Assets and Taxes - How To Legally Avoid Real Estate Taxes (1031 Exchanges & DSTs Explained)

Episode Date: April 8, 2025

In this episode, Kaelan Fitzpatrick CFP®, sat down with VP of Growth of 1031 Specialists Mike Auerbach. They sat down and discussed the benefits of a 1031 Exchange and Delaware Statutory Trusts (DSTs). If you're a real estate investor, then you need to listen because the benefits can be massive!(00:00) Intro(02:15) What Issues are People Having with 1031 Exchanges(03:50) What Should Someone Look for in a Qualified Intermediary (QI)(06:02) Why Do some 1031 Exchanges Fail?(09:30) What Even is a Qualified Intermediary?(11:30) What is an Accredited Investor?(13:15) Who Should Consider a Delaware Statutory Trust (DST)?(15:50) How Much Capital is Being Placed in DSTs Today?(17:13) What Types of DSTs are Out There?(19:15) What does Asset Strategy do Differently Than Anyone Else?(22:35) When does a DST Not Make Sense for Someone?(24:47) How to Get Out of a DST(28:09) Is it Complicated to Find a DST Sponsor?(29:45) The 7 Deadly Sins of DST Sponsors(38:18) DST Investor Example(40:43) Why Cash Flow is a Great Benefit of a DST(45:10) What Is a 1033 Exchange(47:27) CPAs and Attorney's Don't Even Know About This(49:02) What's the Minimum and Maximum For DSTs(50:02) ConclusionAre you thinking about doing a DST/1031 Exchange?Book a FREE discovery call today to explore how we can help you: https://assetstrategy.com/contact/Free DST/1031 Exchange Resources:Guide: https://assetstrategy.aflip.in/Understanding-Tax-Deferred-Exchanges.htmlTo Learn more about Mike Auerbach and 1031 Specialists, check out: https://www.1031specialists.com/Call the Asset Strategy Team: 781-235-4426Connect: Website: https://assetstrategy.com/LinkedIn: https://www.linkedin.com/company/asset-strategy-advisors/Facebook: https://www.facebook.com/profile.php?id=61573136047425Instagram: https://www.instagram.com/asset_strategy/

Real estate investors in general, there's up to 40% of taxes they can defer by doing a 1031 exchange. There's more than 16 different types of property, including DSTs, that they can swap in and out of tax-free. 1031s, approximately, I think it's about half of them actually fail. It's been promoted the wrong way for 100 years. If you treat it like a full-time job, but you're going to be saving hundreds, if not millions of dollars in capital gains taxes. Their heirs actually receive a step-up in basis on this so all the taxes they never paid and grew that into their heirs get that tax free. Yeah I mean that's really the dream. Welcome back to Assets and Taxes. My name is Kaelin Fitzpatrick. I'm a certified financial planner and financial consultant here with Asset Strategy. Sitting today with Mike Auerbach

with 1031 Specialists. Mike, I'll let you introduce yourself. I'm VP of Growth of 1031 Specialists. We're a qualified intermediary. We help real estate investors defer taxes and maximize gains. I love it. So today we're going to be primarily focusing on 1031 exchanges as well as that Delaware statutory trusts. What are the pros and cons? What are the benefits? How they work? Some different market analytics that we're seeing, and some different opportunities in the real estate space as well here. So just jumping into things, you know, Delaware Statutory Trusts only work if you are going to be deferring taxes through a 1031 exchange.

So I guess we can start there, Mike. Yeah, I mean, look, I think real estate investors in general, like there's up to 40% of taxes they can defer by doing a 1031 exchange. And obviously I think investors don't really understand that there's more than 16 different types of property, including DSTs that they can swap in and out of tax free. And I think what we're starting to see in the market is a lot of people are getting a little bit tired

of managing active properties, or alternatively there's not a lot of good investment getting a little bit tired of managing active properties, or alternatively, there's not a lot of good investment opportunities, replacement properties available just because a lot of sellers kind of want to, you know, reach their number, hit their number. Right. So are those some of the primary, I guess, issues you find amongst your clients when you're helping them with the 1031 exchange? Yeah, I think for a lot, I think a lot of people right now, it's like the chicken or the egg, right?

Like I want to sell my property, but like I just am uncomfortable on what potentially is out there that I can, you know, sell my property and swap into. And so we've talked about it offline, like DSDs can be a great avenue for some people that want to get, you know, want to maintain their basis and defer their tax,

but also get into something that yields a nice return. Obviously, we're not investment advisors. We don't really steer them towards a specific investment. That's kind of like, we work with guys like you who are kind of like their advisors. We'll give the advice. Exactly. So we just want to make sure that we're helping people when it comes to you know facilitating the paperwork of a 1031 exchange and educate them

to see if they can do it. But we rely on folks you know like you to kind of walk them through like the process and you know see if it fits into their portfolio. Awesome and it's several of those those points are things that we see as well with our own clients when we're assisting them to actually find someone like yourself, a qualified intermediary. I know not all qualified intermediaries or QIs, as you'll hear them called, are created equal. When someone is going to look for a qualified intermediary, whether they're referred to someone like you by myself or even in some cases, their attorney or their CPA that knows, hey, we need a QI as part of the process.

