Webinar—October 2nd at 1:00 PM EST
To sign up for the webinar to learn how clients can get cash in hand when implementing a 1031 real estate exchange, click on the following (I only know one such program in the industry!):
https://advisorsharewm.com/cash-out-dst
Delaware Statutory Trusts (DSTs) are my favorite tool to talk about with clients who own real estate they want to sell but don’t because they don’t want to pay the capital gains tax.
It’s been a while since I had Joe Maas, CFA, CFP®, ChFC, CLU®, MSFS, CVA, ABAR, CM&AA, CCIM, do a webinar on the “traditional” use of DSTs. To watch Joe’s recorded webinar, click on the following:
https://advisorsharewm.com/dst-webinar
Real Estate Dilemma
There are literally millions of rental property owners who are tired of being landlords. Many don’t sell because they don’t want to pay capital gains tax (which can be significant on a property that has become highly appreciated over the last many years).
A traditional 1031 exchange will allow them to sell property and “defer” the gain, but to do that you have to roll the sale proceeds into another piece of real estate.
What’s the benefit of a traditional DST?
A DST (which qualifies under the 1031 rules) allows you to sell appreciated real estate without paying capital gains taxes, and roll the proceeds into the DST where other real estate is purchased.
-DST investments are “packaged” by a sponsor who is responsible for all property management, asset management, and property operations. The sponsor typically has an extensive background in managing and maintaining the types of properties in their respective DSTs.
-By pooling their equity with other co-owners, an investor can own a portion of an “institutional quality” property that may otherwise be unattainable to an individual investor.
Other benefits of a DST…
–Provide cash flow from properties in the DST
-Diversify your real estate portfolio
But I want my cash NOW from the sale!
DSTs are great, but you are still stuck in real estate.
Many DST candidates don’t need the cash flow and would rather re-deploy the assets from the sale to other places.
The “Cash Out” DST
What if there was a plan where a client could use a DST but get 85% of the value of the real estate in cash shortly after implementing the DST?
What does that mean? It means a WORLD of opportunity for advisors who can introduce this to CPAs/EAs/accountants. While they are a reluctant referral source, when you have something of real value that no one else has, that is your best opportunity to generate referrals from the CPA/EA/accountant crowd.
I’m not going to explain how the “cash out” DST works in this newsletter. For those who are interested, I recommend signing up for the webinar.
But I did want to go through an example:
-$10 million appreciated property.
-The owner no longer wants to own the property and would like to sell the property and take the proceeds to re-deploy the money into something more lucrative (and he’s tired of owning property).
-With the “cash out” DST, the owner can:
Sell the property using a DST.
Pay NO capital gains taxes.
Get $8.5 million cash to go redeploy elsewhere.
Why would this be appealing to someone looking to sell real estate?
The real estate hay day for commercial properties may be over and this is an opportunity to get cash out of the property now without paying the capital gains tax. If a client can generate a higher or much higher return vs what the real estate can generate, this makes mathematical sense.
For example, if the real estate is only appreciating at 5% and you can re-deploy the money into an asset that can appreciate at 8%-10% over time, the “cash out” DST is a no-brainer.
“Knowledge is Power”
The subtitle to my newsletters going back 10+ years is “Knowledge is Power.” The more you know, the more valuable you are to current and future clients and referral sources like CPAs and even attorneys. The “cash out” DST isn’t for everyone, but knowing about it gives you, the advisor, additional power and a leg up on your competition.
