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Investing Through a DST? Ask These 7 Questions to Uncover Hidden Risks Before You Sign.

When evaluating a Delaware Statutory Trust (DST) as part of your 1031 exchange strategy, it's essential to ask informed questions to ensure the investment aligns with your goals, risk tolerance, and timeline.

Here are the Top 7 Questions to Ask Before Investing in a DST.

What is a DST?

Delaware Statutory Trusts (DSTs) offer investors the opportunity to hold fractional interests in professionally managed commercial properties. This structure facilitates passive real estate investment while potentially delivering tax advantages through a DST 1031 exchange. Additionally, DSTs provide investors with limited liability and exposure to a diverse range of commercial real estate assets.

1. What is the Sponsor’s Track Record and Due Diligence Process?

Real estate investing requires you to evaluate the sponsor’s experience and performance. Ask about their previous offerings and how those investments performed over time. Review their financial stability and operational track record to assess reliability. Understand the due diligence process they follow, including steps like site visits, stress testing, and background checks. 

Also, consider the level of due diligence conducted by Stax to ensure added transparency and confidence in the offering.

2. What Are the Specific Risks Associated with the DST?

DSTs offer attractive benefits such as passive income and potential capital gains. But they come with inherent risks such as illiquidity. As we know that interests in DSTs cannot be easily sold or traded, they limit the ability to exit the investment before the end of the term. Real estate market fluctuations can also impact the performance of the asset, potentially affecting both returns and capital value. Tenant turnover and occupancy issues may result in inconsistent income.

Additionally, conflicts of interest could arise between the sponsor and the accredited investors if their objectives are not fully aligned. It is one of the important things to consider while investing in real estate.

3. What Is the Investment Objective and Exit Strategy?

It is important to have a clear understanding of the investment objective and exit strategy of the DST before making a commitment. Identify whether the primary goal is to generate consistent income, seek long-term appreciation, or a combination of both. Clarify the typical hold period, as this can impact your liquidity and overall planning. 

Additionally, review the available exit options, which may include an asset sale, a 721 exchange into a REIT, or other structured outcomes. Knowing what happens at the end of the trust’s term is essential for setting expectations and preparing for next steps in your investment journey.

4. How Does This DST Fit Within My 1031 Exchange Timeline?

The 1031 exchange process comes with strict deadlines that must be adhered to for successful completion. Investors are given 45 days to identify a replacement property and must close within 180 days. It is crucial to confirm that the DST can be acquired within this timeframe to avoid missing key deadlines. 

Stax is committed to helping investors meet these requirements, offering support for timely closings. When properly planned, Stax can assist in completing the 1031 exchange process within just 3–5 business days, and provides an attractive option for portfolio diversification.

5. What Are the Fees and How Will They Impact My Return?

DST investments may involve several types of fees, each of which can affect the overall performance of the investment. These fees typically include upfront costs, asset management fees, and disposition or backend fees, which are incurred when the asset is sold. It is crucial to fully understand both the disclosed fees and any embedded fees that may not be immediately apparent. 

Carefully assess how these costs will impact the net cash flow and the long-term returns of the investment. By doing so, investors can make more informed decisions and better evaluate the true value of the DST.

6. What Kind of Real Estate Is Held in the DST and Where Is It Located?

Understanding the asset type is crucial when evaluating a DST investment. Whether the property is multifamily, industrial, retail, or another category, each type has its own set of characteristics and risks. It is important to request detailed information about the location, including demographics, employment trends, and the overall economic stability of the market. 

These factors help assess the growth potential and risks associated with the investment. Additionally, evaluate the quality of the property, the tenant mix, and the lease structures in place. These elements are critical as they directly influence both the performance of the asset and the level of risk involved in the investment.

7. Am I Eligible, and Is This Investment Suitable for My Goals?

You may be eligible for a DST (Delaware Statutory Trust) investment if you're an accredited investor. Also, if you're completing a 1031 exchange to defer capital gains taxes. DSTs are commonly used in real estate 1031 exchanges as replacement property options. 