What are some of the things that people should be looking for and what makes a quality QI versus someone you might want to pass by? Totally. Yeah. Well, I think first and foremost, it's all about client service and execution before I rattle off anything else. I think most people want to make sure that they're in safe hands, that they get the deals done, that they're responsive.

I think traditionally, the QI industry is kind of stuck in 1997. There's been no tech. There's been no innovation. I think from our standpoint, we're really trying to get instantaneous information to folks like you, other commercial real estate brokers, to make sure that the deal maintains transaction momentum. Right? So, you know, I think a lot of QIs, money, you know, like the funds being held, there's some question marks there. Like for us, you wanna really look for a couple things. Number one, do they create segregated trust accounts?

Are they partnered at a banking institution that takes care of the money in a way that's best in class? We set up segregated trust accounts, the money just stays there, they're not commingled until they call up or you call up and say, hey, we're going into two or three DSTs, you know, and then we instruct our partner bank to wire the funds to, you know, to complete the transaction. Also, I think in general, like, you just want

to work with someone who's like responsive, right. And I think a lot of folks in our industry, for whatever reason, they don't pick up the phone. That's true. Which is real estate, which is bizarre, like relationship game. Yeah, it's not only a relationship game, but like if it's one job that we have, it's to pick up the phone. And, you know, I try and recruit other QIs to come work with us. I'm sure you've worked with QIs in the past that don't pick up the phone.

And you just have to ask yourself, like from a client perspective, they're finally at the point where they're ready to explore doing a 1031, whether they're going into a DST or another property. If you're making it more difficult for them and our job is to educate them, the probability of them actually going through with it is not as high as it really should be. So we're kind of doing a disservice by not picking up the phone and being responsive to everyone. Do you think that this is part of the reason? So there's some stats out there that, you know, 1031 exchanges are vitally important for not only deferring taxes, but giving you some benefits through Delaware Statutory Trust

that we'll talk about in a moment. But there is some stats that 1031s approximately, I think it's about half of them actually fail. Do you think it has to do with kind of the responsiveness of the QI themselves and just not being on top of it or they themselves don't understand the entirety of the situation? Or is there anything that kind of you would pinpoint that is the reason behind that?

Yeah, I mean, honestly, I think like the, like it's been promoted the wrong way for a hundred years. It's like people just decide like when they're closing the next day, like, oh, maybe I should do a 1031, right? So it all comes down to like proper planning and prevention. And so really, you know, as a real estate broker or an investor, when they go to list their property, they should be exploring a 1031 then and there, right?

Most of the time, their property's gonna sit in the market for at least 30 days, best case scenario. So before the clock even starts, you can explore doing a DST, you can explore looking for a replacement property. And so I think it comes down to planning. No one likes to plan ahead. Like, you know, that's the reality.

I'm guilty as charged sometimes. But honestly, it's like, if you treat it like a full-time job, you're going to be saving hundreds, if not millions, of dollars in capital gains taxes. And it's funny to me that people will spend 90-plus days or months at a time looking for a property to buy, doing the due diligence, analyzing it. But when it comes to all those hard years

of getting the, those, those the cash flow and the gains and the, and making the appreciation, they spend less than 90 minutes deciding if they, you know, they should 1031 or not. Well, and you know, talking about preparation as well, it, it always, you know, me being a certified financial planner preach, hey, make a plan before it's too late or before something bad happens. So it sounds like in your world, the preparation and speaking with a QI like yourself, when they make the decision or have the concept in their mind that at 1031 is what they want to do, they should speak to you, make sure they do it the right way. And looking at this from

my aspect as well, you know, just understanding how you as a QI make your money, that investor, at least I want that investor to have the money with you as short as possible to save them money as well. But also having a plan in place, knowing where you're going to put the funds, what you're going to do with it, and what the analysis behind the product, I think it just makes sense to be prepared and not come down to the wire with things. Yeah, I mean, look, like I think in real estate naturally, like it's a fire drill, like people just, you know,

the deals, the deals alive, the deals dead, the deals on life support, like, you know, we think it's gonna close tomorrow, you know, closing's been moved a couple of weeks, cause you know, cause things happen. But I think really, when it comes down to working with anyone qualified, whether it's a qualified intermediary or a professional that like you're an advisor like yourself, it's

like, how do you get information to them quickly and explain it to them? So it's easily digestible. And I think at least the 1031 specialists, like we're simplifying and making information in 2025 messaging and branding so people can kind of understand it versus before, you know, when you're using even words like qualified intermediary, I mean, what even is a qualified intermediary, right? It's a new one for a while. It's hard to even say.

