Zero Coupon DST to complete 1031 exchange

[Adam Byrne]

Hi BP!

I'm trying to get ahead of the curve before selling my commercial property in Los Angeles. I'm looking into identifying my uplegs and find an optimal strategy to maximize my cash investments while satisfying my debt obligations required by the equal or greater rule.

This search led me to zero coupon DST options.

The upside of zero coupons looks like an easy way to buy highly leveraged properties (more highly leveraged than I could qualify by myself) leaving me more cash to invest.

The downsides are zero cash flow (which I totally accept.) While DSTs are required by law to distribute lease payments, these products are so highly leveraged, the debt service by the Trustee wipes out any profit. The investor sees a yield from the equity position increasing as the principal of the loan is paid off. A related downside I just learned is that while you don't receive any cash flow, you receive a tax liability because the cash flow that would have been distributed to the investor is used to pay down the loan principal.

The more I learn about these products, it reinforces a no free lunch rule of the universe.

I'd love to satisfy my debt obligation, take no cash return, have no tax liability and am willing to trade yield over time. Are there any zero coupon products out there that function differently?

Thanks!

Adam