This type of investment may be suitable if you're seeking passive real estate income without the responsibilities of being a landlord, want diversification across institutional-quality properties, are looking to defer taxes through a 1031 exchange, and have a desire for potential cash flow.  

However, a DST may not be appropriate if you require liquidity, as these investments are generally illiquid for 5 to 10 years. Also, if you want control over property management, have a short-term investment horizon, or are uncomfortable with real estate market risks then DSTs might not be suitable for you.

Is DST Investing Right for You?

While DST investments provide an attractive option for diversifying your portfolio, they come with risks. It’s essential to weigh these risks against the potential rewards and ensure you’re prepared for the long-term commitment. By working with qualified professionals and thoroughly understanding the terms and implications, you can make informed decisions that align with your financial goals.

If you’re ready to take the next step or need guidance, we’re here to help. Get in touch with Stax today to learn more about how DST investments fit into your strategy!

Navigating a 1031 exchange? Avoid these common mistakes to keep your tax deferral intact.

While a 1031 exchange can defer capital gains taxes, the rules are strict. Missteps with timelines, property value, or fund handling can lead to disqualification. Careful planning helps avoid them.

This guide will help you steer clear of the most frequent pitfalls that could jeopardize your eligibility for a 1031 Exchange.

What is a 1031 Exchange?

A 1031 exchange is a tax strategy under Section 1031 of the Internal Revenue Code. It allows investors to defer capital gains taxes when selling a business or investment property. To qualify, the proceeds must be reinvested into a like-kind property of equal or greater value. It helps investors grow their wealth by keeping gains in a tax-deferred state.

Common mistakes to avoid 

Mistake #1: Not using a Qualified Intermediary (QI)

A Qualified Intermediary (QI) is a neutral third party. They are required for a valid 1031 exchange. The QI holds the sale proceeds and uses them to buy the replacement property. This keeps the process in line with IRS rules. 

If you access the funds yourself, the exchange no longer qualifies. That means you’ll owe capital gains taxes right away. Not using a QI can turn a tax-deferred opportunity into a taxable mistake. Always work with a QI who specializes in 1031 exchanges.

Mistake #2: Not sticking to the timeline

It is imperative to follow the 45-day and 180-day timelines. A 1031 Exchange strictly enforces a 45-day identification period, during which the investor must identify potential replacement properties. Additionally, you have 135 days to close on the purchase of the replacement property.

If you miss any part of the timeline, you forfeit the opportunity to receive tax deferral benefits.

The IRS provides three identification rules—the 3-Property Rule, 200% Rule, and 95% Rule—to guide the selection of new investments. These rules are designed to offer flexibility in your property choices. If something goes wrong with your first option, you’ll have backups ready. However, these timelines must be strictly adhered to.

• 3-property Rule - The 3-Property Rule in a 1031 exchange lets you list up to three potential replacements, offering flexibility if one falls through. However, if none are acquired within 180 days, you lose tax deferral benefits.
• 200% Rule -The 200% Rule in a 1031 exchange lets you identify unlimited replacement properties, as long as their total value doesn’t exceed 200% of the sold property’s value. For a $500,000 sale, identified properties can’t exceed $1 million to maintain tax deferral eligibility.
• 95% Rule - The 95% Rule in a 1031 exchange allows unlimited property identification with no value cap, but you must acquire at least 95% of the total value to qualify. It’s most effective when buying a full portfolio from one seller, provided all IRS requirements are met.

Mistake #3: Incorrectly identifying replacement property

Finding the right replacement property is essential to qualify for a 1031 Exchange. The property must be “like-kind”—not necessarily identical, but it must be held for business or investment purposes. Residential property held for personal use does not qualify under this category.

A trustworthy Qualified Intermediary (QI) can assist you in finding the right property. Keeping the three identification rules in mind can also help you make the most of a 1031 Exchange. This guidance is not based on your capital gains situation.