And you know, the way we frame it is we're an independent third party mandated by the IRS to facilitate the 1031. But really a 1031 is just like any normal real estate transaction except for two key differences. Number one, they have to use a qualified intermediary, which I just explained what it is. And number two, an investor cannot take constructive receipt of the funds,

meaning at closing the funds cannot hit their bank accounts. So we come in, we set up segregated trust accounts in their name or their LLC's name. The funds then at closing will go to our partner bank where they'll sit safe and secure. They won't get invested. They won't get commingled. And then once you call us up or the investor calls us up and say, Hey, I'm closing on these three DSDs, we wire the funds and thus complete the 1031. So it's really not that, it's not rocket science, but I think people really like when they talk about taxes and the process, like they get so overwhelming. And so we're trying to come up with, you know, some of the best in class educational content, but also just work with guys like you who are experts in your field. That way, when they ask

us like, Hey Mike, what's a DST? Like, you know, we can talk a little bit about it, but you're the one that can go through, talk about the benefits. And so I guess like, what are some of the benefits or who are some of the people that should consider DSTs, Kalen, to kind of like at least explore it, you know, when they go to sell their real estate. Yeah, absolutely. And, you know, full disclosure here, 1031s are, and that was a fantastic breakdown, super easy to follow, very clear. 1031s are not, you're not required to be an accredited investor to utilize a 1031. But when we talk about DSTs and Delaware Statutory Trust, want

to bring that up front that you must be an accredited investor to take advantage of a Delaware statutory trust. So getting into it without using too much jargon here, it is a complex topic. Yeah, can I stop you for a second? What does accredited actually mean? Yes. I think there's some confusion around what a credited investor actually means.

And so if you can just tell people out there what that means, I think that can help at least debunk some myths on that. Absolutely. There's a few different, I would say, requirements and qualifiers to be considered an accredited investor. So one of those is pretty simple. You need to have a minimum of a million dollar net worth that excludes the value of your

primary residence. Now there's an or here, or if you're a single filer filing individually, you need to have made at least 200,000 gross in the last two years of income. If you're married filing jointly, that number goes up to 300,000. So that's really the standard of what you'll see of what is required to be eligible as an accredited investor, but there's also a little bit of a sidebar there as well. So an individual who might not be able to hit those qualifications, they will still check the box of accredited if they hold any of their securities licenses. So Series 7 or Series 63, Series 66, you're a professional working in this space,

that will qualify you as well. Even if without those licenses, you wouldn't qualify just with your own assets. So there's a couple different angles that you can take to check that box off. Interesting, yeah, I think that's like, it's definitely a great explanation on what people should expect and what accredited means.

And there's obviously a lot of different paths to get there that a lot of people probably don't even realize. Exactly, so when we think about 1031s, my mind goes to, hey, why doesn't everyone do a Delaware statutory trust? But to answer your question directly, what are some of those common client cases or examples we see of who is going to take advantage of it? One of them and I

would say probably the most common is just the tired landlord, someone who's been in the game for years, maybe they're not as excited about the terrible tease dealing with tenants trash toilets anymore because they're you know in their retirement years and they just enjoy the mailbox money or saying, this is my property. So a Delaware statutory trust can still enable someone to not only eliminate their landlord responsibilities, but also maintain all of the benefits that that individual is accustomed to by just being a real estate investor and an owner themself there.

So that's the most common people looking to exit being a landlord. Other situations, it really comes down to the specific client case a lot of times. So there's estate planning benefits, people who have large properties or multiple investment properties. Maybe their family doesn't want anything to do with them.

Their family doesn't have the need to be a landlord or go knock on doors, for example. Investors who process a 1031 exchange into a Delaware statutory trust, they're going to be able to leave that asset to their heirs. The heirs still reap all of the benefits that they have in terms of cash flow or tax benefits, appreciation benefits, but they don't have to do anything except sit back and collect mailbox money. So it can settle estate disputes between family members or resolve the issue that the family doesn't want to be involved in the same type of work that someone is doing. We've also seen people who might not be tired of being a landlord, they actually want to be,

and maybe they've worked with you for a period of time and they simply haven't been able to find that physical replacement property, and they're running short of time. So we know with 1031 exchanges, there's overall a total of 180 days that you have to both identify and actually make the purchase of the replacement property within. Sometimes it's not always that simple. Six months is not a super long timeframe. We will hear from QIs like yourself right when it's down to the wire because Delaware statutory trusts have a very quick close.

Those investors know exactly what they're getting into. It can be a backup option for some people as well. What do you expect like the market size to be for capital being placed in DSTs in 2025? Just an estimate for folks out there? Of course. It's a great question. A couple of years ago, 1031s and DSTs were massive, you know, $8 to $9 billion range. As depreciation rules started to decrease and, you know, the benefits of the Tax Cuts and Jobs Acts started to fizzle out a little bit, we saw a drop in the business, you know, anywhere from about $2 to $4 billion, depending on the sector that you were looking in. This year with, you know, tax cuts and jobs acts,

