenant-in-common real estate, or "TICs," is a type of co-ownership that is discussed in more detail below. In the early 2000s, some of the biggest real estate sponsors in the country and their attorneys urged the IRS to create regulations that would allow TICs to qualify for 1031 exchanges. Investment in TICs soared as a result. Investors soon encountered some of the difficulties brought on by TICs, such as the requirement for investor unanimity in order to make certain sorts of property-related decisions.

The idea of investing through a DST started to catch hold at about this time. DSTs offered more flexibility than TICs and addressed some of the concerns of investors, notably with regard to the clauses requiring unanimous consent.

It was no surprise, then, that investors and sponsors asked the IRS to adopt identical 1031 exchange standards for DSTs. As a result, the IRS released Revenue Ruling 2004-86 in 2004 that permitted the use of the DST structure to buy real estate where the trust's beneficial interests would be recognized as direct interests in replacement property for the purposes of a 1031 exchange. The syndicated real estate sector hailed this as a significant triumph.

Prior to the start of the Great Recession in 2008, both TICs and DSTs were commonly utilized. Their appeal declined along with real estate values. TICs were impacted more than DSTs. Few individual investors were willing to assume the risk of jointly owning so much underwater real estate. At least with DSTs, the DST sponsor was responsible for loan repayment, not individual investors. Investment in real estate syndication increased as the economy strengthened. Given the difficulties involved with TICs, DSTs are now frequently regarded as the preferred way of fractional real estate ownership.

The Distinction Between DSTs and TICs

For long-time real estate investors, DSTs are a relatively new notion. Instead, tenant-in-common real estate investments, or TICs, are more commonly known to long-term investors. Both TICs and DSTs allow people to invest fractionally in real estate. They can both be combined with 1031 exchanges. As a result, it is understandable why some individuals mistake TICs for DSTs. There are, however, some significant differences between the two.

The degree of investor involvement is a key area of distinction. The co-owners of a TIC are typically more actively involved in managing the property on a day-to-day basis, including property management. DSTs are really passive investments in which the sponsor manages the transaction on the part of the investors.

The need for unanimous co-owner approval for all significant actions is one of the reasons management of TICs may be so difficult. In actuality, this is one of the difficulties that prompted the development of DSTs. Many investors were put off by the unanimous approval needed for TICs, and those who had previously invested in TICs encountered difficulties.

Another difference between TICs and DSTs is how they hold title to the property. Each TIC co-owner has a little portion of the property's title. Individual investors do not actually own the real estate asset; instead, the DST does. In terms of financing, this has consequences. The individual co-owners of a TIC are liable for any debt used to fund the property, whether for acquisition or upgrades. This makes it necessary for lenders to individually vet each borrower, which can be time-consuming for most of them and make it challenging to finance real estate held in TICs. Since the asset is solely held by the DST on behalf of the investors in a trust arrangement, DST investors do not directly incur debt.

TICs and DSTs also differ in terms of the number of investors authorized to participate. In contrast to DSTs, which are limited to 499 individual investors, TICs are only permitted to have 35 investors (or "co-owners").

Finally, the minimum investment for DSTs is typically lower than that of TICs because more investors can engage in them. Compared to DSTs, which typically permit contributions as little as $100,000, many TICs need at least a $500,000 commitment (or sometimes less).

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How are DSTs Used by Investors?

An investor can benefit from the advantages DSTs provide in one of two ways. Investing with funds from a 1031 exchange is the first and most common method. Direct cash investment into a DST is the alternative.

1031 Exchanges
Traditionally, an investor wanting to avoid paying capital gains tax on the sale of a real estate asset will perform a 1031 exchange and utilize the profits from the sale to invest in another "like kind" asset. However, there are stringent rules for 1031 exchanges. In accordance with current regulations, for instance, investors must:

Find a potential replacement property within 45 days of the sale. Close on the replacement property(s) within 180 days of the sale. Reinvest 100% of net sales proceeds, also known as equity, into the replacement property. Acquire an equal or greater amount of debt on the replacement property.
It can be challenging to meet these requirements, especially in the competitive real estate market of today.

