How Real Estate Agents Utilize Delaware Statutory Trusts to Get More Listings

[Account Closed]

Real estate brokers regularly work with clients to execute 1031 like-kind exchanges. Perch Wealth offers real

estate brokers an opportunity to introduce an alternative institutional investment to their 1031 exchange clients

typically through a Delaware Statutory Trust (DST). Of the hundreds of opportunities available, Perch selects only

those opportunities we believe are best for the investor. We focus on historically defensive, resilient, and viable

investment strategies, offered by experienced and reputable investment managers that have the potential to

perform in both strong and challenging market environments. Here are 10 reasons for brokers to consider DSTs

for their clients.

Avoid Leftover Taxable Gains

Frequently, real estate investors encounter circumstances in which they identify a property in a 1031

exchange that has a purchase price that is less than the proceeds from the sale of their previous

property. This discrepancy, referred to as "boot," can result in capital gains tax implications. For

instance, if an investor sells their property for $5,000,000 and purchases a replacement property for

$4,800,000, they would be left with $200,000 of boot. To defer capital gains tax on this amount, the

investor could consider investing the remaining $200,000 in a Delaware Statutory Trust (DST), given

that many DSTs have a minimum investment of $100,000.

Preventing Financing Complications

In a 1031 exchange, the debt on the replacement property (including any additional cash used) must

be at least equal to the debt being released from the original property. This can be a hindrance for

brokers as their clients may struggle to secure financing for the replacement property. For instance, if

a broker is working with a client who wants to sell a $10 million apartment building with $5 million in

debt (50% loan-to-value), the client's inability to secure a $5 million loan for the replacement property

may prevent the sale and result in the client not listing their property with the broker.

The DST (Delaware Statutory Trust) ownership structure that Perch Wealth offers helps overcome this

challenge. As the DST holds the real estate assets, it will act as the borrower for any loans, and

individual investors within the DST do not need to be individually approved by the lender.

Replacing Debt to Become an All-Cash Buyer

The current real estate market presents a challenge for investors seeking investment opportunities in a

1031 exchange. High interest rates increase the cost of borrowing, making it more challenging for

investors to purchase properties with leverage. Zero-coupon DSTs are an investment option that

utilizes high levels of leverage to provide investors with the ability to replace debt with a smaller equity

investment. As an example, consider an investor who has sold a property for $22,000,000 and has a

debt replacement requirement of $4,250,000. By investing in a DST with a Loan-to-Value (LTV) ratio of

85%, the investor would only need to invest $750,000 in the DST to replace their $4,250,000 of debt,

thus allowing them to become an all-cash buyer in the real estate market.

Presenting DSTs for Uncertain Prospects

Many older real estate investors may find themselves in a situation where they no longer desire the

responsibilities associated with being a landlord, yet they are reliant on the income generated from

their property. In such cases, real estate brokers can offer a solution to their clients by presenting

DSTs as a viable investment option. By doing so, the broker not only provides their client with a means

to divest themselves of their landlord responsibilities, but they also have the opportunity to secure a

new listing from the satisfied client.

No Property Management Duties

Many investors believe hiring a property manager makes their investment 100% passive, however many

come to find themselves managing the property manager. This soon becomes a part-time job for many

real estate investors. Through investing in a DST, a third-party professional manages the property,

handling the responsibilities associated with property management such as tenant relations, maintenance,

and pest control. The investor, in turn, gets to enjoy their leisure activities like traveling, getting into new

hobbies, and spending time with family and friends.


DSTs for Diversification

DST investments offer a way to diversify a portfolio by investing in multiple DSTs across various asset

classes, sponsors, and states. It can be challenging for a broker to find three replacement properties

in different states within the 45-day limit, making DSTs a great option for diversification.

Avoid Failed Exchanges Through Identifying Backup Options

The "3 Property Rule" is a popular approach to finding replacement properties in a 1031 exchange.

Under this rule, the client can specify up to three properties, regardless of their market value, within 45

days. Naming only one property can be risky as it may not close due to unforeseen circumstances such

as financing issues or failed inspections. To ensure a successful exchange, the client can work with

their commercial real estate broker to identify the first property. Then, they can add two more

properties that are owned by DSTs, at no additional cost, to provide more options for the exchange.

Estate Planning Benefits

Investing in a DST provides peace of mind for those who wish to secure the future for their heirs. With

a DST investment, there is no risk of family members disputing over an investment property after the

owner's passing. The beneficiaries can still receive any available distributions and have the option to

either continue exchanging or sell their inherited share for cash upon the sale of the DST-owned

property.

Quality Properties and Leverage Options

Perch Wealth maintains an inventory of many different asset classes in several major cities with a

wide variety of leverage options. This inventory allows investors to exchange in a diversified

portfolio of DSTs that best suits their needs as well as completes their debt obligations.

Low Minimum Investments

An investor can invest as little as $100,000 into a DST offered by Perch, which can include the

remaining sales proceeds in a 1031 exchange, known as boot.

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:

· 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