Trevor Flor chats with us in today’s episode to introduce an uncommon investment opportunity – Delaware Statutory Trusts (DST). Dial in to learn the ins and outs of DSTs, plus some tips for maximizing returns using this investment vehicle. Redefine how you approach investing now!

Key takeaways to listen for

• [11:42] Delaware Statutory Trust: What it is and how it solves the TIC problem
• [18:13] 1031 exchange vs. DST 1031 exchange
• [20:40] Why DST is more costly than a normal syndication
• [28:00] Optimal investment strategies when using DST
• [32:00] How to know if you are eligible for a DST portfolio
• [40:37] An example of a successful DST story

Resources mentioned in this episode

• [09:07] Episode 17: Retire Early Using 1031 Exchanges with Dave Foster | YouTube and Podcast
• [50:31] Google

About Trevor Flor

Trevor is a financial advisor specializing in 1031 exchanges, Qualified Opportunity Zones (QOZ), and tax-advantaged real estate syndications. He helps accredited investors preserve the benefits of real estate ownership without the direct-owner headaches.

Trevor holds an MBA Degree from the University of North Carolina and a Master's Degree in Real Estate from Fordham University in New York City. He is currently affiliated with DAI Securities, LLC, a member of FINRA/SIPC. 

Connect with Trevor

• Website: DAI Securities
• LinkedIn: Trevor Flor
• Email: trevorf@daisecurities.com

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Trevor Flor: 00:00:42

The nice thing about a Delaware statutory trust is these are going to be essentially prepackaged for the investor. So the way that the mechanics of establishing a DST work are releasing anywhere from 2 to 20 DST offerings every year.

Neil Henderson: 00:00:58

Welcome to Truly Passive Income. I'm Neil Henderson.

Clint Harris: 00:01:01

And I'm Clint Harris.

Neil Henderson: 00:01:02

Well, our guest today is Trevor Flor. Welcome, Trevor. It's great to have you with us. How are you, sir?

Trevor Flor: 00:01:07

Thanks, Neil. Thanks, Clint. Happy to be here. I'm doing great. Thank you.

Neil Henderson: 00:01:11

So we were chatting offline before we got on. I want to make sure that I've got your background.

I'll let you tell it, but I want to make sure I've got your background correct, is that you started off in real estate. You went into the Navy, you're a naval aviator for 10 years.

You got out, you got your business degree from your GI Bill, went back into real estate, also started flying for the airlines, and now you also do real estate. Is that the basic gist?

Trevor Flor: 00:01:38

That's the basic gist. I'll add a little color to that, but yeah, that's it. So I do. I started during my undergrad in Southern California.

I started my career as a residential broker. When I graduated my undergrad, I actually started my own brokerage.

I employed a couple sales agents to oversee their sales activity, but was shortly after recruited by a large medical office building acquisition firm. They were building a portfolio of these assets and I was recruited on their acquisitions team.

So I started interacting with brokers, commercial real estate brokers from all over the country to evaluate these medical office buildings and whether they fit the buy box of this company. And that's when I split and I went into the, into the Navy to pursue a career and serve the United States. In the Navy.

Transitioning out, like you said, I did actually two graduate degrees thanks to the GI Bill. I did a MBA at University of North Carolina and then separately a master's in real estate at Fordham University in New York City.

And at that time, I started my current career, which began on the due diligence team of a securities broker dealer called DAI securities, who I am still affiliated with. And on the due diligence team, I went to DST Properties, which we'll get a chance to talk more about.

But as a due diligence officer, I was out looking at these properties, doing site visits, performing stress testing on the analysis that we received from the sponsor companies, tenant interviews, in some cases, legal reviews. And I got very familiar with the DST structure and understood very clearly what the benefit to the investor was.

And so I Got licensed in: 2019

s to help them complete their: 1031

Neil Henderson: 00:03:44

Gotcha. And so dai, is it a full service brokerage or does it primarily just focus on alternative assets?

