Seeking insight on Delaware Statutory Trusts, RE exit strategies, passive investment

[Annette Homewood]

Dear Bigger Pockets investors,

I'm no longer wanting to be a landlord & am looking at exit strategies. My profit margins are struggling & the potential liability worries me. My rentals are out-of-state, have management, & are not in the best areas. An advisor told me about Delaware Statutory Trusts. I'm not an accredited investor but he said there are open DST's in which one doesn't have to be a millionaire, & so far he's the only advisor I've come across that has open DST's. Everyone else I've looked up deals with wealthy people only. I believe the minimum investment is still at $100k. Last I spoke with him, he had open DST's offering between 3.75-5.15% in distributions. I'm sure he'll get ongoing commissions - which are "baked in" already. As I mentioned, I don't know of any open DST advisors who will only take a flat fee at my level. But I would be happy if I were getting at least 4%, probably staying in the safer multi-family realm (as opposed to malls, hotels, offices, etc.) I would appreciate any insight anyone has to offer, as I'm trying to figure out my next move. My goal is to have passive income.

What I know about DST's:

They’re illiquid for maybe 5-10 years.

I will defer/1031 my taxes upon sale of my properties.

I will receive equity when the DST sells the properties, which I can then reinvest & continue deferring taxes, should I choose.

I will be able to factor depreciation recapture in my annual taxes.

DST is likely to be higher-class properties.

I will remove my liability & control from being a landlord.

What I don't know:

Will there be surprise fees?

Will there be extra fees cut into my equity upon sale?

Is there anything else I'm not thinking of that I should look out for?

I know everything carries some risk, but is this an overall, generally speaking, good investment? Or is there another avenue I may not know about?

I would appreciate any insights. Thank you in advance. This is kind of an important decision for me.

Annette

[Dave Foster]

@Annette Homewood, I'd steer clear of any registered TIC product right now given your desire to easing your burden. TICs registered under Rev Proc 2002-22 have some caveats including unanimity of consent which can really bite you hard. You're in a much smaller pool of investors. So your control is higher. But that's the problem. When a TIC goes off the rails it tends to really go off the rails. And if there is debt, you're generally on the loan as a tenant in common.

With the DST, if there is debt it is non-recourse to you. You are not personally liable. The Trust provides all management. And it may not take on more debt just because one or two investors try to push the issue. So these also tend to be very conservative in nature.

Both have their place. But for you wanting rest and a break from the landlord life of drama, a DST allowing you to come in as a "sophisticated investor" might be the best answer.