What to Expect When Your DST Investment Sells (Lifecycle of a DST - Part 3)

Hello and welcome to Exchange Insights, your resource for 1031 market intelligence and education. This is the last video in our three-part series on the lifecycle of a DST. In this video, we'll cover what to expect when your DST investment eventually sells, but more importantly, we'll answer the question, what happens after your DST exchange closes?

So first things first. Once you've closed on your 1031 exchange, your capital has been deployed, and you're now officially invested in a DST. So, congratulations. You've hopefully avoided a large tax bill, and you're now a passive real estate investor.

At Anchor1031, we're going to stay in contact with you. We're going to check in with quarterly performance summaries and keep you apprised of any news that might affect your investments. Our goal is to keep you informed. We're also connected to the sponsors that manage your investment, so we hear all relevant news as it comes. If you have questions along the way, you can always reach out to us directly at any time.

Most investors ask, "Will I receive a K1?" The answer is yes. DST investors receive a K1 from the sponsor at the end of each year that reflects the distributions you received and any other tax relevant items from their DST investment. It should be pretty plug and play, but we always recommend working with a local tax professional to incorporate the K1 into their personal tax filings. Since DST investors have no management responsibilities, the investor experience is actually quite simple while you own it. Once a year you get a K1 and in return, investors should be expecting monthly or quarterly cash flow.

So let's talk about what happens when your DST is ready to sell. Years pass. Your investment has hopefully performed well. And now the sponsor decides it's time to sell. This decision is based on several market and economic factors like capital markets, interest rates, rent growth, supply and demand, and overall local economic conditions. The sponsor ultimately makes the call of when to take your DST to market.

When a deal is ready to be sold, DST investors should expect to hear from both the sponsor and from Anchor1031. The first set of communication should be a letter of intent, or LOI, indicating that there's a buyer in the market interested in purchasing your property. With that LOI, you may get some sort of indication about timing and value. If the offer is accepted, the property will go into escrow, and you should plan for the deal to close within 60 to 90 days. So in summary, you should expect to see an LOI, then an indication that we're close to closing, and then ultimately you'll get the notice that the deal is officially closed and sold.

Our goal at Anchor1031 is to get out ahead of these announcements and proactively reach out to our clients. Ahead of the sale, we want to connect with you and refresh you on your exchange options.

So, what are those options? Well, when the DST sells, you'll have a few options. Number one, you can 1031 exchange your proceeds into another DST and continue deferring capital gains taxes. Number two, you can 1031 exchange into your own real property. Number three, you can cash out and pay taxes on your gains. Or number four, you can split your investment and spread it out across multiple options.

We like to say that the golden rule of real estate is you never really sell, you just exchange. So whatever option you choose, we'll be here to guide you through the entire process. The notice of sale is also an opportunity to reconnect with your financial advisor, CPA, estate planning attorney, or whoever helped guide you into the investment. We've been known to help connect investors to top-notch tax professionals, so if you haven't been introduced to a solid tax planning team, we'd be happy to help with that as well.

From our experience, DSTs typically have a hold period that can range from 3 to 7 years. Some exit sooner, some exit later. For investors with multiple DSTs, they may see exits roll in at different times from different investments, which can help them manage their tax burden more strategically.

So that is the lifecycle of a DST. We've covered how DSTs are packaged and distributed, what investors should do and expect while they wait for their DST to sell, and we've covered what happens when your DST eventually does sell. Thanks for tuning in. If you have questions about 1031 exchanges, DST investments, or want to schedule a free consultation, please visit anchor1031.com.