IRS rules allow for an investor to purchase multiple properties when doing a 1031. Unfortunately, it can be very difficult to find quality sole-ownership investments that produce sufficient cash-flow without needing to use all equity towards one purchase. With the short 45-day identification period allotted by the IRS there is usually very little time available to negotiate a purchase price, perform a through due-diligence, finance and close on multiple properties.
This lack of diversification can be risky. DST properties solve this issue. With minimum investment amounts starting at $50,000-$100,000, an investor can spread their investment risk across multiple properties that vary by asset-class, business plan, location, sponsor and loan.
Business Plan – Not every offering will have the same business plan. The expected holding periods may differ. Some offerings may be brand new Class A where little or no improvements will be made. Other offerings (usually Class B) may have a value-add business plans where improvements are made in an attempt to increase the revenue/value during the holding period.
Location – There is a historically strong correlation between job growth and population growth. Where there is population growth rents can typically be raised. DST sponsors pay close attention to demographics and data analytics to identify what they believe to be emerging markets and sub-markets for investment.
Sponsor – There are approximately 50 sponsors in the fractional 1031 industry. Diversifying by sponsor is another way of spreading investment risk. The sponsor’s track record for current and full-cycle 1031 offerings is available to all prospective investors.
Asset Class – Multifamily, Government Leased Buildings, Self-Storage Facilities, Senior Living Communities, University Housing, Warehouses, Distribution Facilities, Medical Office, and Retail.
Loan-to-Value – LTV’s for fractional real estate range from 30-60% to as low as 0% (debt-free). An investor has the ability to diversify into a range of both a debt encumbered and debt-free fractional real estate. This is another way of mitigating investment risk with diversification.