Using a DST 1031 Exchange to Access Hard-to-Reach Real Estate Markets: Strategies for Investing in Properties Outside Your Local Area.

Owners of investment properties typically own only one sort of property in one geographic area. The reasoning behind this strategy is understandable: owners develop expertise in acquiring and managing a specific property type, such as residential rentals or multi-family properties, and want the properties to be within commuting distance of their house. The problem with this strategy is that it introduces "concentration risk."

Most owners' goals eventually move toward capital protection and stable, predictable income potential. When this objective shift occurs, transitioning concentrated assets into a widely diversified replacement property portfolio is worth considering. While diversification does not ensure returns, it can provide downside protection as various property types and geographic markets trend differently throughout market cycles.

And one of the surefire ways to achieve real estate portfolio diversification and access to diverse real estate markets is through investment in the DST 1031 Exchange.

What is a DST 1031 Exchange?

A DST 1031 Exchange enables savvy investors to do 1031 exchange into “fractional ownership” of high-quality institutional real estate. One of the primary advantages of DSTs is the comparatively low minimum investment requirement, typically $100,000 of equity for each offering.

The cheap minimums provide exchangers with unprecedented access to diversification. An exchanger can effectively design a portfolio of replacement properties across various property types and markets - a REIT if you will. Did you know some DSTs operate as stepping-stones into multi-billion dollar REITs with hundreds of properties?

What are the Benefits of a DST 1031 Exchange?

A DST 1031 Exchange offers a range of benefits for real estate investors. Here are some of the key benefits to consider:

1. Tax Deferral: One of the main benefits of a DST 1031 Exchange is the ability to defer capital gains taxes on the sale of an investment property. This means that the investor can reinvest their proceeds into a new property without paying taxes on the gain from the sale. This can help to increase the investor’s purchasing power and provide a higher return on investment over time.

2. Diversification: Another benefit of a DST 1031 Exchange is the ability to diversify your real estate holdings. Rather than owning a single property, investors can purchase fractional interests in multiple properties. This can spread the risk and potentially increase returns over time.

3. Professional Management: When investing in a DST, the property is typically managed by a professional asset management company. This can help to mitigate the day-to-day responsibilities of property ownership, including maintenance, leasing, and tenant management. As a result, investors can enjoy passive income without the stress of managing the property themselves.

4. Access to Institutional-Grade Properties: DSTs typically invest in larger, institutional-grade properties that may be out of reach for individual investors. This can provide access to high-quality assets that may generate higher returns over time.

5. Estate Planning: DSTs can also be used as part of an estate planning strategy. By exchanging a property into a DST, investors can defer capital gains, receive non-recourse debt replacement, and a step-up in basis.

How DST 1031 Exchange Allows for Access to Hard-to-Reach Markets

The DST 1031 Exchange is a solution for accredited investors who want to hedge against market volatility by exchanging a single property for a diversified collection of passive real estate. DSTs enable investors to control concentration risk by purchasing high-quality real estate across the United States.

A 1031 Exchange investor, for example, could diversify by selling a single property and then buying a portion of a Walgreens in Dallas, a piece of a 200-unit apartment building in Raleigh, and a piece of a $50 million medical facility in Phoenix. Regarding your stock portfolio, advisors always promote diversification; why should real estate be any different?

So, while you may currently own a residential rental property and be thinking of exchanging it for a similar property, DST sponsors offer you the ability to have fractional ownership in many different property types, including:

• Multi-Family Apartment Buildings
• Single-Tenant Net Lease Retail Properties
• Medical Office Buildings
• Self-Storage Properties
• Student Housing Properties
• Industrial Distribution Centers
• Commercial Property
• Hospitality Properties

Since DST investors own a ‘fractional interest’ in a property, you may be able to invest in much larger, institutional-quality property than you would with a 1031 Exchange. And finally, DST sponsors offer properties throughout the United States, giving you options to own in areas that may have more robust economic fundamentals than others at this moment in time.

Also, most DST investments are more substantial institutional-grade properties with long-term leases and higher occupancy rates. These assets' size, value, and quality also garnish lower loan interest rates for major banks, lenders, and agencies. In today’s market, it is common to see returns on equity invested in the 5% range.

However, it is essential to understand that every real estate investment presents uncertainty. Net lease properties tend to be susceptible to interest rate risk as they behave much more like bonds because they are primarily valued on the competitiveness of their remaining income stream compared to other income-focused investments. Likewise, annual lease properties, such as apartment buildings, may be much quicker to react to economic slow-downs due to the properties’ shorter lease duration.

Significant diversification is a unique feature of Delaware Statutory Trusts, but there is no “one-size fits all” portfolio for all investors considering an exchange. If you want to learn more about whether DSTs are a suitable replacement property option based on your objectives, please get in touch with us at Sera Capital for a complimentary 30-minute consultation. We'll discuss the pros and cons, guide you through the timing of your exit, and coordinate DST 1031 Exchanges into your financial planning.

Opportunity Zones are a relatively new concept investors have been exploring to meet their financial goals. But what are some of the requirements of Opportunity Zone investments? Let’s find out.

Benefits of Opportunity Zone Investments

There are many beneficial reasons that investors choose Opportunity Zones. First, they provide tax deferral from capital gains. As such, investors can use existing assets with accumulated capital in Opportunity Funds, which won’t get taxed until 2026. Secondly, Opportunity Zones provide a step-up basis, allowing investors to increase the deferment percentage the longer investors hold onto their Opportunity Zone funds.

Additionally, once investors reach their tenth year of holding their investments, they receive a permanent exclusion of their taxable income on new gains. As a result, investors don’t pay taxes on capital gains from their Opportunity Zone investments.

What Are the Opportunity Zones Requirements?

Despite their many positives, Opportunity Zones have specific requirements that must get met. Firstly, Opportunity Zones funds are investment vehicles and must get filed as corporation deferral income tax returns or partnerships organized for investing in OZ properties. Investors must file Form 8896 from the IRS to create a quality opportunity fund. As such, OZ funds must have at least 90 percent of their assets invested in businesses located in Qualified Opportunity Zones.

Furthermore, to qualify for capital gains tax deferment, the investor must invest in an Opportunity Fund within 180 days of the asset sale. As an Opportunity Zone receives investor funds, they must only remain held for up to six months before investing in an Opportunity Zone.

Opportunity Zone Investment Considerations

Before making Opportunity Zone investments, it’s necessary to consider potential risks. The primary purpose of Opportunity Zones is to help promote underdeveloped markets with assets. Because it’s a particularly new concept, Opportunity Zones operate as long-term investments that must meet contractual obligations. Furthermore, these investments must provide capital—if obligations aren’t satisfied, they could have adverse consequences, including forfeiture of interest.

