Delaware statutory trust and loans

[Bob Rifredi]

It is my understanding that if you have a loan on a 1031 exchange and you sell that property you must carry that loan amount forward into the next exchange. I am considering a Delaware statutory trust and was wondering how someone would handle this situation when it comes to a DST. Is it possible to get a loan to use with a DST.

Thanks in advance.

Bob

[Buddy Holmes]

@Bob Rifredi, Careful with the advice you receive! I would recommend a professional to give you the correct info. DST's come with various L/V (loan to Value) these do cover from very high to 0%, but the ones I have invested in are more between 50% to 60%.

This allows you to match the 1031 replacement property that you need. In the 1031 you need to :

1) use all the cash you get out of the exchanged property sold, or more.

2) you need to have at least as much mortgage in the replacement DST's as the exchanged mortgage, or more.

3) The total purchase price of the new DST's must be equal to or more that the net sale price of your exchanged property.

If you are short on any of these 3 items, you wind up with "Boot" which the IRS wants to collect tax on.

There is a great book called "Cashing In Tax Free" by a BP member @Leslie Pappas that leads you through the process.

To help you understand how the DST purchase works, assume you buy $100k of a DST that has a 50% LTV. As far as the 1031 calculation goes, you have bought a $200k REI with 100k of mortgage. So the Development company offering the DST has already bought a property and secured a "non-recourse loan" to help buy the property.

Just like a regular SFR, the DST offers your proportion of the rental income, Mortgage cost, the repair cost, the depreciation, utilities, the improvements costs or depreciation in the form of a typical Schedule E for you to file with your taxes.

Hope this helps. Cheers, Buddy