2A — July 23 - August 19, 2021 — M id A tlantic Real Estate Journal
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M id A tlantic Real Estate Journal
M id A tlantic R eal E state J ournal Publisher, Conference Producer . .............Linda Christman AVP, Conference Producer ...........................Lea Christman Publisher ........................................................Joe Christman Editor/Graphic Artist ......................................Karen Vachon Contributing Columnist ..... Steve Haskell, Kay; Tom Miller, CPA, CITP, CISA; Withum Mid Atlantic R eal E state J ournal ~ Published Semi-Monthly Periodicals postage paid at Hingham, Massachusetts and additional mailing offices Postmaster send address change to: Mid Atlantic Real Estate Journal 350 Lincoln St, Suite 1105, Hingham, MA 02043 USPS #22-358 | Vol. 33, Issue 6 Subscription rates: 1 year $99.00, 2 years $148.50, 3 years $247.50 & $4.00 single issue - plus postage REPORT AN ERROR IMMEDIATELY MARE Journal will not be responsible for more than one incorrect insertion Phone: 781-740-2900 www.marej.com
By Steve Haskell
The Case Study of a 1031 DST Specialist
here are various strate- gies when using DSTs (Delaware Statutory Trusts) in a 1031 exchange. Some investments are as easy as a simple exchange from one property into a single DST. Other times DST’s are used to invest leftover equity from an exchange so the investor is not taxed on leftover funds, called “boot”. Investors will routinely use DSTs as a backup ID in case their target replacement property doesn’t work out. And occasionally, Kay Properties will assist an exchanger to uti- lize all said strategies in one sophisticated effort to mitigate risk and defer as much tax as possible. Read on for the expe- rience of a highly skilled 1031 DST specialist. A real estate investor sold an investment property for approximately $2M. Roughly 25% of his property was lever- aged. Therefore, $1.5M was sitting in his qualified inter - mediary account. He then contacted Kay Properties to
pursue a partial 1031 DST ex- change. The exchanger wanted to purchase a property on his own, but something smaller and easier to manage than the property he recently sold. He wanted to put part of his exchange into a completely passive DST option that would require no management on his part. The DST part was rela- tively easy. However, he was having a hard time finding a replacement property to own outright, and the 45-day clock was ticking. Kay Properties created a multifaceted strat- egy that supported the inves- tor from a variety of angles. First, the exchanger used the debt built into the DST
to replace his mortgage. The Kay Properties representative created a DST portfolio for the investor with a loan-to- value of approximately 50% to match the exact debt required to satisfy the 1031 exchange regulation. The debt was non- recourse, meaning the investor did not need to apply or sign for the loan, nor did it show up on his personal balance sheet. This freed him up to purchase a smaller property to own outright without taking out a mortgage, which increased his probability of closing. Next, the exchanger used a DST as a backup ID in case the target property did not work continued on page 16A
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