Opportunity Zones have comparatively higher risks compared to various investment methods. Because of its short operation history, investment returns, property appreciation, resale opportunities, or returns aren’t always guaranteed. Investors must understand that their investments can lose value over time, limiting liquidity options and being in a secondary market.

Sera Capital offers its clients exceptional investment services and advice for reaching their financial goals. Our Opportunity Zone investment specialists help guide and educate investors in investing in low-income areas throughout the United States. For more information on our Opportunity Zone investment services and questions, contact us at Sera Capital today.

Navigating the Legal Landscape of Opportunity Zone Funds: What You Need to Know

"Opportunity Zones," a new economic development tool designed to spur investment in low-income regions, has piqued the interest of investors, developers, and company owners alike. The Opportunity Zone Program arose as part of a bipartisan effort to entice private investors to invest in low-income communities that would otherwise rely on grants or investments from non-profit organizations, federal, state, or local governments, to spur growth.

The Opportunity Zone Program attracts private capital to Opportunity Zones by extending tax benefits to investors in “Qualified Opportunity Funds,” which, in turn, invest in projects or businesses located in these zones. The incentive is not limited to real estate investments. Instead, businesses that deploy capital and operate in Opportunity Zones can benefit from this incentive.

This article briefly overviews the legal aspects of the QOZ and QOF and looks at some of the statute's requirements and proposed regulations.

A Background of the Basic Rules of Opportunity Zone Fund

Gain Deferral

Under the Opportunity Zone Program, taxpayers defer recognizing capital gains if they make an equity investment in a Qualified Opportunity Fund within 180 days of when such gains would otherwise be recognized. The initial deferral does not last forever.

Once the fund equity interest is sold, or on December 31, 2026, whichever is earlier, the investor pays tax on the lesser of (i) the deferred capital gain or (ii) the fair market value of the Qualified Opportunity zone property less its tax basis. This basis initially equals zero, but after five years, it increases by 10% of the capital gain deferred, and after seven years, it increases another 5%. As a result, taxpayers may permanently exclude up to 15% of capital gains invested in a Qualified Opportunity Fund, provided they acquire their fund interest before December 31, 2019. Unfortunately, this is no longer applicable.

After ten years, the tax basis in the Qualified Opportunity Fund investment equals its fair market value on the date it is sold, such that there is no taxable gain on the sale. Thus, taxpayers may avoid tax on any post-acquisition appreciation of the fund investment. The existing Opportunity Zone designations expire on December 31, 2028. Nevertheless, taxpayers investing in a Qualified Opportunity Fund on or before that deadline can benefit from the 10-year basis step-up until December 31, 2047.

Eligible Gain

According to the proposed regulations, the qualified gain is any gain classified as a capital gain for federal income tax purposes. Thus, the qualifying gain should include long-term capital gain, short-term capital gain, Code Section 1231 gain, and unrecaptured Code Section 1250 gain. Gains considered as ordinary income, such as depreciation recapture above straight-line depreciation under Code Sections 1245 or 1250, should not be eligible for deferral under Code Sections 1400Z-1 and 1400Z-2. Primary residences are excluded as well.

Eligible Interests

The investment must take the form of an equity stake. Preferred stock and partnership interests with unique allocations are permissible. Be aware that debt instruments do not qualify.

Eligible Taxpayers

The proposed regulations and preamble to it provide that taxpayers eligible to defer gain are any persons that may recognize capital gain, including (1) individuals; (2) C corporations, including real estate investment trusts and regulated investment companies; (3) partnerships; (4) S corporations; (5) trusts; (6) estates; and (7) certain other pass-through entities, including common trust funds, qualified settlement funds, disputed ownership funds, and other entities taxable under Section 1.468B of the Income Tax Regulations. So that you know, you must be an accredited investor to participate in an Opportunity Zone Fund investment.

Pass-Through Entities

Under the proposed regulations, partnerships can defer gain by making the election. Suppose a partnership does not make the election. In that case, each partner can elect to the extent of their distributive share of qualifying gain (provided the sale or exchange was not with a person related to the partner).

If the partnership makes the election, the 180-day period begins with the date of the sale or exchange. If the partner makes the election, the 180-day period begins on the last day of the partnership’s taxable year. A partner may, however, elect to start the 180 days on the date of the sale or exchange. These rules apply to other pass-through entities, including S corporations, trusts, and estates. Thus, owners and beneficiaries of pass-through entities have an expanded range of dates.

Subsequent Reinvestment

Taxpayers may defer gain on the sale or exchange of a QOF investment if they reinvest the proceeds in a new QOF investment within 180 days of the sale or exchange of the initial QOF investment. As you know, a complete disposition of the original QOF investment is required to reinvest the funds in a new QOF investment and obtain the benefits of continued deferral.

90% Test

Testing for the 90% requirement is done by measuring the QOF’s assets on two dates: (1) the last day of the first 6-month period of the fund’s existence as a QOF; and (2) the last day of the fund’s taxable year. According to the proposed regulations' preamble, if a calendar-year QOF chooses a month after June as its first month as a QOF, then the only testing date for the taxable year is the last day of the QOF’s taxable year.

A QOF’s failure to meet the test will result in a monthly penalty on the amount by which 90% of the QOF’s assets exceeds the amount of QOF property held by the fund. The penalty rate is the underpayment rate under Code Section 6621(a)(2) (currently 6%).

QOF Formation and Certification Mechanics

QOFs may self-certify using Form 8996, a draft instructions form on the IRS’s website. The Form 8996 must be attached to the entity's tax return, including extensions. The entity must identify the first month it wishes to be considered a QOF, which can be other than the month it is formed. The same form is expected to be used for annual compliance reporting.

According to the draft Form 8996 and instructions, the organizational documents must state that the entity's purpose is to invest in QOZP and describe the business or businesses it expects to engage (directly or indirectly).

Closing Thoughts

The Opportunity Zone program offers a compelling tax incentive for high-net-worth investors. That said, the program is not without its risks. Chief among these risks is a potential for conflicts of interest, regulatory uncertainty, and distorted pricing. While these complexities are addressable, they require a thoughtful and measured approach.

If you have an eligible gain and want to learn more about how opportunity zone funds work, please get in touch with us at Sera Capital for a complimentary 30-minute consultation.