Trevor Flor: 00:03:50

Yeah, so DAI securities is an alternatives focused securities broker dealer. So this is kind of lays at the intersection of real estate investments and securities.

So we have SEC oversight, but in many cases we're also, we fall under finra. So we're licensed by FINRA in order to sell securitized real estate investments. So that's the focus at dai. We do have some oil and gas programs.

That's not my area of specialty. But it's primarily real estate with a little oil and gas mixed in.

Neil Henderson: 00:04:22

It's such a foreign concept to the average investor. When they think about a financial advisor or a financial services firm is almost always they're focused on equity stocks.

And it's such a rare thing to come across an agency that's focused on alternative investments.

It's almost always people having to just go out and look on them, you know, just network themselves and find those private placements and things like that. Is it something you were aware of before you got into it?

Trevor Flor: 00:04:53

Yeah, actually I was an investor in private placements personally during my time in the Navy, I invested in several public non traded REIT vehicles as well as syndications, single deal or single asset syndication. So I was certainly aware of it. I had in my network a lot of people around me that were also investing in that.

But you're right, a lot of financial advisors treat real estate as kind of an afterthought. So primarily an advisor is going to focus on the 401k and the traditional securities advice.

be they'll help a client do a: 1031

In fact, a lot of my referrals come from these financial advisors that recognize they don't have the knowledge or the desire to learn the real estate side of their client's portfolio.

And they'll send me that client so that we can talk to them about DSTs, Qozs and other diversification vehicles just focused on real estate investments. So all of the vehicles that I present to clients are passive.

So there's no operating or management requirement, whether it's a dst, a Qualified Opportunity Zone, or a fund structure.

But they can be very helpful to diversify the client's overall portfolio or present some very beneficial tax benefits that we'll talk about specifically specific to both the DST and the Qualified Opportunity Zone.

Clint Harris: 00:06:27

That's when you know you got a good financial planner, is when they're willing to recognize their own limitations and refer outside of their expertise to find someone that really knows what they're talking about. That's when you know you got a good one.

Trevor Flor: 00:06:38

I agree.

Clint Harris: 00:06:38

hat we're talking about. Like: 10:31

n space, people look at doing: 1031

But now you're talking about Delaware statutory trusts and all this completely separate from that, Qualified Opportunity Zones, which are something that have really come on strong the last couple of years. These are things that frankly, people don't talk about very often.

tment space originally use of: 1031

Trevor Flor: 00:07:26

t, Clint. So let's say in pre: 2000

that was on talking about the: 1031

s that were familiar with the: 10:31

et a revenue procedure called: 2002

It still exists today, of course, but it existed as kind of the popular and preferred syndication structure until the global financial crisis.

And what we saw during the global financial crisis is a couple of very unique components of the TIC structure because of the global financial crisis were kind of borne out to be very negative.

So the first of those is the debt on a TIC property is typically going to be recourse and that means that each individual investor is going to be underwritten by the bank.

So during the global financial crisis, of course, banks were now being asked to underwrite potentially 30 borrowers on a single T and they didn't have the administrative ability to even do that. So lending became a problem on the TIC structure. Additionally, we're limited on the TIC structure to only 35 investors.

So now, you know, if we want to take down a $50 million asset, all cash, we need 35 separate 10, 31 exchange investors who are each capable of bringing more than a million dollars to that deal in order to get our $50 million in equity. So we had limits there. We can also perform capital calls.

So we saw a lot of problems where sponsors were going back to the investors or TIC managers were going back to investors asking for more money as cash flow problems started to arise during the global financial crisis. And then the biggest one is that the TIC structure designates a manager.

So there is a TIC manager, but they don't actually make the operating and the final decisions for the asset management of that asset. The actual investors do. So you have 35 unrelated tick investors that are voting, hey, should we sell this asset? Should we renew this lease?

And ultimately we saw we have a variety of backgrounds, variety of opinions amongst those 35 investors. We were seeing many examples where tick managers were screaming to the investors prior to global financial crisis.