DSTs are a 1031 exchange alternative for "whole property."

Investors can instead transfer the money received from the sale of their property into a DST. The investor will thereafter possess proportionally fractional ownership in the property (or properties) owned by the DST. DSTs are already in place (or "pre-packaged," if you prefer) and prepared to receive investors, enabling someone selling their property to typically move fast in conformity with the IRS's 1031 exchange standards. All due diligence on the actual estate is already complete. Additionally, under present law, the profits from the sale of the investors' property will be eligible for the same capital gains tax deferral as if the investors had invested via a whole property 1031 exchange.

Investors occasionally combine methods by purchasing both a DST and a full property. When an investor discovers a suitable replacement property (or properties), it frequently happens that they still have extra money from the sale of their former asset. To fully benefit from the present law's 1031 exchange benefits, the investor may use the remaining sales proceeds and invest that money in a DST.

Potential Rewards of DST Investment

There are several potential benefits of investing in a DST, several of which are described below:


As you can see, there are a lot of reasons why an investor should think about making a DST-based real estate investment. For investors seeking to fully benefit from advantages normally associated with conventional 1031 exchanges, the DST model offers exceptional flexibility, opportunity, and investment variety.

Additionally, investors can close on DST investments rapidly — frequently in a matter of days. Therefore, investing in a DST can be a terrific alternative whether you're an accredited investor looking to deploy your funds for the first time or someone who has a strict deadline to do so after a 1031 sale.

Are you eager to discover more about DSTs? Contact us today at Perch Wealth to discover more about our current DST real estate offers and how we might possibly help you.

General Information
neither a buy-side nor a sell-side solicitation of securities. The material presented here is purely for informational purposes and shouldn't be used to guide financial decisions. Every investment has the chance of losing some or all of the money. Future outcomes cannot be predicted based on past performance. Prior to investing, consult a financial or tax expert.

Financial products made available by Emerson Equity LLC Member: SIPC/FINRA. Only accessible in states where Emerson Equity LLC has a recognized business presence. There are no other organizations mentioned in this correspondence with whom Emerson Equity LLC is associated.

1031 Risk Disclosure: * There is no assurance that any strategy will be effective or achieve investment goals; * Property value loss is a possibility for all real estate investments over the course of ownership; * Tax status may change depending on the income stream and depreciation schedule for any investment property. All funded real estate investments have the risk of going into foreclosure; adverse tax rulings may prevent capital gains from being deferred and result in immediate tax liability;
1031 exchanges are illiquid assets since they are frequently issued through private placement offerings. There is no secondary market for these investments. * Reduction or Elimination of Monthly Cash Flow Distributions - Similar to any real estate investment, the possibility of suspension of cash flow distributions exists in the event that a property unexpectedly loses tenants or suffers significant damage;

Who to Consider for a 1031 Exchange: BD vs. RIA

Investors might choose to work with a broker-dealer (BD) or registered investment advisor if they want to speak with a knowledgeable expert about their 1031 exchange investment alternatives (RIA). Although both BDs and RIAs can frequently provide comparable services, the breadth of their knowledge and costs can differ greatly. In this post, we clarify the distinction between a BD and an RIA in the hopes of assisting you in selecting the expert who is more suitable for your needs.

What's the distinction?

RIAs are people or businesses that primarily concentrate on providing general financial advice, managing client accounts, and carrying out stock trades on behalf of clients. RIAs often charge annual fees that are calculated as a percentage of the assets they manage for their clients' benefit.

BDs, on the other hand, primarily assist their clients in investment transactions. BDs typically charge a one-time fee rather than a recurring cost for each transaction they assist because their fees are largely commission-based.

A 1031 Exchange's Relevance

Work with a certified expert, such as a broker-dealer or a registered investment advisor, if you're an investor looking to sell your real estate and exchange it for a like-kind alternative investment.