Strategies for Finding the Best Opportunity Zone Funds

Are you hoping to invest in a Qualified Opportunity Fund or QOF to defer capital gains taxes? These funds are a great way to improve your community and help others around you while reaping tax benefits. However, it can be difficult to decide where to direct their assets. While you could browse the national database and choose one local, it may not be the best financial decision. The team at Sera Capital is here to help our United States clients choose the most promising Opportunity Zone Funds. Here are our tips for making the right decision for your finances.

Opportunity Zones (as defined by the Internal Revenue Service) offer investors the ability to help underdeveloped areas and revitalize communities in need.

Know the Basics of an Opportunity Zone Fund

Qualified Opportunity Funds (QOFs) are partnerships between public and private entities that give investors tax breaks for investing in economically distressed regions. These long-term real estate investments create a win/win situation—the investor pays less in taxes while less-fortunate communities get an injection of funds. Each governor creates Qualified Opportunity Zones hoping that additional assets will help spur economic development and job creation in struggling areas (you can reference each state's hud opportunity zones map).

Solidify a Fund Strategy

First and foremost, we advise having a specific strategy for how you plan to choose and invest in QOZs. Before investing, please take a look at the Opportunity Zone Fund's objectives and approaches. You want something that can communicate a clear, focused strategy for how they plan to reach their goals.

Don't Be Afraid to Diversify

The most successful Qualified Opportunity Funds tend to have diverse goals. The general wisdom is that diversification minimizes risk, which is true when investing in QOZs. Prioritize funds that diversify their goals across different investment types and geographical areas. Look most closely at opportunity zones in fast-growing urban areas that are most likely to have lots of variety. In addition to this, make sure the Fund Sponsor has a history of raising capital, >$250mm is a good start.

Look for Transparent Fee Structures

As you further consider your options for real estate investment, remember to look at fee structures. The best Opportunity Zone Funds will have fair and transparent fee structures. If you need help with the fine print, we will help guide you through the many options. Here's our advice on where to cap fees and commissions:

• Fundraising commissions shouldn't top 5% (Sera Capital waives all commissions)

• Performance fees likely don't need to be more than 25%

• Annual asset management fees over 2% are probably too much

Consider Your Community

Community involvement can be a big motivator for investors looking into Opportunity Zone Funds. While looking into these sustainable investing options, consider what communities can most benefit from your contribution. Look at leadership in these communities and decide whether their goals align with yours. Perhaps your hometown is struggling with job loss. Remember the human side of investing!

Reap the Benefits

In addition to helping in-need communities across the United States, QOZs offer investors three tax benefits. Our team can help you better understand the following advantages of investment:

• Temporary tax deferral

• Step-up in basis for capital gains reinvested in QOZs

• Permanent exclusions from taxable capital gains

Work With a Seasoned Investment Advisor

Whether you're looking into opportunity zones, estate planning strategies, or passive income approaches, let Sera Capital lend a helping hand. Our experienced investment advisors will look at your unique situation and help you choose the right approach for your needs. We've gone through the Opportunity Zone Fund Directory and we have our favorites.

Please contact us today to learn more about your options and how Opportunity Zone Funds can help you defer capital gains taxes today.

Leave Your Investments to Charity With a DST

Leaving a legacy is a big deal to many people. It's heartening to think about how people will celebrate us, even after we're gone. One significant aspect of leaving a legacy is donating to charity. Many people make charitable giving part of their wills and bequest funds to their favorite organization. Even if your assets are all tied up in real estate, there's still a way to give to charity through a DST. These trusts allow people to make their real estate investments a pivotal part of their estate planning and donate to a good cause at the end of the day. The team at Sera Capital is skilled in helping clients nationwide navigate this process with ease. You can learn more about how DSTs can be a route to charitable giving.

The Basics of Working With a Delaware Statutory Trust

In short, a Delaware Statutory Trust (DST) is a type of 1031 exchange investment property that allows investors to defer taxes on their real estate investments by exchanging one property for another. Using this strategy, investors can reduce capital gains taxes significantly while setting up a lasting legacy. Here's how we recommend using a DST to give to charity:

Step 1

First, investors will want to set up a DST that results in passive income. The investor typically doesn't have much say in the running of the property but still receives income from rent payments. They have no landlord responsibilities and avoid the complications of owning a property in the traditional sense. While making passive income, they also benefit from tax deferrals, including the following:

• State capital gains

• Federal capital gains

• Medicare tax

• Depreciation recapture

Step 2

Next, the investor transfers 50% of the property's undivided interest into a Charitable Remainder Trust (CRT). This is a type of irrevocable trust that, upon expiration, distributes remaining assets to charities designated by the investor. CRTs also result in charitable income tax deductions that reduce the investor's taxes in the year of the gift and up to five years afterward. Think of this as gifting stock to a charity of your choice.

Step 3

The final step is to transfer another 10% of the undivided interest into a Donor Advised Fund. This charitable giving approach doesn't give the investor any income but allows a portion of the property to be sold tax-free. Donor Advised Funds are a great way to donate to charity automatically while still keeping funds invested for your heirs, grandchildren, and children.

The Result

The result of using a DST to enhance charitable giving is twofold. First, investors can feel good about helping out a good cause, and that organization can use funds to further its mission. What's more, DSTs mean the investor's heirs have access to assets without paying excessive capital gains taxes. Everyone benefits in the end.

Other Ways to Benefit From a DST

While here we focused on real estate investments and charitable donations, there are many other ways to benefit from DSTs. Including a DST in your estate planning can bring the following advantages:

• Minimize capital gains tax

• Eliminate disagreements between heirs

• Promote flexible distribution of assets to heirs

• Avoid the stress of property management

• Save time and spend it doing what you love

Make DSTs Part of Your Estate Planning

Including a DST in your estate planning is an excellent way to minimize your taxes and support your philanthropic goals. However, navigating the process can be challenging. Be sure to talk to one of our seasoned advisors at Sera Capital. We're experienced in helping clients across the United States maximize their legacy to their heirs and to charity.

Please reach out to us today to get started.

Investing in Opportunity Zones can revitalize economically compromised areas and communities. These private or public partnerships allow the government to incentivize eager investors to sell their appreciated assets. Let’s review the benefits of Opportunity Zone investments.

What Is an Opportunity Zone?

Opportunity Zones originated from the Tax Cuts and Jobs Act of 2017. They are economic development tools assisting clients in investing in distressed or low-income areas within the United States and other US-owned territories. Additionally, Opportunity Zone funds aid investors in deferring capital gains taxes from investments until December 31, 2026.