Hey guys, the market's starting to take a turn, let's sell the asset. And members, the TIC members were instead voting to hold.

And as a result the asset would go into a cash flow problem during the global financial crisis. And many were ultimately foreclosed upon.

So we saw at that point a pivot away from the tick as the preferred structure and towards the DST and the DST or Delaware Statutory Trust. Actually, let me pause there. Do you have any follow up questions on that before we get into the T?

Neil Henderson: 00:11:10

Yeah, I want to just recount a story that I've got from a friend of mine whose family is a fairly successful small multi family operator. There's probably anywhere from 500 units to a thousand units I mean they're not a big operator.

They operate 12 unit apartments all across Southern California into Minneapolis and things like that.

And I remember when I was first getting into syndication and I approached them and said, hey, you guys should really consider diversifying a bit into another asset class through syndication.

They're like, no, like we've had such a nightmare with investing in a tick is the only sort of group, quote unquote, hands off investment they had done. And it was a really negative experience for them for exactly. The reason that you're saying is it was too many cooks in the kitchen.

You just had tried to herd cats and things were going bad. And he had different people who were in different financial situations who are making decisions that were affecting people that negatively.

So they were not fans of it. So I can understand. So I guess my question, let's transition into what does the Delaware Statutory Trust solve from the tick problem?

Trevor Flor: 00:12:24

Great. So each of those points we have basically a change in how the DST is designed.

So the dst, just to define it, Delaware Statutory Trust, it sounds like a mouthful. All it is, it's a trust which is an entity established for the benefit of others.

It's established under statutory trust law, which is in opposition to a common law trust. And it's done so in the state of Delaware. So that's where we get the name a Delaware Statutory Trust.

IRS revenue procedure called: 2004

The improvements or the differences, I won't call them necessarily improvements because there are definitely applications for both structures.

think there is in fact like a: 2000

Number two, all the, or all the debt rather on the property has to be non recourse to the investor. So we get the benefits of the debt on the property. If it's positive leverage, we get to enhance our yields. But we don't have any personal liability.

So the most the investor can lose is the initial equity investment they make additionally the sponsor and this can cut both ways. We do have investors that like control, they like the idea of voting, as we just talked about.

But in my opinion overall that it is a positive improvement that the sponsor, who is the company that's typically has a strong performance record and track record of managing and performing both asset and property management responsibilities. They are going to be the ones that make the decisions. So the investor doesn't have any control, it's entirely passive.

And they're going to do what they can the sponsor company to affect a strategy that they outline at the beginning of the offering.

So if they say we're going to try to own this property for five to seven years, we're going to try to grow rents using these three strategies, we sit back and we let them affect that strategy and hope they do that in accordance with the projections they make.

and they can perform another: 1031

ple, the DST equity raised in: 2022

And now we've grown to a large industry of over 9 billion in equity raised in DSTs.

Clint Harris: 00:15:41

Wow. A lot to unpack there.

the two with the traditional: 1031

How does the cost compare from traditional the TIC structure, getting that set up in place and working with a professional to get a Delaware statutory trust in place.

Trevor Flor: 00:16:07

So the nice thing about a Delaware statutory trust is these are going to be essentially prepackaged for the investor.

So the way that the mechanics of establishing a DST work are the sponsor company whose most of the sponsors that we work with are releasing anywhere from two to 20 DST offerings every year. So this is a routine part of their business model to deliver this vehicle to the investment community.

So the way they'll set this up is they'll go and they'll establish the entity, the trust in Delaware. They'll go and identify an asset that they think fits investors demands, they'll acquire the asset and they'll move it into the trust.

While that's happening, they're creating all the offering and marketing material, they're making their forecasts. That information will come to my company. So now the asset is acquired, it's in the trust. We're reviewing it.

So the sponsor did their due diligence on the asset. We do our due diligence on the asset and the offering.

We also engage a third party due diligence provider, which is a law firm when listed for this purpose, to review legal entity structure, to look at all the risks that we're looking at as well. But they go at it with a little more manpower behind them.