benefits potentially coming back, bonus depreciation being a large one we might see in September this year. We're expecting somewhere in the range of about five to six billion, but that could certainly be larger, especially if we reach enough people here. Yeah, definitely. Definitely. Yeah, I think in terms of like the benefits of tax deferral in general and in the market coming back, I think in terms of like, the benefits of tax deferral in general and the market coming back, I think everyone's hopeful. I think, you know, as you know, it's been a tough slog here the last couple years and uncertainty regarding interest rate volatility, right? And so I think, you know, from people, I just feel it that people want to do deals and they want to transact. It's just,

there's still some question marks out there in terms of the market. I guess in terms of different types of DSTs that people can 1031 into, what are you seeing out there in the market? Some interesting opportunities. Obviously, I think a lot of people understand what multifamily is or understand what triple net is. Anything else that should be on people's radars about potential opportunities for DSTs? Yeah, we actually like to say that the areas of investment that are available in Delaware statutory trusts or DSTs, that's actually one of the benefits as well. So to make a real example, clients who maybe have portfolios of two, three, four, RV or mobile home parks,

they might not know anything about a multifamily, for example, or even a triple net lease. And a DST actually allows them to diversify into sectors that they might be interested in, but not have an expertise in. So some pretty common things and kind of our offering right now that we're seeing is, you know, multifamilies and triple nets. Those are kind of forever be in there.

We've also seen things like office space or hospitality, residential in some cases as well, uh, medical micro hospitals, uh, micro grids are, are a very important piece of our expanding energy infrastructure. I think a very popular one amongst our clients as well as data centers as well. There's student housing and senior living. So these can be products that enable you to diversify and diversify with confidence into a sector that maybe that person never would have even thought about because there's a multi-billion dollar institution that's actually managing, operating,

and identifying the location and the build out of that project for them. So it can invoke a lot of confidence, but also enable them to, again, spread their risk a little bit. Yeah, no. And I think obviously diversifying in working with a firm such as Asset Strategy is beneficial for a lot of people. Like what makes you guys a little bit different? What do you guys do differently than some of your competitors? Obviously you asked me what should people be wary of when working with QIs? Same thing with advisors.

What do you think that people should be wary of or just kind QIs? Same thing with advisors. What do you think that people should be wary of or just kind of keep an eye out for? Just, I would say maybe like a red flag of like, hey, maybe these guys aren't as experienced. Maybe they're just trying to get me this DST and collect a fee. Like, what can you kind of speak to

to kind of look for when hiring and kind of going down this journey if someone wants to get into a DSD? Yeah, well, I'll make the same comment as when I asked you the question as well. Not every QI is made the same and neither is every advisor as well. So you'll see advisors that are very and highly successful that maybe they've never done anything in a niche space or an alternative that way.

They simply know nothing about the product and sometimes don't even know it exists. So we like to position ourselves as educators first and foremost. We in certain years have done a decent chunk of the percentage of total DSTs in an annual volume as well. So we have not only seen every sponsor and project that's out there, we also know nearly everyone in the space as well. It's a very small space. With that in mind, though we know about 100%

and maybe have worked with about 100%, we will actually only explore about 80% of projects or sponsors because we've done our own due diligence and we've seen what can happen when due diligence is not done appropriately, which is not something you want to get into. So a lot of advisors, when they maybe see videos like this, they might feel they're an expert and start talking about this as a solution for their clients, but that is the extent of their knowledge. So those advisors sometimes will actually come to asset strategy to help them with that

strategy as well as that situation with their clients. Ed Jones is actually a big one that will reach out to us. A couple other big names out there as well. So we will help more of the traditional advisor branch out into the niche that way. We will actually actually for DST projects themselves, part of the benefit is you are not owning shares of a DST. That's kind of what happens with a REIT. You're actually owning bricks in the building of the property in the underlying portfolio. You are truly a real

estate owner in that position. What makes us unique as part of our due diligence is we highly trust our broker dealer Concord Investment Services to do that due diligence and only provide listings for projects that they feel confident about. We will take that to another level and do it ourselves. So we actually have individuals that work with Asset Strategy who will travel around these properties and these projects with the sponsors themselves You know and physically touch the building walk around it see what it's like You know if we would like living there if we would put our own assets into it

You know we're gonna suggest that to our clients as well So it's a a firsthand experience not a textbook learning or analysis on our end. And you're saying there are firms out there that don't do that due diligence themselves, that third party it? Correct. So there is some bad actors out there. Certainly. Yeah, totally.

This is kind of an interesting question, but when should someone not do a DST? Or when is a DST maybe not the best option for someone even though if they explore like hey Kailin, you know, I'm really interested in this. Like when would you steer someone away from from doing a DST just as a fiduciary? Yeah, so my mind goes to two different places just immediately and there's certainly more than what I'll talk about. But the first one is going to be if there's still taxes. So boot, a little bit of a jargon word, a space here,

boot essentially means that that individual is going to still pay taxes even if they do a 1031 exchange into a DST. Sometimes, and normally if they're doing it, the boot will still be a little bit less than what their initial tax bill would be if they sold outright and ran away with their money. Sometimes it's not that much less though. So if the taxes are the same and you're not really getting the ultimate benefit, which really is the tax deferral,

