1031 Exchange Properties

Helping investors find 1031 DST investments nationwide

What’s the difference between a DST and TIC?

DST & TIC Ownership Structures Explained

1031 Exchange Programs
Finding an individual replacement property within 45 days can be difficult, timing is critical, and no one likes surprises that can delay the exchange and create costly taxable mistakes. A 1031 exchange program provides investors with a choice of replacement properties having professional property managers that work to attempt to meet investment objectives without the hassle of being a landlord. Potential benefits include:

Ability to defer capital gains tax
Preservation of asset value increases “earning power”
Diversification potential across multiple properties

Rather than owning an investment property as an individual, an investor can join a group of investors to invest in a larger replacement property. Two common ownership structures are Delaware Statutory Trusts (DST) and Tenants in Common (TIC), both of which enable investors to:

Own quality retail commercial property
Access larger properties with creditworthy tenants
Obtain pre-arranged financing
Retire from day-to-day property management
Obtain services of professional property managers

Delaware Statutory Trusts

What is a Delaware Statutory Trust
A Delaware Statutory Trust, or DST, is a legal entity created under the laws of the state of Delaware. A DST may be used as the structure to acquire 1031 replacement property but must comply with the requirements of IRS Revenue Ruling 2004-86 in order to provide the potential benefits that investors seek in a 1031 exchange. Each owner has a “beneficial interest” in the DST and for federal income tax purposes is treated as owning an undivided fractional interest in the underlying real estate.

Ideal Property Type for a DST
Due to the restrictions and requirements to qualify, the best attributes for a DST are:

Single-tenant occupancy
Investment-grade tenants
Long-term leases to avoid turnover events
Triple net leases requiring tenants to pay all property expenses

Potential Benefits of the DST Structure
Potential Investor Benefits

Streamlined application and closing process
No personal loan or assumption of debt
Fewer fees and expenses
Shields investor from personal liability
No “rogue” investor concerns
Beneficial interests are more easily transferable
Provides a defined exit strategy or sale date

IRS Requirements for a DST to Qualify as a Replacement Property
In order for a DST beneficial interest to qualify as replacement property in a 1031 exchange, a DST may not have the power to do any of the following actions, which are known as the “seven deadly sins”:
1.  Sell real estate and use the proceeds to acquire new real estate.
2.  Renegotiate an existing lease.
3.  Enter into a new lease.
4.  Renegotiate an existing loan or borrow additional funds.
5.  Accept additional capital contributions from existing investors.
6.  Invest money of the DST in anything other than short-term government obligations.
7.  Make improvements to the real estate other than minor, non-structural modifications and those required by law.

TIC – Tenants in Common

What is Tenancy-In-Common?
In a Tenants in Common (TIC) Program, each investor receives a separate deed evidencing a fractional ownership interest in a larger property. Investors are considered “tenants in common” and typically own their prorated interest in LLCs.

Potential Benefits of the TIC Structure
Potential Investor Benefits

Deeded title for prorated property ownership
Expanded choice of property types
Right to vote on decisions
Fewer investors generally per property than with a DST

Potential Rep and Broker Dealer Benefits

Expanded choice of property types for client
Pre-arranged financing for clients

Differences Between DST & TIC

DST

Investors own “beneficial interests” in DST
No individual assumption of debt
Limits investor liability
Allows up to 500 beneficiaries
One trust without individual LLCs
Trustee or Manager votes – no individual voting
Potential for multi-property ownership

TIC

Investors receive “deeded” fractional ownership interests in property
Each TIC must qualify for loan assumption
Each TIC has a level of personal liability
Limited to 35 investors per program
Each TIC has expense of maintaining individual LLC
Every TIC has right to vote on decisions
Difficult to achieve multi-property ownership