And then with all of that, our due diligence committee will review and approve the offerings we like. And only at that time will an advisor like me go to the client and say, here's an investment option for you. So everything is already bundled.

We have all the material. We can look at third party appraisals. We can look at soils, engineering, property condition assessments, environmental reports.

All of that is available to the investor the day we introduce it to them. And of course, the financial projections and kind of investment yield information that this sponsor is projecting.

tify anything on the client's: 1031

Clint Harris: 00:18:14

terms of the Mechanics of the: 1031

You still have 45 days to identify, 180 days to close, and then the gain from that is exactly the same.

So when you finish this: 1031

It's just utilized to get a little bit differently through the DST, is that correct?

Trevor Flor: 00:18:54

So the: 1031

So we've sold this property that we have held for the purpose of investment. We have this gain that we don't want to pay a tax on. Many times that investor will think, well, I have to go and buy another direct title property.

I can go buy another single family residence or A piece of land that we hold for the purpose of investment. In addition to those options that the client considers, we can incorporate the DST as a potential replacement property.

We were able to look at a number of DSTs and these. We can get more into these details. But the property types on DSTs vary.

So we see these are all institutional quality assets, meaning they're very large assets typically held by insurance companies, pension funds, large private equity groups. So we might look at a $100 million Class A250 unit apartment building in Fort Myers, Florida as an example.

And we bring that to the client as a potential investment offering. If they like it, they can identify it, like you said, Clint, within that 45 day identification window.

And then they have to close on it within 180 days. And just on that note, a very big benefit to the DST investor. These are essentially paperless closings. It's a very limited document that we'll send.

It's a purchase and sale agreement and a subscription agreement. So we end up sending the client that they sign it, that goes back to the sponsor and to the qualified intermediary.

The funds get wired from the qualified intermediary and they're closed. We've seen this done in as little as two days.

Neil Henderson: 00:20:55

I want to roll this back just a little bit and talk about this as it relates from the sponsor side. And you touched on it briefly.

But I wonder if you could briefly talk about how a DST differs from just a normal syndication getting that set up, the legal involved. Obviously you said the people who normally do it are normally doing it exclusively. Almost exclusively. They're doing it very often.

And that's probably for a reason, correct?

Trevor Flor: 00:21:21

It is. It's because it is a costly structure to establish. So the fundraising is typically done through financial advisors.

So a combination of RIAs or broker dealers, like how I am affiliated with a broker dealer, we typically see a commission paid to those professionals, a commission to the securities broker dealer. Sometimes there's a fee harvest if it's invested in through an ria. So they take a percentage a year. There's of course, the legal costs.

There's a lot of compliance associated with establishing the dst. And then we wouldn't consider approving a DST that didn't also have what's called a tax opinion, where in a tax attorney.

that revenue procedure, that: 2004

And that's typically why we see these done only on pretty large properties.

I mean, I've seen DSTs that have had more than $200 million in equity that they're raising because you have to absorb the costs of establishing the structure into the offering. And if you do that on a $200,000 property, the numbers just start not making sense.

So what we typically see is the DSTs are usually done by players that at least have a dedicated vertical to establishing DSTs and the ticks for the sponsors that want a little more lower cost structure, with a little more nimble or kind of flexible structure, the tick is probably a little more accessible there and may in fact be appropriate because there are restrictions.

And I'll pause here, but at some point I'd like to talk about some restrictions placed on the sponsor under the DST structure and that can have an impact on the quality of the investment itself. But let me pause there and see if you guys have any follow up on that.

Neil Henderson: 00:23:36

vestor often thinks they hear: 1031

It has to be a very specialized syndication is what you're saying. Has to be either a tick or a dst. And now you're getting into a whole nother level of cost and compliance is what you're saying.

nderstand that you can't just: 1031

And you're probably going to have a hard time finding a sponsor who's going to be set up to take that amount of funds in a DST or a tick. Correct?