Mistake #4: Incorrect Ownership Structures

Owning property through partnerships or LLCs without proper planning can disqualify your 1031 Exchange. The IRS requires the same taxpayer to sell and buy. If it happens that partners split or restructure ownership mid-exchange, you risk losing deferral benefits. 

A Delaware Statutory Trust (DST) can be used as a 1031 replacement property, offering fractional ownership in institutional-grade real estate, and is often suitable for those seeking to move toward passive ownership.

Alternatives like DSTs (Delaware Statutory Funds) offer flexibility. They let investors part ways or reinvest individually if a need emerges mid ownership. It helps you stay compliant and protect your tax advantage.

Note: If a property is owned through a partnership or LLC, and one or more partners want to cash out or change ownership before reinvesting then a properly planned drop out or conversion to TIC/DST must be done in advance.

Mistake #5: Documentation and Form errors

Proper documentation and adherence to the timeline are non-negotiable to qualify for a 1031 Exchange. Some of the key documents include the signed sales contract, completed 1031 Exchange information sheet, exchange agreements, settlement statements, and documentation related to closing day and escrow setup.

Note: You must seek assistance from your Qualified Intermediary (QI) in preparing these documents to avoid any errors.

Mistake #6: Identifying just one property - must identify 3-4 properties

Limiting yourself to just one replacement property during a 1031 Exchange is risky. If that deal falls through, you could lose your eligibility for tax deferral. The IRS allows you to identify up to three properties—take advantage of that flexibility. 

Identifying 3–4 options provides a safety net and increases your chances of successfully completing the exchange within the strict timeline. Always plan for backups.

Mistake #7: Debt Replacement Mistakes

Many believe you must match or exceed the loan amount from the sold property. That’s false. The key is replacing the value of the debt—not the loan itself. If you had $400,000 in debt, you can replace it with cash, seller financing, or private funds. 

Using less than the full value can trigger taxes. Don’t assume another loan is your only option. Mixing funding sources is fine. Always consult a tax professional to avoid costly mistakes and ensure full tax deferral.

Ready to start your 1031 Exchange Journey

Successfully qualifying for a 1031 exchange often comes down to following key IRS rules—such as meeting strict timelines, choosing eligible properties, and using a qualified intermediary. Paying close attention to these requirements can greatly improve your chances of deferring taxes and preserving your investment gains. 

With careful preparation and informed decisions, investors put themselves in a strong position to meet 1031 exchange criteria. For those exploring this route, understanding the process can be a valuable first step toward potential tax deferral benefits.

If you’re ready to start your 1031 exchange journey or need expert advice, get in touch with us today!

Did you know you may be missing out on potential tax advantages available through Qualified Opportunity Zones, depending on your unique situation and eligibility? Many investors overlook Qualified Opportunity Zones (QOZs) simply because they don’t understand how they work. 

However, these federally designated areas offer powerful tax advantages, including the ability to defer tax on capital gains, reduce taxable income, and even eliminate capital gains tax on long-term investments.

This guide will simplify QOZs and help you leverage them for federal income tax purposes and long-term wealth growth.

What Are Qualified Opportunity Zones?

Qualified Opportunity Zones (QOZs) were established under the 2017 Tax Cuts and Jobs Act to drive economic development and job creation in underserved communities. Investors can place capital gains and qualified 1231 gains into a Qualified Opportunity Fund (QOF)—an investment vehicle that files either a corporate federal income tax return or partnership return—offering multiple tax advantages.

To qualify, investments must be made in a Qualified Opportunity Zone Business (QOZB) or Qualified Opportunity Zone Business Property (QOZBP). The Internal Revenue Service (IRS) oversees these programs, ensuring investments are compliant with tax regulations.

Key Tax Benefits of Investing in QOZs

Investing in a Qualified Opportunity Zone (QOZ) isn’t just about building wealth—it’s also about unlocking powerful tax advantages. Here’s how investors can benefit:

Defer Capital Gains Taxes

One of the biggest tax perks of investing in a QOZ is the ability to delay paying taxes on capital gains. If you’ve made a profit from selling a business, stocks, real estate, or even collectibles like rare art, you can reinvest those gains into a Qualified Opportunity Fund (QOF) and push your tax bill to the end of 2026. However, you must invest within 180 days of selling your asset.