it might not make sense for them. So that's one is taxes could still be an issue through boot, whether it's on the debt side of the equation or the equity side of the equation. The other side of that is if someone needs flexibility. So DSTs, part of the requirement of the trust itself is that the sponsor is essentially the owner, operator, manager of the portfolio. That includes everything about it. If you are an investor into a DST,

you have no decision-making ability. You're essentially along for that ride. In that same tune with flexibility, I would say liquidity is another one. DSTs, they range in their timeframe for the hold. I would say a broader range is about 4 to 10 years. On average, it's about 5 to 7 years. So if an investor outside of the cash flow that they're gonna be receiving on a monthly or quarterly basis needs more liquidity

and access to the funds that they exchanged into this, it's not gonna be appropriate for them because they're gonna only have the option of cash flow for that roughly four to 10 year period. Yeah, no, I think that's really important. I think liquidity is a big issue for some people. Has there been any cases or circumstances that they can sell and be absorbed in a secondary market? Does that happen or not really?

Just to make sure I understand your question, asking about the exit of how to get out of a DST. This is actually the fun part because this is where the flexibility remains. So DSTs themselves, 1031 exchange into it, you're deferring your basis and of course your appreciation into that property. Because you're investing into a DST, all of that deferral actually continues to grow

and continue to be deferred. So at the conclusion, when the DST goes full cycle, there's of course options. Number one is they can take their money and run. They're going to pay all the taxes they deferred into the DST as well as all the taxes that that appreciated into. Typically not your most appropriate option. They can also continue to 1031 exchange. So they have the ability to 1031 exchange into another DST, say they don't want to be a landlord

and want to remain passive. They also have the ability to 1031 exchange back into an active property. So one thing that we see through some investors is maybe in that 180 day 1031 exchange timeframe, they chose to do a DST because they were at the end of that timeframe and they were going to face the tax consequences. A DST in some cases can not only be a sound investment, but extend the timeframe for an individual to actually search and find the right replacement property. So we have seen people switch from passive due to being out of time

back to active because they found that replacement because they extended that window. DSTs themselves also have options. So before you're deciding which DST to purchase, the DST is either going to have the option or the requirement of doing what's called a 721 exchange. An up-rete is another name for that. So the option is if the investor wants to remain passive, but maybe they want more liquidity than a DST will provide, the DST is actually going to sell that portfolio to a REIT and all the taxes will be deferred for that investor into the REIT.

That's called a 721 exchange or an up REIT. Once that investor is in the REIT, they're no longer owning bricks in the building of the REIT portfolio, they're owning shares of the REIT. So if they need liquidity, they simply sell shares of the REIT to get out. So that's either an option or a requirement depending on the type of DST that you're looking into. I would say a little bit of a side option is the estate planning side of this as well. Someone might 1031 until they die. We've certainly heard that term before and leave this to their heirs. Their heirs actually receive a step up in basis on this. So all of the taxes they never paid and grew that into, their heirs get that tax free. Yeah.

I mean, that's really the dream with like the 1031 exchange. I think for us, it's like you can literally swap until you drop. Kind of like you mentioned and the lifetime of appreciation that that investor made happen, their heirs will realize and once they sell, they don't have to pay a dime in tax. So, yeah, that's something that's interesting. I've heard a couple of sponsors that aren't part of DSTs like want to set up their own, their deals as DSTs. Have you seen that lately?

Or is that becoming more popular? Is it complicated to kind of set up? Have you seen anything like that? Yeah, so I'm no DST sponsor, and I won't pretend to be. I'm not sure the full inner workings of what that looks like. But I think for companies who are already in the space of not only capital raising, but also real estate, it can be a simple thing for them to set up, you know, nuanced there. I am not fully educated on what it takes. But you know, it's a certain type of trust, kind of a fun fact, there is 77 trusts in the United States. Wow. Different types of trusts that you can use. A DST is one of them. Typically people think of, you know,

revocable trusts or irrevocable trusts, but there's actually 77 total. So. So I'm not sure what the sponsor side of that looks like for setting it up. There's certainly legal requirements. And in terms of a DST itself, DST sponsors do have seven requirements from the IRS to essentially maintain a DST. I guess like in DSTs, like I've heard lately of some sponsors that have kind of, I wouldn't say that go out of business for struggling. So how do you know if a sponsor is like acting responsibly,

you know, from an investor perspective? I guess anything that people can look out for? Certainly, so this is actually part of the due diligence that not only our broker will do, but also us ourselves. So this is what we refer to as the seven deadly sins. So the formal name is IRS protections, essentially, for what is required of DST sponsors. What are these seven deadly sins that sponsors cannot face here or conduct? One of them is that they're not allowed to put in any more capital contributions. Once the DST offering is closed, no more new money can go into that. This is part of protecting the diluted aspect of limited

partners and their share. Of course, we need to match debt-to-debt, equity-to- equity in 1031. That would spoil that situation. Same thing with capital contributions. DSTs cannot renegotiate or add new debt or new leases to the properties as well. Those are two more. Now, in terms of proceeds, DSTs are allowed to hold back some of the cash flow, or I would say only cash flow, get mixed up with sale proceeds. So DSTs are required to have a reserve fund for insurance purposes or making sure they can maintain the cash flow else that has to do with not only monthly or quarterly cash flow, but also ultimately when that DST sponsors themselves, I would say nine times out of ten, are investing their own money in the deal. They have a significant belief that what they are developing and providing is good enough for a multi-billion dollar institution to put their money in.

