Setting up dst Delaware statuatory trust

[Rao Mu]

I am coming out of a sale of my investment property and trying to put my money in buying a 1031 exchange property or put it under renowned dsts like Walgreens dst or so. However, with existing dsts, fees are the killer. I can find some really good NNN deals and put them under a dst and pool money from other people, can I? say, if it requires 500k down and I pool in 300k and the remaining comes from another investor and we put it in an dst and go from there. Basically, how complicated it is to setup a dst yourself? I don't even know if I am qualified enough.

[Drew Reynolds]

@Rao Mu - yes, the TIC structure has gotten more difficult to finance and some lenders have gotten away from it completely. However, we are still seeing TICs get funding when there are only a handful of investors (less than 10).

A key distinction to make here is the difference between 1) the legal entity and 2) "securitization" of such investments.  

1) DSTs and TICs are legal ownership entity structures. This is similar to making the choice of acquiring a property in an LLC or LP, with a major difference being that DSTs and TICs are the only legal entities that allow multiple investors (who were not previously in the same legal ownership structure) to invest in a common property through separate 1031 exchanges. You could do a TIC or DST with 2 investors.

2) How TICs and DSTs are offered is different.  The large scale offering you may be referring to are "securitized" investments, meaning that the interests are offered through Private Placements as securities.  

So how difficult are these to set up? First question is are you trying to put together a "securitized" offering? Or just with 2 or 3 other investors. The choice of legal entity (DST or TIC) and "securitization" do NOT have to go together, and how difficult it would be is very different.

As mentioned, you can set up a TIC or DST with just a few investors as long as you have a competent attorney. The big chunk of the costs and major part of the difficulty in creating DSTs and TICs in the "securitized" sense is all the securities laws, need for additional legal and tax opinions, etc. Again, if you're doing this 2 or 3 other people, you don't need all that stuff and you don't need securities licenses. Just talk to your attorney.

@Joel Owens - we are actually compiling market statistics on 1031 related products.  Curious as to where you saw the 70% failure rate for TICs?