Investors have a 180-day timeline for investing eligible gains and financing Qualified Opportunity Zone Fund-eligible gain amounts to qualify for tax incentives. The first 180 days permit gains to be recognized for income tax if they are unelected for deferment. After five years of holding, their Opportunity Zone investment increases gains deferment by 10 percent. It increases an additional five percent after the seven-year mark, then becomes permanently excluded after reaching the 10-year holding mark.

What Are the Benefits of Opportunity Zones?

Three tax benefits come with Opportunity Zones: step-up in basis, temporary deferral, and permanent exclusion. As previously mentioned, permanent taxable income exclusion for capital gains on exchanges or sales of an Opportunity Zone investment if held for 10 years. However, this occurs toward gains accrued after making an Opportunity Zone investment.

Opportunity Zones can create temporary taxable income capital gains deferment. The deferrable gains should become recognized before being disposed of or before December 31, 2026. Lastly, a step-up in basis creates gradual increases in exclusion after a certain holding period.

Choosing the Right Qualified Opportunity Zone

Choosing the right Opportunity Zone investment depends on the qualifications. These include developing and upgrading vacant homes for single-use family rental facilities or redevelopment of abandoned properties for residential qualify for Opportunity Zone investment. New commercial constructions, such as multi-family, business, and other developing properties, also qualify.

Sera Capital can help individuals find the right Opportunity Zone funds for investing purposes. We specialize as a fee-only fiduciary to grow businesses and offer financial management services, advice, and education. Our Opportunity Zone consultants provide solutions to business investors and highly-appreciated stock owners in deferring capital gains tax. Contact us today with any questions about our Opportunity Zone services.

DSTs Compared With Other Passive Real Estate Investments

As we age, most of us want to spend time with family and friends, making memories together. With this in mind, it makes sense that retirees no longer wish to manage their real estate portfolios actively. Luckily, with Sera Capital on your side, there are plenty of ways to make the most of your property without being too hands-on. Our team serves clients across the United States, helping them compare the benefits of numerous passive real estate investment options. Learn more about how DST investments stack up against other capital management strategies.

An Overview of DST Investments

A Delaware statutory trust (DST) offers a way for passive investors to obtain fractional ownership of high quality, professionally managed property. In brief, several investors can combine their funds, along with a sponsor, to invest in a DST. The DST becomes a legal entity that comes with limited liability and meets the requirements for a 1031 exchange. Because the investor doesn't have direct ownership, they aren't required to engage in active management duties, such as hiring employees or contracting maintenance workers. Yet, they earn the tax benefits of investing in real estate. Here are the two primary ways to invest in a DST:

• Direct Cash Investment: If you're interested in a DST, you can participate by simply investing cash directly into the trust. We seldom see this done, however.

• 1031 Exchange: Many individuals working on estate planning choose a 1031 exchange with a DST. This process allows an investor to retain ownership but take on a passive role in management and diversify their real estate portfolio. The #1 reason why people do this is for tax deferral purposes. 1031 Exchanges exist to defer capital gains tax.

How Investors Benefit from DSTs

DSTs are an excellent way to make passive monthly income, but investors choose this option for other reasons. Savvy investors take full advantage of their DSTs and enjoy the following benefits, among others:

• Reduce risk associated with investing in just one property time

• Increase income potential

• Ability to upgrade to better property types

• Create generational wealth

• Better liquidity

• No in-depth knowledge is required

• Save time on business and spend time with family

• Have fun investing in a variety of properties

How Delaware Statutory Trusts Stack Up

As you narrow down your options for passive real estate investments, it's essential to understand how DSTs stack up against similar possibilities. However, many of these wealth management strategies are complex and require the help of a professional to ensure proper procedures. But never fear—Sera Capital is here to help you reach your financial goals using DSTs or several other methods. Here's how Delaware Statutory Trusts compare with other passive investments:

REITs

Real estate investment trusts (REITs) are companies that act as trusts, investing in a variety of real estate properties and paying out dividends to shareholders. Investors get fractional ownership, just like in a DST, but REITs and DSTs aren't interchangeable. Unlike REITs, DSTs are only available to accredited investors that meet income and net worth requirements. Moreover, REITs can be publicly traded; anyone meeting the requirements and with a brokerage account can buy and sell. Here are some more differences between REITs and DSTs:

• Objectives: Investors with short-term financial goals may benefit most from a REIT. These investments can generate significant income in just the first week. In contrast, DSTs are more of a long-term investment for those hoping to spread out their profits.
• Involvement: These passive investment options require very little investor involvement. Nevertheless, we encourage investors to stay updated on management decisions.
• Costs: REITs come with a much lower transaction cost. You may only need to pay a small commission fee and other minor charges. DSTs often come in much higher, with origination, disposition, and annual management charges. However, by purchasing DSTs through a Registered Investment Advisor like Sera Capital, you can reduce these costs greatly.
• Minimum Investments: To invest in a REIT, an investor must purchase at least one share. Depending on the REIT, this may be less than $100. On the other hand, DSTs often require a minimum of $25,000 per transaction.
• Time Commitment: There is no hard and fast time commitment with REITs. Depending on the investor's needs, they can be held for a long or short time. However, investing in a DST usually requires a five-to-ten-year commitment where the investor doesn't have access to their capital.
• Tax Benefits: Both REITs and DSTs come with certain tax benefits. REITs are taxed at the investor level and aren't double-taxed, which minimizes the overall tax burden. DSTs allow investors to defer taxes on the sale of a property, which in theory, can continue indefinitely.
• Liquidity: Because publicly-traded REITs behave like stocks, they're liquid all day during trading hours. With DSTs, liquidity is limited to when the DST sponsor sells the property.

Crowdfunding

Crowdfunding is everywhere nowadays—people crowdfund everything from events to art projects. When done correctly, this investment technique can create passive income from real estate properties. Investors who engage in crowdfunding purchase a property with the help of other investors, and many times, people can pool funds to invest in mortgage loans anywhere in the United States.

Remote Ownership

Investors with remote ownership have a little more control over their properties while still earning passive income. This strategy allows investors to own their property and hire an on-site property manager to oversee day-to-day activities. The investor typically has closer watch over the manager and can directly influence how a property is run. Remote ownership can work in several different ways, including:

• Investor visits the property often to check on management

• Investor takes a hands-off approach and allows management to make most decisions

• Investor lives out of state and oversees property virtually

Real Estate Funds

Real estate funds are mutual funds that invest in public real estate securities. These are long-term investments and tend to be diverse. Whereas some REITs may only invest in commercial properties, real estate funds usually include a mix of residential, commercial, special use, and more. These funds provide passive income through appreciation, not dividends.