Trading from a real estate asset into a Delaware Statutory Trust (or "DST") is one of the most prevalent types of a 1031 exchange in use today.

An investor can purchase an ownership interest in a DST, which is a legally recognized real estate investment trust. Beneficiaries of the trust are investors who own fractional ownership; they are regarded as passive investors. … Retail assets, multifamily properties, self-storage facilities, medical offices, and other types of commercial real estate are among the properties owned in DSTs that are deemed to be of "like-kind."


Investors can sell their real estate and purchase a suitable investment while postponing capital gains thanks to these one-time transactions.

Investors can also use the exceptional financing secured by a DST sponsor, receive possible management-free passive income, access institutional quality assets they might not otherwise be able to purchase, and limit their liability in the investment by trading into a DST.

Instead of comparing a DST to an equity acquisition, it is ideal to compare it to a real estate exchange because there is a big difference between the two in terms of how much an investor should spend in fees.

Preventing Possibly False Claims

Why is this significant when choosing between working with an RIA or a BD?

Many claims are now frequently made in an effort to attract investors for 1031 exchanges or people wishing to invest money in DSTs. Since their commissions are eliminated, several RIAs assert that working with them is less expensive than working with a BD. This assertion, however, disregards the fact that RIAs frequently charge continuous annual fees to their clients. Over time, this fee can end up costing you more. It's crucial to conduct research to determine the recurring fee and, if any, additional services you are receiving in exchange for that cost. It's important to remember that the recurring charge is often determined as a percentage of the assets' value. This implies that you will pay more if the item increases in value and less if it decreases in value. As a result, it is impossible to estimate how much the advising fee will actually cost over time.

Let's examine a case in point.

Consider a scenario in which an investor switches from a retail property to a DST, an investment that typically lasts for five to ten years before being sold and allowing the investor to make another transaction. Let's say the investor contributes $1 million to the DST. Let's compare the prices of a BD and an RIA now. If the BD charges a 6% commission on the investment, the commission on the transaction will be $60,000.

Contrarily, an RIA levies fees as a percentage of the assets under management (AUM), which in this case is $1 million. Let's now assume that the RIA fee is 1.5% of the AUM (assets under management). The investor would then pay the RIA $15,000 annually for the investment (assuming the asset value remains stable). The investor would spend between $75,000 and $150,000 for the exchange based on the typical holding time of a DST (five to 10 years)! Of course, there is a chance that the charge will be smaller if the DST sponsor leaves early or if you are given the chance to sell or swap early.

Compared to registered investment advisors, broker-dealers may be less expensive.

The aforementioned scenario only illustrates how dealing with a BD might be less expensive than working with an RIA by comparing the costs of the two types of advisors. In the example above, working with an RIA costs the investor 50% to 250% more than working with a BD. If an investor had millions to invest, just imagine.


Pay No Annual Fees for Passive Investments Such as DSTs and Other 1031 Exchange Investment Options

DSTs and other 1031 exchange investment choices are set up as management-free investments, so neither the investor nor the person acting on their behalf in the transaction is responsible for managing the investments. Sponsors are absolutely passive because they manage these alternative investments on behalf of their investors. When your DST investment is already being managed for you, why would you pay an RIA to "manage" it?

Recognizing Your Options

Investors should do their homework before making any investments to fully grasp the possibilities and costs involved. An investor should evaluate who has greater expertise in the investment and whose fees are more in line with the type of investment they are considering when deciding between an RIA and a BD. These inquiries might aid investors in safeguarding their capital and themselves in subsequent investments.

General Disclosure

Not an offer to buy, nor a solicitation to sell securities. Information herein is provided for information purposes only, and should not be relied upon to make an investment decision. All investing involves risk of loss of some or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing.

Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC is not affiliated with any other entities identified in this communication.

1031 Risk Disclosure:

How Should I Invest My Wealth in 2022?