Another side of that is the DST sponsor is the last person in the investment to make money. So anytime distributions, whether it's cash flow or sale proceeds are sent out, investors receive that money first, DST sponsors second, only after each investor has received their entire share back. There's some others mixed in here. I'm looking at my notes as well, but that covers essentially the outline of them. Yeah, no, I think that was an awesome description. I think a lot of people, just like 1031s and DSCs,

they don't, you know, they're not experts. They need to get educated. I'm not sure that everyone does a great job of highlighting, you know, to that detail, that level of detail that you just did. And I think it's important that people know about that because ultimately they're investing, right? And so anytime that someone wants to invest,

we always say like, do your own due diligence. And I feel like there's some people out there that may not go into the level of detail that people should be aware of and looking at sponsors, maybe because they're short on time, maybe because they just don't know. So thanks for going through that. Absolutely. And one thing that we find, particularly with our competitors as well,

I wouldn't say this is necessarily someone who hasn't done their due diligence, but I would potentially put it in the space of being a bad actor. And that has to do with when the fee question comes up, how much does this cost to the investor? So it's a little bit complicated, but a lot of people who are actually assisting investors with utilizing or exploring DSTs, they will actually straight up say there is no fee. There absolutely is a fee, but they can get away with saying that because it won't feel like there's a fee to the client. So how the fee structure works, and I'll kind of give the rough overview, not go too granular

here, is say you're putting in $100,000. All of your appreciation, your tax benefits, your cash flow is going to be based off of that $100,000. In reality, it might be $92,000 because the fee was taken out. So essentially what happens is the DST is still giving you the benefits off of that $100,000. A lot of these DSTs are still dirt in the ground when they're capital raising, so they'll essentially discount that value, which is how they're able to do that. They take the fee that goes to part of the reserve funds,

makes everyone happy, pays people out. The client's happy because they don't feel it and they're still getting the rewards of a higher investment. So the responsibility of the DST is to essentially not only make back the fee, but then actually make back everything else of what they analyzed and proposed for the deal itself. So some people will explain the fees to the client that, hey, there is no fee, you're not going to feel it because they won't. But we will actually go into the depths of how is

the fee structured? What is the percentage of that? Why won't you feel it though it's there? So we like to be as transparent as possible. And in some cases, and this might sound kind of funny from someone who does these, but we will actually tell people not to do these and actually sell against them in a way to make sure people fully understand what they're getting into. You know, at the end of the day,

someone could be happy in one year when they've sold their property that, hey, I get all the benefits of real estate ownership, but I'm not a landlord anymore. Three years later, they could change their mind, but they're locked into a DST and they can't go after that new shiny product or investment that they're seeing at the time. So we will sell against the DST to fully make sure someone understands what they're getting into because we're tied to each other for the next seven years.

Yeah, no, honestly, like that's kind of refreshing. I think being a fiduciary, you want someone to kind of understand and explain like what like downside risk is in an investment and make sure that they're fully comfortable. But you know, a lot of people dip their toe in before, you know, actually jumping in. And I think, you know, highlighting some of their realities in terms of like what a DSD can provide or what the market, you know, dictates, right?

Cause these are real estate investments at the end of the day, you know, what the, what the, what, what it could look like, I guess, in, in, in, in best case and worst case scenario. So, you know, I think I certainly appreciate that as an investor, I'm sure a lot of, you know, investors appreciate that because you also don't want to come from a place of, hey, I didn't tell you that this can happen, or hey, you know what, these are the possibilities that this could happen when you're talking to an investor.

So I think being a great advisor, that's part of your job. And to your point, maybe not everyone kind of goes through the depths or the analysis that kind of outline it. They're just, they're just focused on committing, you know, collecting a fee and then onto the next one. So personally, I'd rather be as transparent as possible, have everyone be confident with their decision making, as opposed to getting caught down the road.

Yeah, totally. No. And I think honestly, I think that's what separates the people that like want to have, you know, long term relationships with people, you know, versus just short term. And I think in general, like we at 1031 Specialists say like, we want to be, you know, long term greedy, you know, and not short term, you know, short term, like transactional. And part of that is putting the effort in upfront, doing the education, making sure that we're laying out all the options as advisors, but ultimately it's up

to the client, up to the investor to decide if they want to do it. And whichever way they want to go, we're happy with. If we want to facilitate a 1031 for them, that's great. If they don't want to do it, that's great too. But at least they're educated, at least they know about it. And maybe sometime down the road, they'll consider it if they don't do it on this transaction. That's a great point too, because that's actually where we start with a lot of our clients.

