DST 1031 Exchange Case Studies
By Dwight Kay
Challenge: The client was looking for specialized and focused help in evaluating DST 1031 properties for her 1031 exchange. She had been introduced to a financial advisor that not only did not fully understand how 1031 exchanges and investment real estate work, but also only had two DST properties available.
The client was then introduced by a family friend to Kay Properties and Investments, LLC. She was relieved to find a group that truly specialized in DST 1031 properties, had answers to her specific real estate related questions, had access to a full menu of over 20 DST 1031 properties and lastly was able to construct a portfolio that met her needs and objectives as opposed to what met her financial advisor’s.
Result: In the end, the client was grateful to Kay Properties for helping her to avoid the higher risk asset classes in the marketplace such as student housing, hotels, oil and gas and saltwater drilling. The client was able to successfully complete her 1031 exchange into a diversified portfolio of DSTs that did not expose her to additional risk factors entailed in the exotic asset classes just mentioned.
The client was a real estate investor that had paid off his rental properties completely over the years. When researching DST properties, financial advisors pitched a handful of properties with large balloon mortgages that would ultimately come due in 5-10 years. What the “financial advisors” failed to mention was that when those properties were sold he would then not be able to purchase any property at any loan-to-value, but that he would then have to take on “equal or greater debt” per the 1031 exchange IRS guidelines.
Result: The client was thrilled to have been introduced to Kay Properties and Investments, LLC by his CPA, as he was able to learn the ramifications of going from an unleveraged position in his rental properties to a leveraged position in DST properties with 5-10 year balloon mortgages. At best he would have had to replace the mortgages with equal or greater debt upon the DSTs sale. At worst he would be looking at a potential foreclosure if things didn’t proceed as planned at the property and with the economy.
The client opted to invest in a diversified portfolio of Kay Properties’ all-cash/debt-free DST properties. He now had the peace of mind of NOT having to take on debt upon the sale of the DSTs, NOT having the risk of a lender foreclosure and NOT having the risk of a 5-10 year balloon mortgage upon the DST’s sale. Through Kay Properties’ debt free DST properties the client was able to stay in a completely debt free position as well as increase his projected cash flow considerably.
The client was a real estate investor that had previously invested in a basket of student housing, senior care, hospitality, regional mall and oil and gas 1031 properties in 2005 with a broker that touted his group’s due diligence as being second to none. Fast-forward to 2009 and 2010 and the investor lost millions of dollars of equity due to the higher risk nature of these asset classes combined with the great recession and credit crunch.
Result: The client was introduced to Kay Properties and Investments, LLC by a CPA who had been working with Kay Properties for years. The client was able to build a diversified DST portfolio consisting of all-cash/debt-free properties, multifamily apartment properties in growing locations and long-term corporate-backed single-tenant retail properties leased to credit tenants. The client said over and over that he had wished he had been able to invest with Kay Properties the first time around. Since his first 1031 exchange with Kay Properties the client has done multiple subsequent 1031 exchanges into Kay Properties recommended DSTs.
Past performance is no guarantee of future results. This material does not constitute an offer to sell nor a solicitation of an offer to buy any security. Such offers can be made only by the confidential Private Placement Memorandum (the “Memorandum”). Please be aware that this material cannot and does not replace the Memorandum and is qualified in its entirety by the Memorandum.
This material is not intended as tax or legal advice so please do speak with your attorney and CPA prior to considering an investment.
This material contains information that has been obtained from sources believed to be reliable. However, Kay Properties and Investments, LLC, Colorado Financial Services Corporation and their representatives do not guarantee the accuracy and validity of the information herein. Investors should perform their own investigations before considering any investment.
There are material risks associated with investing in real estate, Delaware Statutory Trust (DST) and 1031 Exchange properties. These include, but are not limited to, tenant vacancies; declining market values; potential loss of entire investment principal; that past performance is not a guarantee of future results; that potential cash flow, potential returns, and potential appreciation are not guaranteed in any way; adverse tax consequences and that real estate is typically an illiquid investment.
Please read carefully the Memorandum and/or investment prospectus in its entirety before making an investment decision. Please pay careful attention to the “Risk” section of the PPM/Prospectus. This material is not intended as tax or legal advice so please do speak with your attorney and CPA prior to considering an investment.
IRC Section 1031, IRC Section 1033, and IRC Section 721 are complex tax codes; therefore, you should consult your tax and legal professional for details regarding your situation.
Securities offered through registered representatives of Colorado Financial Service Corporation, Member FINRA / SIPC. Kay Properties and Investments, LLC and Colorado Financial Service Corporation are separate entities. OSJ Address: 304 Inverness Way S, Ste 355, Centennial, Colorado.
Kay Properties & Investments, LLC, is registered to sell securities in all 50 states.
DST 1031 properties are only available to accredited investors (generally described as having a net worth of over $1 million dollars exclusive of primary residence) and accredited entities only (generally described as an entity owned entirely by accredited individuals and/or an entity with gross assets of greater than $5 million dollars). If you are unsure if you are an accredited investor and/or an accredited entity please verify with your CPA and Attorney prior to considering an investment. You may be required to verify your status as an accredited investor.