The present market offers financial backers a plenty of speculation valuable open doors across various ventures. While having different choices can assist with further developing a singular's venture methodology, they can likewise cause vulnerability, bringing up issues about which speculation suits the individual's monetary targets. So you may be wondering where do I invest my wealth in the current economy.

To help give guidance on which investment is ideal for you, we will frame the fundamental components of the present most wanted speculations and go over the upsides and downsides of every one.

For this article, we will isolate the data into two segments. To start with, we will take a gander at more conventional speculation choices, like putting resources into stocks or bonds. Then, we will audit elective speculations. Albeit less known among the present financial backers, elective choices offer potential advantages that numerous customary speculations need.

Customary Investment Options

By and large, financial backers have depended upon a 60/40 portfolio piece to assist them with accomplishing their long-term monetary dreams, for example, fabricating a savings for retirement, reimbursing a home loan early, or paying instructive costs for their youngsters. As indicated by this model, a financial backer's portfolio ought to comprise of about 60% stocks and 40 percent bonds. This model generally would in general convey financial backers stable development and pay to assist them with meeting their monetary objectives.

Stocks, or values, are protections that address partial possession in an enterprise. Financial backers purchase stocks and depend upon the organization's development to expand their abundance after some time. Also, stocks may offer financial backers profits - or installments to investors - for recurring, automated revenue. Then again, bonds are obligation protections presented by a company or government substance hoping to raise capital. Not at all like stocks, bonds don't give financial backers proprietorship freedoms, yet rather they address a credit.

The largest contrast among stocks and securities is the manner by which they produce benefit: stocks should appreciate in esteem and be sold later on the financial exchange, while most bonds pay fixed interest after some time.

While stocks offer financial backers the potential for more significant yields than securities, securities are by and large considered a safer venture. Therefore, numerous financial backers go to venture reserves, like common assets, trade exchanged reserves, or shut end assets, to broaden their portfolios while keeping a 60/40 arrangement. These venture subsidizes arrange capital from various financial backers, which is then, at that point, put into an arrangement of stocks and bonds. Venture subsidizes offer financial backers the possibility to moderate risk through a more adjusted portfolio.

A Change in the Portfolio Model

Because of progressing unpredictability in the stock and security market, rising costs for wares, and high valuations, the customary 60/40 portfolio model is done serving financial backers in a similar way it once did. Therefore, numerous monetary specialists are presently suggesting that financial backers broaden their portfolios with 40% elective ventures to help possibly advance their monetary position.


Elective Investments

While various kinds of elective ventures exist, we will zero in on elective land speculations because of the advantages they might perhaps offer financial backers in the present market.

Why Invest in land?

Land has for quite some time been one of the most sought-after open doors for financial backers. As a restricted ware, land has generally managed the cost of financial backers the potential for long haul security, fantastic returns, recurring, automated revenue, charge benefits, and a fence against expansion. Notwithstanding, land speculations additionally accompany specific drawbacks. Beginning in land effective money management ordinarily requires a broad measure of capital and solid financials for the individuals who are utilizing obligation.

Besides, land by and large requires dynamic support - financial backers are expected to deal with their resources for guarantee ideal execution. In this manner, elective interests in land have begun filling in prominence among the venture local area. While they can frequently offer comparable benefits to land money management, they convey a uninvolved open door, meaning they have zero administration obligation. The following are a couple choices for financial backers looking for elective land speculations.

Real Estate Investment Trusts

A real estate investment trust (REIT) is an organization that possesses and normally works pay creating land or related resources. REITs consolidate all resource types, including multi-family, retail, senior living, self-capacity, cordiality, understudy lodging, office, and modern properties, to give some examples. Dissimilar to other land ventures, REITs by and large buy or foster land for a drawn out hold.

Financial backers depend on a REIT's comprehension expert might interpret the housing business sector to broaden and balance out their portfolios. Numerous REITs are public, implying that all financial backers, including unaccredited financial backers with restricted capital, can put resources into them.