Trevor Flor: 00:24:28

That's the problem that I solve. So at any time I have, you know, 15 to 20 DST options that are approved and currently raising equity.

dicators and you want to do a: 1031

cture as a destination for my: 1031

It's more complicated than that and it's certainly cost prohibitive for that sponsor to just establish make a one off structure for a single investor.

So I would recommend to those clients doing an exchange that want a syndicated option to reach out to me or another advisor that may offer these investments and review these investments because not only do we get to review the property and the offering itself, but we also review the sponsor and we look at the track record and performance history of the sponsor. Some of them have been around syndicating property for 50 years, others are more new or recent to this space.

They may only have a five or seven year track record, but we bear out that information for the client and make sure they're aware of the risks associated with both sponsor quality and asset and property level risks.

Neil Henderson: 00:25:51

Is there a cost for the passive investor for engaging you and dia?

Trevor Flor: 00:25:56

No, not directly, Dai. Yep, no cost in addition to the investment that the exchanger makes. So I'm paid in a similar manner to a real estate broker. So a commission is paid.

So if they invest certain amount of equity, I usually get a percentage anywhere from 3 to 6% of that equity that's invested will be paid as a commission to my firm. So that's how I'm paid. But at no time do I ever collect a fee or a commission directly from the investor.

Clint Harris: 00:26:27

Now you're talking about being so specialized that you basically become a matchmaker for people on the other side of this equation. Right?

You're dealing with the sponsors and helping vet them through the process and determine who's a good operator or once qualified for this kind of structure and who's not.

And then you also, I'm assuming you have people coming to you with like, hey Trevor, we're thinking about selling this portfolio in South Florida or Texas or whatever. We're going to be sitting on $50 million from proceeds. What have you got?

You're in a position I guess basically to shop that across and just see these are the different options that are out there. These are the people that we vetted that we trust.

Are you looking traditionally more from a sponsor standpoint and then going out and helping them find the funds, or do you have more of the time people come to you with, they've got a sale coming down the pipeline and they're looking for options. Which of those is the most often that comes across your desk?

Trevor Flor: 00:27:16

The latter it's my preference for it to be the latter. I work for the client, so I'm not held to what's called the fiduciary standard, which is typical in the financial advising world.

We're kind of elevating our requirements that FINRA places on us to look a lot like that. But I'm held to what's called the suitability standard. So I need to make sure the investment recommendations I make are suitable for the client.

But I definitely work for the client.

My ideal client profile is someone who is approaching, has not yet started the sale process, but is approaching the sale of an investment property, and we get to incorporate the DST into their replacement property recommendations.

So the couple of things I'd note here is, number one, because this is considered a private placement by the sec, we have to work with accredited investors only.

So this may have been defined on an earlier podcast, but simply put, we need investors that have a million dollars of net worth, excluding their primary residence, or $200,000 of income for the past two years, $300,000 if you're married, filing jointly, and the expectation that income continues. So if you meet either the net worth or the income requirements, you're accredited.

dations I make to you in your: 1031

And then one more point, Clint, real quick on that note, when we have investors come to us early in the process, we see the DST utilized in one of three ways. Typically, the first is as a primary strategy. So typically the minimums on the DST investment is $100,000 in equity.

So if someone sold $1 million property with no debt on it, we could potentially spread them across 10 different DST assets, giving them a portfolio of diversified property. Diversified by property type. Some multifamily, some storage, some hospitality, some industrial.

Diversified by geography, you know, across several states. Diversified, of course, by sponsor. So that's the ideal strategy.

If someone wants the primary and preferred replacement property to be comprised of DST assets. But in an exchange, we can also use it as a backup strategy.

So if someone is looking at purchasing another direct title asset and that's all they want, we can identify a DST as a backup to that primary strategy.

And if they can't close on their primary direct title asset, remember, after the identification window ends, we can only purchase what we've identified. So now we've given that client a backup option to identify. So if they can't close, they can invest in the dst.

And then the third and final way that we utilize a DST is complicated complementary strategy.

