Financial Freedom with Real Estate Investing

As syndicators, we’d love to work with 1031 exchange investors more often. But the rules make it really, really difficult! It means taking on co-owners (rather than passive investors) and big bucks in legal fees. What if there was an EASIER way to work with 1031 exchange investors? A way that allows them to invest passively in syndication deals, defer their taxes and earn a stable return?

Paul Moore is Managing Partner at Wellings Capital, a firm dedicated to helping high earners and high net worth individuals protect and grow their wealth through commercial real estate investing. A two-time Michigan Entrepreneur of the Year finalist, Paul has founded multiple investment and development companies and co-managed a successful multifamily development. He is the cohost of The Art of Investing and How to Lose Money and a regular contributor to both Fox Business and BiggerPockets.

On this episode of Apartment Building Investing, Paul joins cohost Drew Whitson and I to discuss the disadvantages of the 1031 exchange and explain what makes the strategy incompatible with syndications. He introduces us to the Delaware Statutory Trust (or DST), describing how it solves the problems associated with bringing in 1031 exchange investors and allows them to invest passively in multifamily deals. Listen in for Paul’s insight on what kind of investor is attracted to the DST and learn how YOU can use it to defer taxes and earn a long-term, stable return!

Key Takeaways

The disadvantages of the 1031 exchange for investors

  • Deadlines pressure to overpay/buy wrong asset
  • Difficult to find cash match, total price match
  • Requires co-ownership vs. passive investment

Why 1031 exchanges are incompatible with syndications

  • Tenancy in common agreement to keep control
  • High legal fees, syndicator doesn’t control capital

The fundamentals of the Delaware Statutory Trust

  • Management group acquires asset
  • Sells fractional shares to investors

The benefits of investing in a DST

  • Allows for passive investment
  • Match any amount of money
  • No debt in name
  • Extremely stabilized asset

The disadvantages of investing in a DST

  • Communicate with broker vs. syndicator
  • Broker gets high commission (6% to 9%)
  • Limited upside, very little appreciation

How Paul’s DST addresses the usual disadvantages

  • Invest direct = talk to syndicator
  • Don’t pay up-front commission
  • 10% to 12% projected returns

How Paul is compensated as the operator of the DST

  • Property management fees
  • Acquisition and liquidation fees
  • Scrape (keep returns above 6%)

What kind of investors are attracted to the DST

  • 1031 exchange investors
  • Capital gains, passive depreciation recapture

The limitations of the Delaware Statutory Trust

  • High legal fees for operators to set up
  • Limited upside (structured to be stable)
  • Illiquidity = can’t cash out early
  • Accredited investors only

Connect with Paul Moore

Wellings Capital

Paul on BiggerPockets

Resources

Learn More About Michael’s Mentoring Program

Join the Nighthawk Equity Investor Club

Starker v. United States

Inland Investments

Podcast Show Notes

Michael’s Website

Michael on Facebook

Michael on Instagram

Michael on YouTube

Apartment Investor Network Facebook Group

Direct download: ABI_245.mp3
Category:Commercial Real Estate -- posted at: 1:00am EDT

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