PASSIVE REAL ESTATE INVESTING
LITTLE RED BOOK OF RETIREMENT – PASSIVE REAL ESTATE INVESTING
Interested in learning more about how alternative investments could fit into your financial plan? Download our latest book, “The Little Red Book of Retirement: Passive Real Estate Investing”. Dave Lopez offers valuable insights into Passive Real Estate Investing with 10 chapters catered to investors who are currently invested in passive real estate, or those who are interested in investing.
WHAT IS A DST
Delaware Statutory Trusts (DSTs) allow owners of real estate to sell their investment real estate and potentially defer capital gains taxes. DSTs are derived from Delaware Statutory law as a separate legal entity and formed as private governing agreements for the purposes of managing, administering, investing, and/or operating real, tangible, and intangible property; or business or professional activities for profit that are carried on by one or more individuals who act as trustees for the benefit of a party who is entitled to a beneficial interest in the trust property.
Though DSTs are not new, in 2004 the IRS issued an official Revenue Ruling detailing how a DST could be structured in such a way that it would qualify as a property replacement vehicle for 1031 Exchanges. Well known to real estate investors, a 103 like-kind exchange allows you to defer the capital gains tax on the sale of investment property by reinvesting the proceeds into a similar qualifying property.
As a result, DSTs have become an investment vehicle for investors who want the benefits of owning real estate without becoming a “landlord”, as well as current real estate investors who no longer want the responsibilities of being a landlord.
HOW DO THEY WORK
A property is identified and acquired under a DST by a sponsoring real estate investment firm. The same firm, also acting in the capacity as the master tenant, opens up the trust for potential investors to purchase a beneficial interest. In this realm, an accredited investor would have an opportunity to own a beneficial interest in a property that would normally be out of reach to them from an investment standpoint. Additionally, they would also benefit from a professionally managed property without any of the associated landlord responsibilities.
WHAT ARE THE BENEFITS OF A DST
- Receive passive income from real estate minus the work
- Own shares of major commercial real estate properties that currently produce income
- Cash out the equity on your highly appreciated property into an income producing property AND potentially defer your capital gains with a 1031 exchange
- Get the benefits of real estate ownership and income without the stress and hassles of property management
- Create an easily dividable asset for your heirs
WHY DST’S
Do you own highly appreciated investment property?
- Many people who own highly appreciated investment property feel trapped from cashing out due to the high tax bills they face on their gains. A DST qualifies as a 1031 like-kind exchange. That means you may be able to defer your tax bill AND still be invested in an income producing property without any property management responsibilities.
Are you interested in investing in income producing properties?
- If suitable in light of your other holdings and risk tolerance, a DST can be a great addition to your portfolio whether you are a seasoned real estate investor or new to investing in real estate. The sponsoring firms make it easy to choose from a portfolio of properties to find one that best suits your investment strategy. There are also opportunities to invest in properties that are currently producing income.
Are you a current landlord tired of the responsibilities and dealing with the “Terrible Ts”?
- A DST can be a great way to enjoy the benefits of real estate ownership without dealing with the “Terrible Ts” of being a landlord: Tenants, Trash, and Toilets. As an investor in a DST, you are not responsible for the property management. In fact, many of the properties have professional property management companies already in place so you no longer need to be involved in the upkeep and maintenance.
Are you looking for an easily divisible asset to leave your heirs?
- Owning property can be a wonderful investment but challenging to split up amongst loved ones. A DST is a real estate investment where you buy a fractional ownership interest that can be easily divided amongst your heirs avoiding potential family squabbles.
Did you just sell your highly appreciated investment property and can’t find a like-kind replacement?
- A DST qualifies as a like-kind 1031 exchange, so if you have sold your property and are almost out of time to find a suitable replacement, you can invest in a DST and defer your taxes on the gains. When it comes to investing in real estate, finding the right property is crucial. Don’t rush into it just because you may be running out of time. Invest in an income producing property that qualifies as a 1031 like-kind exchange.
What would be a reason not to do a DST?
- Liquidity – You are not in control of the decision as to when the assets will be sold. If you need liquidity in less than 10 years from your real estate investments, The DST may not be a good alternative for you. Many investors however wish to keep their 1031 exchanges going until there is eventually a step-up in basis. Also, you may not be ready to retire from building your real estate empire. For instance, if you are younger and a successful real estate developer, you may have a much higher potential investment return continuing your building of real estate equity as an active investor rather than as a passive investor using the DST.
NEWS ARTICLES
Check out articles from Kiplinger that discuss 14 Reasons to Consider a DST and Options for a Landlord.
Disclosure:
*To be an accredited investor, an individual must have had earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the prior two years and “reasonably expects the same for the current year,” according to the SEC. Or, the individual must have a net worth of more than $1 million, either alone or together with a spouse. With the passage of the Dodd-Frank Act, this now excludes a primary residence as being eligible as part of an investor’s net worth (investors who had existing accredited investments but who now fail the net-worth test without their residence being valued were grandfathered).
The information, suggestions, and opinions included in this material is for informational purposes only and cannot be relied upon for any financial, legal, tax, accounting or insurance purposes. ILG Financial will not be held responsible for any detrimental reliance you place on this information. Investments in a DST involve certain risks, including the potential lack of return, loss of principal and tax consequences. Investment Advisory Services offered through AlphaStar Capital Management, LLC, a Registered Investment Adviser. AlphaStar Capital Management, LLC and ILG LLC & ILG Financial LLC are independent entities. The DST sponsor determines whether to accept any individual’s subscription documents. Portfolio management services provided by a third party sub-advisor.
Amy Anderson joined the ILG Financial team in 2023 as the client relations coordinator. Her responsibilities include scheduling of appointments, annual check-up notifications, and annuity and required minimum distribution assistance. She is a graduate of Harding University with a degree in Computer Information Systems. Amy and her husband have two children and she enjoys reading, crocheting, music and spending time with her family.
Chase Lopez joined the ILG Financial team in 2020 as an advisor. Chase is a 2016 James Madison University graduate with a degree in management. Chase has been trained under the tutelage of Dave Lopez, who is not only the founder and managing member of ILG Financial, but also is Chase’s uncle and godfather. He also enjoys working alongside his cousin, Megan, who is Dave’s daughter. Chase, as a fiduciary, believes in putting his clients interests first, and building out plans for his clients where they can have a happy and fruitful retirement. He married his beautiful wife in February 2022 and both use most of their free time chasing around their little pup, Aurora.
Jessica Carson joined the ILG Financial team in 2018 as an agent. Jessica and her husband have four children, two dogs, 3 barn cats, 5 chickens, and three parakeets. She indeed loves her children and pets! When not at work, Jessica enjoys playing the piano and cello as well as traveling and spending time outside with her family, hiking, fishing, and boating.
Terri Center joined the ILG Financial team in 2019 as client services manager. She handles client records, application processing, and gathering information to provide a professional and friendly experience with all of our clients. Terri is a graduate of Oakland University. She is married and has two children. She enjoys hiking, family time, and puzzle challenging video games. She also likes to share her creativity in her canvas paintings and sewing projects.
Megan Jones joined the ILG Financial team in 2020 as marketing director. Megan and her husband live in Fredericksburg, VA with their German Short Haired Pointer, Gus. Megan is a graduate of Longwood University and holds a degree in communications. Megan is the oldest of Dave Lopez’s three children and not only enjoys working alongside her father, but also with her cousin, Chase, who joined the ILG Financial team in 2020 as an advisor. When not at work, Megan enjoys sitting on the back porch with family and friends enjoying food and music.