So if someone is selling a million dollar property with no debt and they identify and find only one $800,000 property to replace it with, they still need an additional $200,000 of property to achieve a full tax deferral. So we can complement that $800,000 property with $200,000 worth of DST assets.

I just wanted to highlight that there are different applications here, but definitely want to engage with the client early to see which of those three avenues to them. And then we'll start making recommendations on which DSTs to recommend.

Clint Harris: 00:30:47

So you answered my question before I could even ask you. That was exact question was about being able to split it up, different asset and what the minimums were.

I was trying to signal Neil, I wanted the next question. I couldn't slide anything by you. I should have expected that from a fighter pilot. So that's a great explanation. Thank you for that.

ve done a series of these DST: 1031

s call it an off ramp for the: 1031

eer, they've done a series of: 1031

What's some of the advice that you're giving that person based upon where they are in that life cycle of trying to reduce their liability with an exit? Are they just trying to land in something that they can hold on to forever?

Trevor Flor: 00:31:51

Yeah, that can be an interesting problem to solve because it will be different for each exchanger. What is kind of the baseline recommendation?

stened to a little bit of the: 1031

Neil Henderson: 00:32:07

Dave Foster.

Trevor Flor: 00:32:08

Dave Foster. And Dave said something that I'll repeat. The defer, defer, defer die strategy. Right. And that's very much kind of a mantra in my world.

So the swap till you drop or defer defer die strategy, which is why pay the tax. We know that we get the step up in basis when our estate passes to our heirs, and that it's going to eliminate all of that deferred capital gain.

Now, we're still subject to the estate tax if we exceed the exemption number, but all that capital gain that we've been deferring is eliminated. So if someone. The ideal client profile to move to the DST is exactly who you're describing.

It's someone usually who has grown a lot of their net worth through real estate ownership, perhaps multiple 10, 31 exchanges, or they just have owned one property for a long time. They've got probably no basis left. So by depreciating away their basis, they can no longer take any depreciation offset.

So the income they're earning now has no tax efficiency. They no longer want to actively manage their assets, they want to retire.

So that retirement strategy for that real estate investor is very well suited for a DST portfolio. So we do what we just talked about. We build a portfolio diversified across property type and geography, and we let them.

And typically what we'll do is we'll invest that client into a property, a DST portfolio that has more debt than the relinquished property that they sold. And by doing that, by taking on new debt, they're actually buying more real estate than they're selling, which adds to their adjusted cost basis.

So now we have returned some basis to that investor which they can now depreciate away.

So the income, once they take on the new DST portfolio, will have some tax efficiency because they can actually accept the depreciation deduction that is available to them. So they've got now some tax efficiency to the income and they don't have to do anything. We just took one or two assets, spread it across 10.

But we eliminated almost all management responsibility for the client. And they sit back and they have a great income until the estate passes and eliminates that capital gain that was deferred.

So that's kind of the ideal scenario. Now, there are situations where clients want access to more liquidity. In that case, the DST may not be suitable.

Maybe we'll do a partial exchange where they sell an asset, extract some proceeds, and defer the rest of those proceeds through the exchange. That gives them the access to the liquidity. The other is there are some tick strategies.

And this kind of touches on one of the restrictions under a dst, we cannot refinance a DST property. So a TIC property, as you may be thinking about, can refinance.

So what we see in some TIC strategies that are pretty Appealing are the investor will invest all cash and then after some period of time of owning the tick asset, they'll do a cash out refi and return proceeds to the investor. So that can be another tool and we don't have many of those structures on our platform to offer clients.

But if that's what the client is saying, you know, as they describe their desires, if that feels like the right fit, then I would probably recommend they find a tick structure that had that kind of strategy in place. That was a long answer, Clint. Did I hint kind of the scenario you were thinking about?

Clint Harris: 00:35:47

Yeah, absolutely. That was great. Thank you.

Neil Henderson: 00:35:50

So I assume once someone gets a portfolio at DAI and they're in a group of DSTs that occasionally there is an asset that's going to have a disposition, correct?

