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The New Face of Tax-Deferred Real Estate Investing

Smaller Investment Minimums: Although a TIC deal is limited to 35 investors, DST programs have no such mandated ceiling, with the only practical limit being that anything more than 2,000 investors triggers Securities and Exchange Commision reporting under the 2012 JOBS Act. As a result, TIC deals often have large minimum investments, whereas investors can buy into DST programs with smaller outlays.

Diversified Investments: Although TICs are constrained in the value of real estate that can be purchased by up to 35 investors, the pool of assets in a DST structure can be much larger. With more money available for investment, DSTs can afford to diversify assets.

Summing Up the DST Benefits: Simply put, an investor looking to do a like-kind property exchange gets a wealth of benefits under the DST structure. He enjoys the traditional tax deferral allowed under 1031 exchanges. Additionally, by executing a single trust document and for a comparatively small investment, he owns a piece of a diversified portfolio of real estate managed by a professional. And he is protected from personal liability.

Steven R. Meier of Jenner & Block LLP says that the DST structure has created a simple way for 1031 investors to participate in the now-recovering real estate market:

"As compared to TIC deals, DST deals are simpler for investors to understand, more nimble at critical life-cycle junctures, better suited to satisfy investor diversification needs, and, perhaps most importantly when it comes to putting a deal together, much easier for lenders to trust. This is because lenders know that when decisions need to be made in a time of crisis, those decisions will be made by a single, experienced real estate investment program sponsor."

Similar to a public REIT, assets in a DST vehicle are not aggregated by blind pool methodology as they are in a non-listed REIT, but instead are specifically identified by a sponsor, and disclosed to all prospective investors.

As in all Section 1031 deals, there is a strict requirement for investors in DST programs to identify the replacement asset(s) within 45 days of selling the old property, or forfeit their shares of taxes.

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