Which Investment Type Is Best?

Every investor is different, and everyone will need an individualized approach to investing in passive income sources. While DSTs may be best for someone doing estate planning and writing their legacy, REITs may do the trick for an investor who wants to generate income rather quickly. Talking to a professional about the best way to manage your unique situation is essential. Sera Capital offers many wealth management solutions to help our clients make the most of their investments. We offer advising for all of the following in addition to DSTs:

• Exit Planning
• 721 Exchanges - where you can 1031 exchange into a DST -that is later purchased by a REIT.
• Opportunity Zone Funds
• Deferred Sales Trusts
• Wealth management

Talk to Our Registered Investment Advisors Today

Selecting the right passive investment approach can be daunting. Many solutions have lots of guidelines, and it can be challenging to sort through them all. Fortunately, Sera Capital is on your side. Our investment advisors will walk you through your options and help you decide on the approach that makes the most sense for you. Get started today.

When a 1031 exchange fails, it may seem like the world has ended. But don't despair! There are ways to save a 1031 exchange. The Deferred Sales Trust, often confused with the Delaware Statutory Trust (DST), is a common option for salvaging a failed 1031 exchange. In this post, we will discuss how several tax deferral strategies can help you rescue a failed 1031 real estate exchange (including Delaware Statutory Trusts).

Reasons Why 1031 Exchange Fail

Below are several reasons why your 1031 exchange may fail.

Timelines

We’ve previously discussed 1031 identification rules. Taxpayers have 45 days to find a new property. This 45-day clock starts at midnight following the close of their relinquished property. The 45-day clock encompasses 45 calendar days, including weekends and holidays. According to Treasury Regulations, a party to the exchange must witness the identification before the end of the 45th day. As bizarre as it may sound, failure to identify within 45 days is arguably the most common reason for failure.

Failure to Comply with the Receipt Requirements

To receive replacement property correctly, taxpayers must follow the receipt requirement stipulated by the Treasury Regulations. The property acquired must be substantially the same as the item designated under Section 1031(d)(1)(ii). This criterion appears to be simple to meet. The taxpayer must purchase and acquire the exact property that was formally recognized before the 45-day deadline.

Complying with this criterion in standard, delayed transactions are usually relatively straightforward. However, complying with this requirement in improvement exchanges is more complicated. Section IRC 1031(e)(2) specifies particular criteria for identifying a property in improvement transactions. Furthermore, Section 1031(e)(3) specifies special receipt requirements for such property.

Substantially the Same

The "substantially the same" condition includes the property's fair market value. This means that the value of the receiving property must be close to that of the designated item. For improved property, the fair market value at the time of identification is the estimated value at completion. We can understand how subjectivity might arise in such scenarios and how the IRS may argue that a specific valuation is incorrect.

Assume a taxpayer believes a property will be worth $1 million when completed. However, the taxpayer only spends $600,000 on the property. Furthermore, the finished property includes all the improvements mentioned in the identification. In this case, the property acquired would differ from the indicated property. Upon review, the IRS would almost definitely cancel the transaction. This type of issue occurs frequently in improvement exchanges.

How to Save a 1031 Exchange

The first thing you want to do is take all the necessary precautions to avoid a failed 1031 exchange in the first place. I think the best way to do that is to begin preparations for your 1031 exchange well in advance and to involve a qualified intermediary early in the process. And if you’re having difficulties identifying a replacement property within the stipulated timeline, the following methods can help you find a replacement property easily.

Deferred Sales Trust

In a 1031 or 721 transaction, the investor's sale proceeds from the disposal of an asset are sent to a qualified intermediary (QI). The QI holds these proceeds for the investor to complete the investor's tax-deferred exchange. Suppose the exchange fails and the funds cannot be reinvested into a property by IRS requirements. In that case, the monies held at the QI are subject to capital gains and depreciation recapture taxes once released to the investor.

The Deferred Sales Trust solves this difficulty by transferring funds to a trust rather than the investor. The investor avoids taking constructive receipt of the funds and incurring capital gains and depreciation recapture taxes. The investor and the Trustee can construct the investment contract to either defer payments for a length of time or to pay the Seller periodic installments that suit the Seller's goals and objectives as a manner of effectively deferring taxes over the installment contract.

The DST Trustee may invest in REITs, bonds, annuities, securities, or other "prudent investments" that will assist the asset in repaying the Seller Asset/Taxpayer by the retained installment sales note. This provides the investor with the most flexibility and is worth a discussion.

Delaware Statutory Trust

A DST is a fractional ownership structure that investors can utilize in a 1031 tax-deferred transaction. DSTs have become an alternate vehicle for investors performing a tax-deferred exchange since 2004 when the IRS issued a favorable judgment allowing them to be used in 1031 exchanges.

Instead of directly owning a property, the investor owns a fractional stake in one that is institutionally managed by a sponsor. The investor plays a passive role in the property, while the sponsor conducts landlord duties and other property management activities. These sponsors are often significant real estate operators, some of whom control multibillion-dollar publicly traded real estate investment trusts (REITs). DSTs provide heirs with a step-up in basis. 721 DSTs are the lowest cost DSTs on the market, but once you're in the REIT, your accounting bill will most likely go up.

Furthermore, the closing process of a DST can be relatively quick, making a DST investment particularly appealing for investors nearing the end of the IRS 1031 tax deferred exchange replacement property identification time limits. If you're still in your 45 Day 1031 exchange identification timeline, you'll want to schedule a 30-minute call sooner rather than later.

Opportunity Zone Funds

Real estate investors could postpone paying capital gains tax for many years by completing a tax-deferred exchange. While this is still true, Opportunity Zone investments may now be a viable alternative for 1031 investors.

According to the IRS, a Qualified Opportunity Zone is a "...economically distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment." Localities qualify as QOZs if they have been nominated by a state, the District of Columbia, or a U.S. territory and that nomination has been approved by the Secretary of the United States Treasury through his delegation of authority to the Internal Revenue Service (IRS)."

In December of 2017, the Tax Cuts and Jobs Act was signed into law and incorporated Opportunity Zones into the tax code. As part of this act, investors were rewarded with a significant tax break for sending capital to Qualified Opportunity Zones in need.

So, if an investor realizes a gain on sale from a previous investment (whether a business or real estate) and directs their capital to a QOF, and holds that investment for more than ten years, they may be able to eliminate the original capital gains tax bill, which even a 1031 Like-Kind Exchange does not provide.

