Need to Secure Investment Grade Properties with 4-7% Cash Flow?

Most Delaware Statutory Trusts are financed for a ten year period. In addition, the rules underlying the Delaware Statutory Trust structure preclude any refinancing or modification of any loan terms. This is why most Delaware Statutory Trust managers proceed with a management and divestment strategy which includes a sale for the benefit of the owners of DST interests within year 7 -8. It is possible for some Delaware Statutory Trusts to be sold in a shorter timeframe should an excellent offer arise due to equity growth of the properties in the portfolio. In this event, owners of DST interests can 1031 exchange out of the Delaware Statutory Trust into another DST or into any other like kind property.

You can easily spread your investment across several DSTs for diverstification. Since investments in Delaware Statutory Trusts are considered securities, they must be acquired through a licensed Broker-Dealer or Registered Investment Advisor. These are representatives or firms which are appropriated licensed to disclose the underlying specifications of the properties as well as the expected financial performance. The minimum net worth threshold for acquiring an interest in a Delaware Statutory Trust is an annual income of at least $200,000 or a net worth over $1 million, exclusive of primary residence.

In the event you want a totally tax deferred 1031 exchange transaction which includes a purchase of a Delaware Statutory Trust interest, you may need to have debt from the DST assigned to you for the benefit of your 1031 exchange. Your Broker-Dealer should be willing to assist you as you determine the amount of debt necessary for your particular exchange scenario, and thereby arrange with the DST sponsor to assign such debt to you.

If you want a completely tax deferred transaction you must do these three things. First, buy Replacement Property which is equal or greater than the net selling price of what you sold. Two, move all your equity from the old property into the new property. And three, replace your debt.

The IRS requires the use of two rules or one exception for identifying potential Replacement Properties. The first is the three property rule, meaning you may identify up to three properties of any value. The second rule is the two hundred percent rule, meaning you may identify more than three properties provided all the properties you identify do not exceed two hundred percent of the value of the property you sold. And the one exception is known as the ninety-five percent exception. Essentially, you may identify more than three properties and more than two hundred percent of total identified property value, provided you acquire at least ninety-five percent of everything you identified. If you are identifying an interest in a Delaware Statutory Trust, remember to list all the property addresses and use the 200 percent identification rule.

It is always better if you buy and vest your Replacement Property in the same name and entity as which you sold your Relinquished Property. To do otherwise by changing entities in the middle of your exchange could cause your exchange to fail for lack of meeting the held for investment or held for income requirement of IRC Section 1031.