Trevor Flor: 00:36:02

That's right.

Neil Henderson: 00:36:03

And then are you able to guide that person into another, take their gains and put it into another dst, I assume. Sorry, silly question.

Trevor Flor: 00:36:11

Nope, that's a great question. And that's exactly how it works.

So another restriction under the DST structure is the only way that you can handle proceeds as a sponsor when the asset is sold is that you have to return the proceeds back to the investor.

So these are not unlimited life cycle structures where the sponsor can sell the asset and go reinvest it in another asset on your behalf if that property gets sold. If and when that property is sold, the proceeds on a pro rata basis go back to the investor.

time they can perform another: 1031

So the advertised full life cycle of a DST offering is typically advertised to be seven to 10 years. So they're going to say, hey, you know, the sponsor is going to tee this up and say hey, we're going to own this asset for seven to 10 years.

What we've seen in the last three years is the average full cycle event. So the full cycle means that the property was acquired, held and sold.

So at the time the property is sold, the average holding period has been about five years. Now the market's performed very well obviously in the recent years.

So I expect moving forward that probably is going to extend out closer to the 7 to 10 year time frame because that it's going to take a little longer to achieve the returns that the sponsor is looking to achieve. But that decision ultimately is the sponsors to make.

But when it's made, this investor of course has all those options available to them whether they want to perform another exchange or pay the tax.

Clint Harris: 00:38:01

So in a situation where you're basically at the whims of the market, so say for instance, right now you got somebody that bought a property a couple of years ago that might be three and a half percent interest on a property. And a lot of people out there right now feel like they're stuck because the market's appreciated like crazy.

They got a ton of equity in a property, but they don't want to sell it because then they got to go buy something else in the same environment.

So you've got a lot of people sitting on the sidelines stuck with tremendous amount of equity, but they feel like if they sell at the top of the market, they have to turn around and buy at the top of the market and they're going to have a 7 to 8, 8 and a half percent interest rate depending on what the asset is.

Essentially this would be an option where those people could sell and liquidate, take advantage of the tremendous amount of equity they have in their property and then come to you and be like, look, what kind of DST offering do you have?

l cycle, they can essentially: 1031

Trevor Flor: 00:39:15

That's absolutely right. I want to be cautious about using language that would indicate this is a short term option.

So even though the average has been five years, I do not talk to investors as though this is a short term investment. These are should be thought of as long term investments. But what we see typically are the market cycles are 10, 12 years.

stor who always, when we do a: 1031

Maybe on the upswing pre global financial crisis that was the case. But it rarely is a great market to both buy and sell into.

So if you see and we have opinions about this, but if the client has the attitude that, you know what, this, we're at a point in the cycle, it makes sense to sell this asset the next cycle. I'm probably going to invest a little early, but you know what, my single family residence is at the end of the market cycle.

There was a period of time in: 2020

amily residence at the end of: 2020

And the DST gives you the opportunity to do that without having to perform due diligence on different markets, different property types. We kind of do all that work and prepackage it nicely for the client.

Neil Henderson: 00:40:58

Well, Trevor, I want to start wrapping this up, but I have a couple more questions that I want to get answered before we wrap it up.

de an example of a successful: 1031

Trevor Flor: 00:41:17

, so an exchange I handled in: 2022

But of course she had almost entirely gain in this asset happened to be located in California. So that client would have been subject to both federal and state capital gain tax, enormous tax burden.

But she was at a point in her life where she did not want to manage another commercial property. So she was looking for a way to be passive. We ended up taking that client through the exchange process.

She wanted to have a direct title asset of a triple net nature. So that's another kind of not competitor, but another option for a client who may want to move more to a less active management.

The triple net leases are typically long term and the tenants are paying all the taxes, maintenance and insurance costs. So she purchased as her core property about a $6 million industrial property with a long term triple net lease.

