All Forum Posts by: Brandon Bruckman

@Brandon Beaudoin on the syndication exit, you could work with the syndicator to perform a drop and swap to place investors into a TIC structure, thus allowing you to 1031 on exit. Of course, talk with you CPA on that one!

@Roger Wilson to Dave's point, these are harder to find.  We do however have some TICs on our desk.  I shot you a note to connect.  Thanks Brandon 

Great question. "Potentially expensive, confusing, inflexible...." the answer is yes to all of these! However, for the majority of DST deals, from the largest sponsors, there are solid returns and cashflow historically. On fees, DSTs are expensive, but far less than what you would pay in tax on a highly depreciated asset. Working with a registered investment adviser instead of a financial broker helps reduce the cost.

There are certainly bad deals in the marketplace and assets that have been overpaid for.  Its important to do due diligence and avoid these deals.  

There are other passive options like opportunity zones, tenant in common structures or GP/LP syndications.  The GP/LP syndication isn't 1031 eligible, however those deals could kick off enough year one losses to offset gains.  

Hope this helps a bit.  No silver bullets, but options that could fit.  

Large syndicators (sponsors) will set up the DST or TIC for you. All you do is bring the cash. With that said, there is an upfront fee load to participate in these investments. That can vary from 10%+.

Another option you might want to look at is not performing the 1031 exchange and estimating how much year one loss there would be an a LP syndication with bonus depreciation and cost segregation studies.  I'd work with a CPA and the sponsor to figure out how much gain you could offset.  

Thanks
Brandon 
 

Personally I wouldn't make investment decisions based on proposed tax changes, but if the law is imposed at 500k your plan would work.  I imagine there will be many other workarounds to any change in 1031 exchange law.

@Ken Cur totally agree on diversification of 721.  You are correct on share redemption.  This provides a liquidity option during your lifetime. However, once you sell shares you will have some sort of tax bill to pay.  

Once you pass, the shares could be a better option to move along to your family if you have multiple children in your estate. The shares are easy to split up or cash out quickly. Real estate or DST would naturally take longer to make liquid.

@Ken Cur you can still get upside down in that scenario. The sponsor of the deal typically is the one purchasing the property into their REIT. The property will be evaluated by two third parties to determine a fair market value. Then the sponsor will offer you REIT shares or cash (and the ability to 1031 exchange again).

There is no reason that the property has to be profitable for you as an investor. The sponsor has the right to UPREIT whenever they want. In this scenario you are still investing in a DST and are subject to the risks you described. Review the agreement for how the UPREIT will work very carefully. How I described this is what we typically see, ever deal could be different.

We do like the UPREIT option as it provides another exit mechanism for selling the DST. Plus the diversification you noted and it's a great estate planning tool (if we still have stepped up basis).

Hope this helps a little.  

@Carlos Ptriawan DST is still a viable option. Its deal and sponsor specific. OZ is worth a look if you need liquidity, but eventually you will have to pay some tax utilizing that option.

Good thread and great comments by all (especially @Steve Morris).  

We need more education in this space. You have to have someone standing next to you doing due diligence. The "stock broker sales guy" won't work. DST is too complicated not to have due diligence as part of the service they are offering (plus the commission they make should warrant more help that you can rely on). Sponsor history is available in detail along with everything you could imagine to perform good due diligence on a deal.

Fees up front are an issue.   @Paul Moore and others have done a great job taking fees down in the product.  

Lower returns are an issue as well. This is more of a function of the asset purchased (class A multifamily is 60%/70% of the offerings) then the DST structure.

We see DST work for those that do not have the time or desire to continue managing property.

Hope this helps those of you that are exploring DST.

Curious, why would you skip a 1031?