Save Your 1031 Exchange Today

Which of these 1031 exchange alternatives appeals to you? Every case is specific, so it’s best to consult a professional who can recommend the best 1031 exchange options based on your unique situation.

Contact us at Sera Capital for an introductory 30-minute call for expert guidance.

 

Using a DST 1031 for Estate Planning

As you create an estate plan, you'll likely run into some bumps in the road. Taxes are one of the biggest challenges in capital management during the estate planning process. Fortunately, Sera Capital is here to guide you through the choppy waters. We often recommend a technique known as a 1031 exchange to put off paying real estate taxes and pass the maximum amount of assets on to your heirs without massive taxation. Our services are available to clients nationwide, so if you'd like to learn more about using a DST 1031 exchange, feel free to contact our registered investment advisors.

What Is a Delaware Statutory Trust?

A Delaware Statutory Trust is a legal entity that allows investors to own undivided fractional ownership interests in multiple properties and meets the requirements for a 1031 exchange. In turn, a 1031 exchange is a tax break involving swapping one real estate investment property for another. This capital management technique allows investors to defer capital gains taxes and pass on their property without crippling taxes. Theoretically, an investor could roll over gains from one piece of real estate to another indefinitely and avoid paying taxes until the property is sold for cash. 1031 exchanges are pivotal in estate planning and could leave your beneficiaries in a much better financial situation once your assets have been disbursed.

Guidelines for Using a 1031 Exchange

Section 1031 of the IRS tax code doesn't allow for DST 1031 exchange in every instance. Investors must meet various requirements to ensure their property avoids capital gains taxes. Firstly, the exchange must involve "like-kind" properties. The IRS broadly defines what can constitute like-kind, but generally, any property held for business or investment purposes can be labeled as such. Other guidelines for using a 1031 exchange for real estate include the following:

• Funds from the sale of the property must be held in escrow by a third party before being used to buy a new property

• The investor cannot temporarily receive proceeds from a sale

• Limited use for vacation properties

• May apply to a former primary residence, but only under specific conditions

• No limit on how often an investor can do 1031 exchanges

• Depreciable property has particular guidelines

Ways You Can Benefit from a DST Exchange

In addition to reducing taxes, for the time being, there are numerous ways you can benefit from incorporating a 1031 exchange into your estate planning. These benefits mean more potential income and less hassle for your family after you're no longer around. Be sure to consider these advantages of a 1031 exchange as you work with our capital management professionals:

Increase Income

Depending on the type of real estate you own, you can use it to create an income source. Exchanging one property for another opens many doors to increasing that income and acquiring higher-value properties over time.

Reduce Risk on Real Estate Investments

Real estate investing has a high barrier to entry. After all, property costs are skyrocketing in many parts of the country. As a result, many investors focus on the same city or invest only in one property type. Choosing a 1031 exchange and a DST means a greater ability to diversify investments, reducing risk if one type of property loses value. Diversification is important because:

• It may earn higher returns

• It could create better investment opportunities in the future

• It's more fun to have a range of properties in your portfolio than just a few

• It preserves capital in the long run (especially important for estate planning!)

Minimize Time Spent on Property Management

Maybe property management is a topic of interest for you, but most would rather focus their retirement on something more exciting. When you opt for a 1031 exchange, it's much easier to transition from an actively-managed property and landlord responsibilities into something that creates a more passive income.

Get a Better Location

Perhaps your investment property isn't in the best area, affecting its overall value and income potential. You may be able to use a DST 1031 exchange to upgrade to a better location with lower taxes and higher population growth.

Choose a More Beneficial Property Type

Not all real estate is created equal. In some cases, exchanging one property for another may make financial sense. Perhaps your region is experiencing a downturn in restaurant-going. In that case, you may want to swap a restaurant investment property for something with more robust market growth. Many of our clients across the United States choose to diversify their real estate portfolios with these property types:

• Residential (apartment buildings, condos)

• Commercial (retail establishments, restaurants)

• Industrial (warehouses, plants)

• Raw land (undeveloped property, farms)

• Special use (libraries, parks, public buildings)

Create Generational Wealth

Creating generational wealth through capital appreciation is the ultimate goal for many people in the estate planning process. Choosing a 1031 exchange with a DST is a great way to preserve your assets and ensure they're available to your designated heirs. If you go for a DST instead of a traditional 1031 exchange, you can benefit more since each heir can decide whether to maintain their share of the 1031 exchange cycle or cash out. This system could reduce or eliminate disputes between heirs along with a step-up in cost basis.

Understanding the 1031 Exchange Timeline

Whether you choose a DST or traditional 1031 exchange, you'll need to consider the timeline of this estate planning tool. Most exchanges are delayed, which makes sense, considering it's difficult to find the exact property you want with a property owner who wants your current real estate. Delayed exchanges typically come in two varieties, 45-day, and 180-day. Here are the basics to know about each timing rule:

45-Day Rule

Under this rule, you have 45 days following the sale of your property to designate a replacement property in writing. You'll need to specify which property you'd like to buy, and any cash you receive from the sale of your property must go to an intermediary. If you receive any payment, you no longer meet the guidelines of a 1031 exchange. Per the IRS, you can designate up to three properties as long as you close on one of them.

180-Day Rule

The second rule states that you must close on a new property within 180 of selling your property. Just to let you know, the 45 days discussed above run concurrently with the 180 days. Our registered investment advisors can help guide you through this often-confusing process.

Don't Forget to Think About Potential Risk

Few things in life come without risk, especially those pertaining to investments and money. Wealth management is a complicated process and often requires lots of guidance to make beneficial decisions. When you choose the team at Sera Capital, we'll walk you through the benefits and ensure you understand the potential risks. There are two primary risks we explain to our clients:

• Liquidity: Real estate is not a liquid asset, which means some investors may not feel secure about keeping their money tied up there. We always recommend that our clients have enough liquid assets to cover emergency costs, such as medical bills and home repairs.

• Complexity: Navigating a complex process can be risky. If the investor doesn't complete the 1031 exchange correctly, they might be on the hook for more fees and taxes. Thankfully, our advisors are here to mitigate this type of risk.

Get in Touch With Sera Capital

You don't have to deal with estate planning and capital management alone! The team at Sera Capital is here to help you better understand the complexities of the DST structure and 1031 exchanges. Preparing for retirement can be challenging, but we try to create a seamless experience for our clients nationwide. Please reach out to us today to get started.

When investing in real estate, many investors have different options based on their financial goals and level of involvement. 1031 exchanges have their advantages, including tax benefits and portfolio diversification. But what is the minimum holding period for 1031 exchanges?

How 1031 Exchanges Operate

1031 exchanges allow investors to trade investment properties for others, which allows for capital gains tax deferment. To perform a 1031 exchange, investors must find a like-kind property for replacement with equal or greater value. As such, investors can continue to grow their real estate investments without paying capital gains.

Types of 1031 Exchanges

There are four types of 1031 exchanges; delayed, simultaneous, reverse, and improvement. A simultaneous exchange occurs when investors relinquish a property, then acquire a replacement property simultaneously, involving a one-for-one asset swap between the investors and a secondary party. Delayed exchanges are more common, involving investors relinquishing their property before acquiring a replacement.

Reverse 1031 exchange is the opposite of delayed exchanges; instead of selling a property first and finding a replacement to close the deal, reverse exchanges involve buying the replacement property and selling the relinquished property. Lastly, improvement exchanges, known as construction exchanges, permit investors to upgrade the replacement property with exchange equity, suitable for those who want to acquire a replacement property that doesn’t meet their needs.

1031 Exchange Minimum Holding Period

While the 1031 exchange tax code doesn’t provide a specific time for holding an investment property, time isn’t as important as the investor’s intent during property acquisition. Additionally, investors must know that there is a required one-year minimum hold for 1031 exchanges due to the government’s multiple requests for a designated period. The IRS wants to see the one-year period due to code differences in long-term and short-term capital gains.

Sera Capital offers its services to individuals with highly appreciated assets and properties. We specialize our services in deferring capital gains tax, increasing passive income, and diversifying investment portfolios with professional fiduciaries. Our 1031 exchange services help convert 1031 real estate properties into securitized properties while deferring capital gains tax. If you have any questions about our fiduciary services, set up a free 30-minute phone call today.

Hi, I’m Tom, and I am a wealth manager with “I care about my client capital management,” I got on your calendar because one of my clients and a good friend is selling a property. They asked me to find out if there was a way to do it in a tax-efficient manner.

Sera Capital - Hi Tom, that’s good to hear. And the answer is, “of course, there is a way to sell in a tax-efficient manner,” and we specialize in the process. Over the last decade, we have worked with hundreds of advisors as 1031 advisors to accomplish just that outcome. There are lots of ways. But before we get into the weeds, how did you come across Sera Capital?

Tom – I was researching capital gains taxes and real estate, and I found your site informative. Still, I was particularly attracted to the fact that you work on a fee basis and act as a fiduciary. I liked the idea of partnering with someone with no conflict of interest.

Sera Capital – That sounds about right. A big chunk of our practice comes from partnering with other advisors that want to work with like-minded advisors. As pure fiduciaries, which means we never receive compensation from anyone other than the client, we help advisors help clients transition from owning real property or small businesses to owning predictable income-producing passive investments. The elimination of a conflict is, in our opinion, critical to a successful, confident solution.

Guess what, Tom? There are a few added benefits,

The first is that in many cases, your client will not only defer taxes but potentially eliminate them, and secondly,

Since you will be part of the process from day one and every step along the way, at some future point of your choosing, if you want, we can hand off the relationship as well as the assets to go right back under your custodian and supervision.

Tom – Sounds interesting. But how do I know if you are the right partner for me?

Sera Capital – That’s a great question, Tom, and we hear it every time we partner with an advisor. Our standard response is to do your due diligence by calling a number of our competitors or at least people that think they are our competitors. If you like, we can even give you the names of the other big players in the industry. You will find that our combination of low fees, no conflict of interest, product lineup, and expertise is unsurpassed in terms of an overall package. Furthermore, since our roots since 1990 are steeped in wealth management, we speak the same language you do.

Tom – So let me get this straight. I introduce you to my client, we speak to them together, you provide technical expertise to solve this particular problem, and then you exit based on my choosing.

Sera Capital – That’s right. It happens all the time, but guess what. We’ve learned that if a client has one property they are looking to sell, they typically have 4-5 other properties to sell and perhaps a small business. So, we develop a comprehensive exit strategy with your guidance, incorporating the entire portfolio solution. This includes our “what’s best” analysis of 1031 exchanges, 721 exchanges or UPREITS, IRS section 453 installment sales, both deferred and structured and Qualified Opportunity Zone funds. Our job is to educate you and your client so that whatever decision you make is informed, well thought out, and provides a long-term tax-advantaged solution.

Tom - What qualifications are necessary to become a Delaware Statutory Trust advisor?

Sera Capital - Delaware Statutory Trust (DST) advisors specialize in helping clients invest in DSTs. DSTs are a popular investment vehicle for many investors because they offer a way to invest in real estate without the hassles of property management. However, becoming a DST advisor takes work and requires a specific set of qualifications.

To become a DST advisor, one must deeply understand the real estate market and investment principles. This means a DST advisor must have a finance, real estate background or a related field. A bachelor's degree in finance or real estate is often a requirement, and some employers may also require a master's degree.

In addition to education, DST advisors must have experience in the industry. This includes a track record of successful investments in real estate and experience working with clients to help them achieve their investment goals. Some employers may require that DST advisors have a certain number of years of experience working in the industry before they are eligible to become an advisor.

Another qualification that is necessary for DST advisors is a securities license. DSTs are regulated by the Securities and Exchange Commission (SEC), and advisors must have the appropriate licenses to sell securities. The SEC recognizes several licenses, including the Series 7, Series 63, and Series 65 licenses. Sera Capital has 63 and 65 licenses. We are held to the fiduciary standard.

In addition to education, experience, and licensing, DST advisors must have excellent communication and interpersonal skills. They must be able to work closely with clients to understand their investments.

Tom - What are the responsibilities of a Delaware Statutory Trust advisor?

Sera Capital - As an investment professional, you may be familiar with Delaware Statutory Trusts (DSTs) as a popular option for real estate investment. However, you may need to be made aware of the specific responsibilities of a DST advisor.

First and foremost, a DST advisor is responsible for providing advice and guidance to investors on how to invest in DSTs. This includes assessing the investor's financial goals, risk tolerance, and investment portfolio to determine whether a DST is a suitable investment option. The advisor must also provide information on the benefits and risks of investing in DSTs and the specific details of the DST, such as the property location, management team, and financial performance.

Another key responsibility of a DST advisor is to ensure compliance with regulatory requirements. The Securities and Exchange Commission (SEC) has specific rules and regulations to be followed when offering and selling DST interests to investors. The advisor must ensure that all documentation and disclosures are accurate and meet regulatory requirements to protect the interests of the investors.

In addition, a DST advisor must maintain ongoing communication with investors to provide updates on the DST's performance and any changes that may impact the investment. This includes regular financial reporting, property inspections, and updates on any potential risks or challenges facing the DST.

Lastly, a DST advisor must act in the best interests of the investors. This includes providing unbiased and transparent information and avoiding conflicts of interest.

Tom – Sounds great. What’s the next step?

Sera Capital – Simple, it’s now time to get into the weeds. Let’s start by sending you our welcome package. It will provide you with a quick overview of the options available to your client so that you can speak intelligently and get up to speed on how each option works. If you would like to receive our welcome package, let us know, and we will send one your way. After you’ve had time to digest the information, we do a follow-up call to narrow the scope of the discussion with your client so that your time and ours are spent focused on what is right for them.

Tom – Please send me the welcome package, and I look forward to our next discussions.

Sera Capital is a 1031 Exchange & Delaware Statutory Trust Consultant for Advisors, CPAs, Attorneys, Real Estate Agents & their clients. We partner with you to meet your client's unique objectives.

If you're an advisor and you'd like to learn more about how you can help your clients with 1031 exchanges and Delaware Statutory Trusts, schedule your free 30-minute call today.

The Role of Due Diligence in DST 1031 Exchanges: Best Practices for Investigating Potential Investments.

Due diligence is a crucial part of DST 1031 exchanges. Learn everything you need to know about ensuring a successful exchange, from conducting property inspections to scrutinizing investment offerings.

Delaware Statutory Trusts, or DSTs, can provide passive income without the headache of full-time property management. But how can you be sure you're investing with a trustworthy Sponsor? When committing to a DST, it is critical to assess potential offers properly.

At Sera Capital, we pride ourselves on our comprehensive knowledge of DST investments and our experience helping investors manage a DST transaction. A big part of this process is our responsibility to conduct thorough due diligence for every investor and on every potential transaction BEFORE we present a DST investment opportunity to clients.

To help you better understand the different variables to analyze before making a decision, such as risk factors and economic trends, we’re breaking down the data we use in our due diligence analysis.

Why Is Due Diligence So Important?

Although DSTs have been positively regarded by investors as a potential replacement property alternative for 1031 exchanges, this form of investment should be more than a "plug-and-play" scenario.

Due to the high velocity of deals and the ever-increasing number of Sponsors trying to enter the market, due diligence is more vital than ever to ensure that you are not exposing yourself to an unreasonable level of risk. Also, conducting due diligence can assist you as an investor in distinguishing between excellent and bad deals.

Our Due Diligence Process

Although no investment program is without risk, the following considerations should help you separate the good DST deals from the ones that may cause you headaches down the road.

1. Sponsor Review

A Sponsor is a person or institution who discovers and purchases properties to be held in a DST and often arranges for the assets to be leased by a master tenant. They subsequently make these investments available to accredited investors through financial advisors and/or registered representatives via beneficial interests. While considering a Sponsor, we consider the following factors:

• Sponsor history and performance

• Extensive executive team experience

• Fees and markups

• Local market expertise

Choosing the correct sponsor is the first step in completing a successful securitized real estate transaction. Once the sponsor has been selected, we evaluate the opportunity, including the deal structure and property information.

2. Deal Structure Diligence

The following due diligence stage analyzes the deal's structure, including all DST-related agreements. They include purchase agreements, financing paperwork, and tax structures. This information comprises disclosures for each offering and can be found in a Private Placement Memorandum (PPM), a legal document created by the real estate sponsor.

The PPM includes a full explanation of the property, the sponsor, the financial facts of the investment, the estimated return on investment, and the specifications of the DST structure. It also includes third-party due diligence reports and all relevant leases, agreements, and contracts.

3. DST Property Diligence

During the last due diligence phase, we analyze the individual properties within the deal portfolio. Some of the areas we evaluate are:

• Location

• Number of Buildings in the Portfolio

• Percent (%) occupancy

• Cost per square foot

• Length of Lease Term

4. Economic & Market Diligence

Fee analysis is integral to the Deal Structure Evaluation and the Property Review. Besides fee sources and uses, we examine a variety of economic variables to determine whether a property is a good investment. Here are just a few examples:

Net Operating Income (NOI)

Investors interested in commercial real estate must consider the property's net income. The NOI is the value that remains after calculating and deducting operating expenses (i.e., taxes, management expenses, and repairs costs). When income exceeds operating expenses, the NOI is deemed accretive.

Assessing the NOI will assist in determining whether the property is a "good" investment. A positive NOI indicates that the property is well-positioned to continue producing a consistent income stream.

Exit Capitalization Rate (CAP Rate)

The exit capitalization rate, or terminal capitalization rate, assesses a property's resale value by capitalizing the predicted Net Operating Income (NOI) after the scheduled holding period.

The cap rate is calculated by dividing the NOI by the property's sales price. This determines your return if you pay for everything in cash with no mortgage (debt). The cap rate is sometimes used to calculate the value of a property. It considers vacancies, credit losses, operating expenses, and other income streams.

As a result, we recommend that the breakeven exit cap rate exceed the sponsor's acquisition price. This allows for cap rate compression throughout the holding time. Remembering that the breakeven exit cap and disposition analysis is contingent on the sponsor meeting their financial expectations is critical.

Cash-on-Cash Return

Cash-on-cash return is a rate of return in real estate transactions that estimates the cash income produced on the cash invested. It is determined by dividing the annual pre-tax dollar revenue by the total investment.

Simply put, investors must ensure they receive their money quickly to invest in other properties. Assessing the cash-on-cash return may be one component in determining whether a property has the potential to be an excellent long-term investment.

Replacement Costs

A replacement cost is the cost of replacing a property with the same or comparable value. When performing a property study, it is critical always to compare the sales price to the expected replacement costs.

Advisor or Broker

When purchasing a DST, you can buy it through an advisor or a broker. During your investigation of DST ownership solutions, you'll find that no matter what amount of money you have, working with a Registered Investment Advisor will give you the edge over our commission-based broker competition.

Final Thoughts

As with any real estate investment, DSTs have potential risks. It is always essential to hire a team of professionals – in addition to advisors – that includes a Qualified Intermediary, a CPA, and a Real Estate Attorney to help facilitate the process.

At Sera Capital, we make it our job to vet every offering on our marketplace. Regardless of the property type or business strategy, we're ready to help you with any questions about a particular DST offering.

Do you have any questions? Feel free to contact our team!