Most of the time at another advisor or someone's CPA, their attorney, for example, they will actually come to us saying, hey, this could work for my client situation. Would you be willing to speak to them? So we'll simply educate everything that we've discussed today. You know, we'll go through the inner workings of it as well. Maybe do a quick analysis for someone. But we're not, we're not born to those people. We won't, I would say kind of push them to do it.

We want them to be comfortable with it and, like you said, just be armed with knowledge. When and if that investor does decide to dip their toes in, that's typically how it starts. To give you an actual example, we actually have an investor in the Carolinas who owns several, several boat slips that he bought way back in the 70s for anywhere from $10,000 to $20,000 each. Now today those are worth anywhere from $150,000 to $200,000 each. So he's sitting on quite a nice portfolio. Though he's in his late 60s, he's a very energetic individual as well, loves to travel,

but he also loves being a landlord. He loves being by the water and saying, hey, I developed this. That's pride. It's pride of ownership for a lot of these people, which you kind of think. The curve ball is that he actually just had a child. Yeah.

So he doesn't have as much time as he thought he would to continue to be a landlord. He has to focus on his family So he actually found us through word-of-mouth videos like this for example and just wanted to know what it's all about He knew he wanted to do a 1031 exchange He was on the fence if he wanted to be passive or active preferred to be active Once we started talking about the potential of a DST on the passive side, he was very curious. So he started with one property with us, it's actually his least valuable property to see how it worked. And then he went on vacation. So as soon as the DST closed, and because there's such a quick close, if the timing is correct,

someone can go from receiving rental income or cash flow from their current active investment to not skipping a beat and having that mailbox money in their pocket with the DST. Again, depends on the timing. So that actually happened with him. We shot him a text when he was abroad on his vacation. Hey, just confirming that you received your first payment. Shot us a text back. no problems, I love it. So he actually has plans to do several more with us. He loves

how they worked, how we approached them with him. And he loved just refreshing his app and seeing a couple thousand dollars in there. Yeah, no, I mean, honestly, I think that's what people like, that's what a lot of people want to invest in real estate for that cash flow. They want to make sure that going from investment to investment or investment, you know, active to DSTs that they're still getting that cash flow. And I think that's a great example, you know,

for people to, you know, kind of draw to on, you know, how does it work from a cash flow perspective and not skipping a beat, you know, that's ideal for a lot of people. And the cashflow is actually, there's many benefits of a DST, but the cashflow specifically is one of my favorites because sometimes it can make me look awesome.

And what I mean by that is when I ask someone, hey, what's your cashflow you're receiving? Do you know your yield on your property right now? Nine times out of 10, those people are telling me the gross figure. And when I start talking about expenses that that is covering, we get to the true net, the NOI. So what we see is a lot of people are actually averaging

less than 2% in their cashflow yield. With where the market currently is in DSTs, we know for a fact, net, we are going to get 5%. So in some examples, we can actually not only remove someone's landlord responsibilities and give them a new depreciation schedule to reap tax benefits, but we can actually increase their cash flow. So they go from active to passive, have more money with no responsibilities and a new depreciation schedule so all of that's tax efficient. That's not an extremely common example we see. It's sometimes, but that's one of my favorites.

When I get to give someone a bonus, it's awesome. Yeah. I mean, that to a lot of people, if you can find more cash flow and eliminate the headaches of owning real estate. I mean, that's kind of what it's all about. Absolutely. And, you know, in terms of just real estate and infrastructure in general, I think it's no secret that the U S and maybe the world at this point is a

little bit behind with the energy consumption that we have versus the energy that we need, especially with things like the electric vehicle boom, for example, the AI boom, for example. You know, there's different quantum computing coming out as well. You know, all of these require an amount be an avenue for someone to diversify or go pass it to active, but they can also significantly benefit different sectors or industries that need capital raising that people might not go and buy a stock of a company in because they don't know that company. They can now rely on a sponsor of a DST, multi-billion Fortune 1000 company, to go and do the thinking for them, but also identify

those areas of needs. That's why we're seeing data centers are such a popular Avenue outside of things like oil and gas in in the Delaware statutory trust space. Yeah, I mean, look, I think you bring up like such a phenomenal point. And one of the cool things about doing 1031 and you know, in general is being able to look at your portfolio of assets that you own. Obviously I think there's a huge run up in the Southeast. Now people in the Southeast with hurricane risk, climate risk, fixed cost expenses going up, you could 1031 that obviously into a DSD, into a different sector and a different vertical like AI data

centers, energy, where not only do you have all the benefits of real estate, you actually are part of the next boom in the wave of real growth, real opportunities that are going to reshape our future in the next 10 to 20 years, probably more. And so I think people aren't even aware that those opportunities exist. So thanks for highlighting that. And I think as an investor, that's where we create our own AI tool, right?

