Potential Drawbacks of a 1031 DST Exchange
1031
DST investors give up control.
Some
investors want and need to have complete property management control.
The
1031 DST properties are illiquid.
Costs,
fees and charges.
While
different exchange types have similar exchange costs for the Qualified
Intermediary (QI), attorney, tax advisor etc., a DST is a private placement
security that is purchased through a FINRA Registered Representative, who is
paid a commission on the sale of this investment.
You
must be an accredited investor.
With a 1031 DST you
must qualify as an accredited investor-an individual having income that exceeds
$200,000 singly (or $300,000 with spouse) in each of the last two years, with
reasonable expectations of the same income in the current year… or has a net
worth of over $1,000,000 alone or with spouse (excluding the equity of that
person's primary residence).
You
cannot raise new capital in a 1031 DST.
Once the
DST offering is closed, there can be no future contributions to the DST by any
current or new investor. The
"reserve fund" can help with less major unexpected expenses when they
occur.
Small
offering size.
Because
many DST offerings are smaller in nature $10-$75 million-they
have a tendency to fully subscribe and close quickly. DST offerings can stay
open a few days or months depending on the capital raise.
DSTs
must adhere to strict prohibitions.
Our
national sponsors, we partner with, have thoroughly met these prohibitions for
you… the seven are as follows:
- ·
The DST can't renegotiate existing loans or borrow more funds.
- ·
The DST can't reinvest proceeds from the sale of its real
estate.
- ·
The DST is limited to making minor, nonstructural capital
improvements, in addition to those required by law.
- ·
Any cash reserves held between income distribution dates can
only be invested in short term debt obligations.
- ·
All cash and other reserves must be paid out to investors.
- ·
The DST can't renegotiate existing leases or enter into new
leases.
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