Your financial success can be made or broken when you set out to select the best Delaware Statutory Trust (DST) broker for your 1031 exchange. Investors frequently have to make complex evaluations, but it's crucial to know who to trust and where to put their money.
Finding the DST investments that make the most sense for you is essential, as is getting informed, experienced guidance about which DST(s) to select from someone who has your best interests in mind. Your broker should also be able to match you with investment options that are in line with your objectives and goals by taking the time to get to know you, as well as have a diverse selection of investment options accessible, a grasp of the management and track record of the DST sponsors.
Discover the warning signs and signals to look out for when selecting a DST broker to guide you through your 1031 exchange.
5 Essential DST Broker Characteristics And Important Warning Signs
When selecting a broker, being aware of what to look for and what to avoid might be helpful. As a result, you will be able to think through your investments with confidence knowing that you are receiving information that is specific to your needs. However, more importantly, you will feel more at ease knowing that you are working with a professional, experienced broker who is concerned about the success of your investments and who wants to build a long-term relationship with you.
1: Are they reputable and established?
Since the DST industry is smaller than you might imagine, when professionals mistreat their clients, word spreads quickly, especially if it is a regular occurrence. Consider a scenario in which a company or broker has a history of advising clients on substitute properties that are less ideal. That is a red flag that they probably don't have the interests of the investor at heart.
What to do: Verify that the broker you are considering has knowledge and expertise navigating market cycles. Inquire about their background in real estate and investments, including how long they've been doing it and what they did previously.
2: Do they disclose conflicts of interest and take steps to minimize them?
You need a consultant who will support you despite their competing interests. When deciding whether to engage with them and when analyzing the advice that they provide, anything that could affect their ability to defend your financial interests should be taken into account.
A stringent professional code of conduct is followed by the top DST brokers, so they won't have any improbable interests in the DSTs they recommend or don't. This indicates that neither the broker nor their business are owners of the DST investment. Of course, there will always be some degree of conflicts of interest, such as pay.
What to do: It's important to ask your broker directly if they or their business are associated with or owners of the DST investment opportunities they present to you. Ask them if there are any other potential conflicts, such as pay agreements.
3: Does your prospective DST broker learn about and comprehend your unique situation?
This is more significant than it first appears to be. Your broker should be entirely focused on getting to know you and developing an appropriate investment strategy that is specific to your goals and situation.
Make sure they also prioritize education and offer a balanced view of the dangers and opportunities.
What to do: Consider the suggestions that your broker gives. Anything that doesn't seem like it would be a good idea for you, challenge it. They should provide you options and explain why each one would be the best choice given your circumstances. It is likely that they have not done much investigation if they are unable to discuss the benefits and drawbacks of each investment and provide precise guidance on how to approach those decisions. This suggests that you might not be receiving a unique set of recommendations.
4: What kind of analysis and due diligence team do they employ when evaluating offerings?
You count on your DST broker to be knowledgeable about each DST sponsor and each one's unique offering. The more thorough the investigation and due diligence, however, the more valuable the knowledge will be to investors as they choose which DST to invest in. Having enough pertinent knowledge is the foundation for making well-informed decisions.
Ask your broker if they have a team dedicated to analyzing DST offerings, and if so, how experienced they are. If they respond that they only rely on information from third parties or that their broker-dealer approves such offerings, that is probably insufficient. A staff within the broker should be solely responsible for examining the offerings. Inquire from the broker regarding the training and experience of their due diligence analysts.
5: Is your DST broker impartial and practical?
Although integrity and expertise can be discerned in a number of ways, promissory language is a surefire indicator. Never accept success or results guarantees from your broker. In reality, they ought to be upfront about prospects, risks, rewards, pros, and their limitations.
They will be aware of market volatility, have carefully researched the assets they are proposing to you, and never speculate in a way that ensures the performance of your investment in the future. Anyone who talks as though they possess a crystal ball is not being rational or impartial.
What to do: Be skeptical of concrete language about how much money you'll make from investing, and be prepared to walk away from overblown promises. Instead, a wise broker will examine many scenarios in order to determine the value of an investment. They will be able to express their evaluation of the risks and value based on your unique scenario, which is maybe most significant.
Conclusion: Choosing a Reliable Broker
A one-time trade of professional services should be avoided when looking for the ideal DST broker. Look for someone who views the connection as a partnership.
If you're thinking about selling an investment property, it's important to be aware of all your alternatives in order to get the most money possible. Call us right away. Our experts would be pleased to speak with you in further detail regarding the potential advantages of various investing strategies.
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:
- * There is no guarantee that any strategy will be successful or achieve investment objectives;
- * Potential for property value loss - All real estate investments have the potential to lose value during the life of the investments;
- * Change of tax status - The income stream and depreciation schedule for any investment property may affect the property owner's income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities;
- * Potential for foreclosure - All financed real estate investments have potential for foreclosure;
- * Illiquidity - Because 1031 exchanges are commonly offered through private placement offerings and are illiquid securities. There is no secondary market for these investments.
- * Reduction or Elimination of Monthly Cash Flow Distributions - Like any investment in real estate, if a property unexpectedly loses tenants or sustains substantial damage, there is potential for suspension of cash flow distributions;
- * Impact of fees/expenses - Costs associated with the transaction may impact investors' returns and may outweigh the tax benefits