And with the remaining $5 million of that exchange, we were able to diversify across about 6 different DST properties. And DSTs as a market are focused usually on multifamily and we build a lot of our DST portfolios that way.

So, you know, it's multifamily asset is typically a little harder to manage. There's a lot more happening. So giving clients a passive way to diversify their portfolio into multifamily is particularly attractive.

So that's what we did for that client or a industrial asset as their primary exchange property. And then with the remaining $5 million we spread that across multiple multifamily properties.

One student housing asset and then we put one hospitality property, actually a hotel in Texas just outside of Austin and Southwest Austin in that portfolio. So three multifamily of student housing and a hotel property.

She went through the process of securing debt on her industrial asset and at the end of the process she said I frustrated with myself. I even went this route. Just getting the loan for that industrial asset was such a headache. I wish I did all of this in dsts. And that was the lesson.

These are a very simple process to underwrite for the investor to close and then now she's just sitting back collecting a monthly check from her five different DST investments. So great example of a success story. I work with clients all the time that have different situations but they all kind of come down to that.

I'm looking for additional diversification. I'm looking for less active management and I'm looking for more options that I wouldn't otherwise have access to if I were doing this on my own.

Clint Harris: 00:44:09

I honestly think we might have to trouble you to come back for another episode because we haven't even gotten into the qualified opportunity zones which I know you're a specialist on that as well. That's something I interested to dive into but there's been so much gold in this one that frankly I didn't want to leave the subject matter.

So no, I have nothing else at this point in time but I've got a lot more that is going to have to wait for another day I believe.

Neil Henderson: 00:44:29

Yeah.

hemselves further on DSTS and: 1031

Trevor Flor: 00:44:42

Yeah. So there Google searches is going to give you a variety of different answers on this.

So I really recommend to kind of help the investor or the client parse through all the material that's out there.

Come and talk to a professional and I would love to be that professional but I can be found if you don't mind me putting my contact info out I can be found on LinkedIn Trevor Floor Flor or you can email me directly at Trevor faisecurities.com@Delta Alpha India securities.com But I'm certainly happy to walk. My typical engagement with a first meeting is an hour of what we're doing right now. It's the client has all these questions.

They've probably done some initial research and it just doesn't make sense. Nothing's kind of fitting in place and there's still these kind of missing pieces.

So we'll walk through the start to finish transaction with that client on the initial engagement, help them understand where the benefits are. Sometimes we have those conversations and the client realizes this isn't a fit.

You know, I have investment objectives that DST can't achieve and I'm always going to remain as a resource for that client. So certainly feel free to reach out to me with those questions.

ing or intending to perform a: 1031

I want to do this: 1031

And I say, sorry, you're ineligible for an exchange at this point. So that's the biggest piece of information I can deliver to someone considering an exchange.

Ensure you understand the qualified intermediary is required and then give me a call and we'll talk through all the details from there.

Neil Henderson: 00:46:35

Well, Trevor, this has been fantastic. Like I agree with Clint, we gotta have you back on to talk qozs at some point. But I'm glad we focused just on DSTs.

As we said, please reach out to Trevor with the contact locations that he pointed out. Trevor, it's been great man. Thank you.

Trevor Flor: 00:46:49

Thanks Neil. Thanks Clint. Really appreciate what you guys are doing. A lot of education lacking out in the investor world.

So I appreciate you guys trying to bring some of that to the investors that are listening and really appreciate you having me on.

Clint Harris: 00:47:00

Thanks so much, Trevor. Really appreciate your time. Thanks a lot.

Trevor Flor: 00:47:03

All right, thanks.

Neil Henderson: 00:47:03

Thank you so much for listening and watching the Truly Passive Income podcast.

If you liked the show, if you think it would be useful for someone else, that greatest compliment that you could give us would be to share the episode. Leave a comment down below or leave us an honest review. If you have any questions, don't hesitate to let us know down below.

And remember, with truly passive income comes freedom of time, place, and the freedom to pursue your higher purpose.

Clint Harris: 00:47:37

Ram.