While public REITs convey many benefits related with customary land effective financial planning - like pay potential, broadening, and conceivable expansion security - they additionally accompany some particular inconveniences. For instance, REITs frequently experience slow development. Since REITs should pay out at least 90% of their benefits in profits, new acquisitions and improvements are restricted. To decide the strength of a venture, potential financial backers ought to lead a reasonable level of investment - with the help of a specialist on the REIT before buying shares.

Delaware Statutory Trusts

A Delaware Statutory Trust (DST) is a lawfully perceived land speculation trust where financial backers buy a possession interest, or partial proprietorship, in a land resource or land portfolio.

DSTs are usually depended upon by 1031 trade purchasers since they qualify as a like-kind property per the Internal Revenue Service (IRS).

As well as giving financial backers recurring, automated revenue potential through an administration free venture, DSTs empower financial backers to put resources into institutional quality resources for which they wouldn't in any case have access. These resources might have the option to convey more significant yields and longer-term strength.

Moreover, the obligation designs of DSTs are appealing to numerous financial backers. Individuals who put resources into DSTs have restricted obligation equivalent to their ventures; nonetheless, they can exploit the frequently alluring funding gotten by the support organizations. Sadly, just licensed financial backers can put resources into DSTs.

Opportunity Zones

Opportunity zones (OZs), characterized by the IRS, are "a financial advancement device that permits individuals to put resources into upset regions in the United States. This incentive’s intention is to prod financial development and work creation in low-pay networks while giving tax breaks to financial backers." OZs were presented. under the Tax Cuts and Jobs Act of 2017, and financial backers keen on putting resources into an OZ should do as such through a qualified opportunity fund (QOF).

QOFs can be an eminent choice for financial backers because of their tax breaks, which rely upon the period of time a financial backer holds a QOF venture. We have recently made sense of these advantages, which we allude to as OZ triple-layer charge motivators. Here is a depiction of the tax cuts a QOF offers a financial backer:

● Deferral: Those who rollover their capital increases into a QOF can concede capital earn respect from the first speculation until December 31, 2026.

● Decrease: how much capital increase perceived from the first speculation is diminished by 10

percent in the wake of accomplishing a five-year holding period, as long as that five-year holding period is accomplished by December 31, 2026.

● Avoidance: Long-term financial backers are qualified to pay no expense on the enthusiasm for their QOF venture upon attitude of that speculation, no matter what the benefit size, assuming the resources held in that QOF are held for no less than 10 years.

While opportunity zones are viewed as an unsafe speculation, provided their motivation, they might possibly convey financial backers better yields when contrasted with other elective land venture choices.


Interval Funds

An extra elective venture choice worth focusing on are interval funds. These assets are not restricted to land yet rather can be utilized to put resources into numerous protections, including land. Comparable to recently referenced reserves, these arrange investor money to put resources into various protections. Be that as it may, they offer a lower level of liquidity. Rather than having the option to exchange shares everyday, financial backers are normally restricted to selling their portions at expressed spans (i.e., quarterly, semi-every year, or yearly). The advantage of stretch assets is the adaptability they offer the assets - they permit the asset to execute longer-term procedures, making the potential for a more steady venture.

Accordingly, interval funds will generally convey better yields and a more broadened an open door. Presently, where do I put away my cash today? While the above data offers a depiction into the upsides and downsides of different speculation choices, you ought to think about extra perspectives. As opposed to promptly attempting to distinguish which choice is ideal for your purposes, the critical focal point here is to comprehend that the present market offers a variety of venture choices that were already obscure to quite a large number. Financial backers can broaden past stocks and bonds, which might potentially give them more significant yields while trying to relieve risk. To foster a venture portfolio that meets your monetary objectives, we encourage you to talk with one of our monetary experts.

General Disclosure

Not an offer to buy, nor a solicitation to sell securities. Information herein is provided for information purposes only and should not be relied upon to make an investment decision. All investing involves risk of loss of some, or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing. Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC is not affiliated with any other entities identified in this communication.

1031 Risk Disclosure: