The Smith Family owns a large almond ranch in the Central Valley of California. They accept an attractive buyout offer. The proceeds are $6,000,000 with existing debt of $500,000. Using a 1031 exchange they plan to acquire a new ranch in Arizona with a purchase price of $5,000,000 leaving $500,000 in cash after paying off the $500,000 loan.
Results without a using multi-owner DST structure:
Before learning about DST’s, the Smiths thought they only had two options: to pay taxes of $350,000 on the $1,000,000 remaining after the Arizona purchase or acquire a small property for $500,000 in cash and guarantee a loan for $500,000 for a total of $1,000,000. If they decided not acquire a second property, they would be left with $150,000 in cash.
Results using a multi-owner DST structure:
After reviewing a number of DST offerings, the Smiths invest $100,000 in five different DST’s each with a 50% loan to value. This allowed them cover the debt required to defer taxes of $350,000 with a projected 5.5% cash-on-cash return on the full $500,000.
With the DST’s they acquire two multi-family properties in growing communities; one medical office DST with three different buildings in three different communities with long-term leases and credit tenants; one self-storage DST with ten different properties in growing communities; and one single tenant net leased DST with ten different buildings with credit tenants and long leases. Rather than having $150,000 left, with the DST structure they now own $1,200,000 of prime real estate with an annual projected cash-on-cash return of $30,000.