Just to kind of streamline the 1031 information, that's a really hot buzzword right now. And I think people, once they understand, they can get exposure to it. That opens up more possibilities from an investment standpoint. Yeah. And I heard a comment actually from a DST sponsor who's in the energy space that our grid right

now is actually very outdated. I think people know that, but I asked him how outdated? What can I put in my mind here? He said, think 1982 is when we stopped developing it. So we are quite a few years behind in terms of the energy consumption that we are needing versus what we can actually create. And also want to comment on the natural disasters. You know, 1031s are certainly something for investment properties or properties for business or trade use, of course. There's

also this concept of 1033 exchanges. So a 1033 exchange, and I wanted to bring this up just due to the amount of natural disasters that we've seen in the last couple of years. 1031s are only for investment properties. 1033s you can actually use in a primary residence if it is, I would say, destroyed due to a federally declared natural disaster. So you can essentially take a primary residence, wash all your taxes, and actually use it as an investment, knowing insurance is going to pay you out to build a new home. We've seen that a few different times.

We don't specialize in 1033s particularly being in the Northeast. We don't have you know many fires or maybe a hurricane that will touch us here and there. Even with the 1031 exchanges we're familiar with, the federal disaster will actually extend that 180-day window by 120 days longer. So people do have flexibilities that I'm not sure they're fully aware of unless they actually go granular with us here. Yeah, no, look, I think, you know, working with an expert that's knowledgeable, that can kind of go through, I think everyone's got a different scenario, right? Like it's very hard to just be vague and vanilla about like what a 1031 is, what a DST is. I think people really want wanna get down to how-

They're very complex. Yeah, how it affects their personal scenario because everyone has a very different tax, tax phases, different real estate portfolio, different desires, different lifestyle things that they want to accomplish or keep it going for their heirs, right? So I think when it comes down to it,

obviously, I think you've done a great job of outlining some of the benefits of DSTs and what people can go into. But also it comes down to having a conversation and reaching out to Kaylin at Asset Strategy and deciding, hey, you know what? I want to learn about this. And I'm sure learning about it is free, right? Yep, plenty of free guys out there. And sometimes when the client approaches us, we educate them.

They'll, of course, bring this back to the person who's actually going to be filing this, which is their CPA or sometimes a tax attorney. What we have actually found is working with those CPAs and attorneys benefits us. Many of them actually don't know these solutions and may actually tell the client to decline exploring the strategy because they themselves aren't aware of the benefits or how it works. Part of our, I would say, differentiator, again, with asset strategy is we will actually request to speak with your CPA as well as your attorney. And we can actually go to the extent of teaching them

as well. We provide CPE classes and credits for CPAs for that exact purpose. So as an advisor, being able to say hey I actually want to speak to your accountant because I can teach your accountant that kind of takes us to the next level and the level of an analysis that we can do. We're not going to get to the exact penny at the end of the day it's the CPA that's going to be doing the filing work but we can

essentially do that heavy lifting for them, educate them and tell them how to file all at the same time. Yeah, I think that's an incredible added value. And I think a lot of people, you know, we're not CPAs. A lot of people ask us tax questions. We always defer to CPAs or tax structuring attorneys when it comes to partnership disputes. But having the ability to have a roster full of individuals that are sophisticated, that are smart, that can help educate

and problem solve together on someone's scenario. I think that's what people really want these days. And working with firms that really understand that is really what I think will move the needle for a lot of people. Absolutely. And one common, I would say, question that I receive from people who are exploring DSTs, or even

when I'm working with a commercial or residential agent, for example. Maybe another advisor is, what's the minimum or what's the maximum of this? The minimum is typically around 100,000 because we are, I would say, friends and friendly with many sponsors. We can typically go a little bit below that minimum. Some people actually feel there is a maximum as well, and there's certainly no maximum. We actually saw the other day, a $100 million 1031 exchange go into a DST, someone looking to exit a very large multifamily in California. Again, still receiving all of those same benefits when they were physically owning the building. they just don't have any responsibilities anymore. So again, has to be an accredited

investor to take advantage of these, but there's nothing necessarily too small or too large to make this happen. No, that's great. And I guess like how, how do people like contact you? Like what's the best way to, you know, for, for people to kind of reach out, schedule a call, you know, find, find, find your information. best way to you know for people to kind of reach out schedule call you know find find your information? Yeah you know the standard call text or email you can go to askthestrategy.com and search our team I have a video up there just giving a brief on my personal and professional background calendar link as well. I also

have several different pieces of content out here we're currently utilizing LinkedIn, Instagram, and YouTube. And my profile and access to my bookings page is on there as well. So don't be shy. Great. No, I think this conversation has been really like, it's been really great to kind of learn more about DSTs even though we deal with them as a QI, like the level of depth and detail that you provided, like I didn't even know a lot of that stuff in terms of seven deadly sins. And I think, I think in general, like it'll be great for people to kind of draw back on when they're doing their due diligence and trying to plan, you know, when they want to start listing

their properties and considering a DST. Absolutely. And happy to have a conversation anytime. Again, we lead as educators, we're not going to charge you anything, but thank you so much for your time today Mike. It was an awesome conversation and you're one of our favorite partners here at Asset Strategy with this type of solution. Awesome, awesome.