DST and 1031 Exchange

[Tim Zajicek]

Wondering if anyone has experience with using a Delaware Statutory Trust to complete a 1031 exchange? Any insight on pro's/con's would be amazing.

[Mike Jacobson]

@Tim Zajicek I posted this in another thread and copied it to this location.

We sold our hotel in the spring of 2018. We had 2.2 million cash and had to replace with debt over 4.1 million. I attempted to find quality NNN properties to purchase. I had been looking for several years prior to the sale. Research 2016, 2017, 2018. I have not had commercial rental experience.

Cash flow, Freedom and not wanting to loose what I had gained were high priorities.

My goal was exceed $100,000 per year cash flow.

I was being shown high quality NNN properties with 15 year leases backed by top companies like Gander Mountain, Shopko, Many Dollar stores in some small communities with higher enticing cap rates. ( as you know they have all failed) I pictured myself making a $35,000 per month payment with no tenant. Then I thought I could diversify and get several in the 1 to 2 million range. There is much competition in that range and lower cap rates. I figured a closing fee when I sell would be a one time 6%. Then an ongoing annual management fee would be 4%ish, and more if you get a class C apartment with lots of work needed. (but higher cap rate) Limited diversification.

Freedom was very high on my list so I did not want to deal with this. I thought about taking cash but was unwilling to give the government 850K. I thought even if I did DST's and lost 30% of the equity, It would be the same as giving it to the government. (Probably not technically accurate). Doing a 1031 allowed me to invest $850,000 more whether a NNN or DST. Money you can collect cash flow from for years to come.

I looked at financial adviser's who promised 30-40K per year return on the cash after taxes. I felt sick about that number. They charged a .75 to 1.25% management fee. This is 10% over 10 years.

I had been looking at DST's. Up front assembly fees about 10%. So I looked at it like 10% management fee up front that covers the assembly of the product and sales of the product to people like me. Very comparative to purchasing something myself, yet total freedom.

I now have properties in Florida, Texas, Missouri, Washington. I have Apartments, Mini Storage, Hotel, Sr. Housing. Checks come in ACH monthly and I love it. I hope it continues.

Not all the money went into DST's however we did not pay any boot. Every dollar was reinvested.

We now exceed $10k per month in DST cash flow. DST's have met my goals as far as cash flow, freedom, diversification and lowering taxes. I have been in DST's less than one year. I do not know the outcome long term. I have invested with DST providers like, Moody, Inland Capital, Passco and Bourne. As you can tell by my writing I am not a financial wizard. I am impressed with the many people on the Bigger Pockets forum and I am learning from all of you. Thank you.