This rule has a few exceptions. If your gains come from a partnership, S corporation, estate, or trust, the 180-day period can start on the last day of the taxable year, the entity’s own 180-day deadline, or its tax return due date.

There’s one catch: if you sell your QOF shares before 2026, you’ll owe taxes right away. Plus, your original tax rate stays the same—short-term gains remain short-term, and long-term gains remain long-term. While this deferral won’t lower your tax rate, it buys time and allows you to reinvest more capital upfront.

No Capital Gains Tax on Growth

The biggest reward for long-term investors is the chance to benefit from tax exclusions on the growth of their QOZ investment. If you hold your investment for at least 10 years, any appreciation you earn is tax-free when you sell.

Most tax deferral programs only delay taxes—but QOZs can let you eliminate capital gains taxes on appreciation if all IRS requirements are met, including a 10-year holding period and proper fund compliance. Even after the QOZ program technically expires in 2026, you can still enjoy tax-free growth until 2047 as long as your investment stays in a QOF.

This may be a significant advantage for long-term investors, especially in zones with favorable economic trends. However, outcomes vary, and market conditions can shift. If your investment increases significantly, you could reduce your tax burden, though savings depend on appreciation, fund performance, and future tax law changes.

Shelter Income from Taxes

If you invest in real estate through a QOF, you can also reduce taxes on income generated by your property. Once the property is fully developed or renovated and has steady tenants, it will start producing rental income.

Thanks to depreciation, a key tax benefit in real estate, your taxable income can be much lower than your actual earnings. Depreciation accounts for wear and tear, reducing reported profits while keeping more money in your pocket.

For example, if your rental property earns $70,000 per year but has $30,000 in depreciation expenses, you only pay taxes on $40,000. This tax break allows investors to keep more of their earnings while still benefiting from real estate appreciation.

No Depreciation Recapture Tax

Depreciation is a double-edged sword. While it lowers taxable income during ownership, investors outside of QOZs must pay a hefty depreciation recapture tax—usually 25%—when selling their property.

But QOZ investors who hold their properties for 10+ years don’t have to pay this tax. Even though they’ve benefited from depreciation deductions, they may avoid the typical depreciation recapture tax, which can enhance net proceeds. As with all tax benefits, this is subject to eligibility and IRS compliance.

Excess Depreciation Can Offset Other Investments

In some years, a real estate investment may not generate much net income—especially during the early stages when occupancy is still ramping up. During these low-profit years, depreciation may exceed the income the property generates.

When this happens, investors can carry forward excess depreciation to offset future income. In some cases, they can even use these losses to lower taxes on other passive investments. However, this tax benefit depends on the investor’s ability to track and use these excess deductions properly.

Long-Term, Tax-Free Cash Flow

While many investors may choose to sell their QOZ investments after 10 years, others can keep earning tax-free cash flow until 2047. However, not all funds are structured to last that long, so it’s important to choose the right QOF with a long-term strategy.

This extended tax-free growth period may offer advantages depending on fund structure and market conditions. If a fund decides to sell a property early, investors might not be able to take full advantage of this tax-free window. That’s why choosing the right fund manager with a strong long-term vision is crucial.

Ready to Take Advantage of QOZ Tax Benefits?

Qualified Opportunity Zones can be a powerful tool for long-term investors with capital gains. By deferring taxes, benefiting from depreciation, and potentially eliminating future capital gains, these investments offer flexibility and upside—when managed correctly.

Want help evaluating whether a QOZ fits your goals? Let’s talk. Our team can walk you through the timelines, structures, and strategies designed for accredited investors seeking efficient ways to grow their wealth.

Think interest rates don’t matter? Think again. A small change in prevailing interest rates can significantly affect mortgage payments, which may impact an investor’s cash flow and returns. If you want to succeed in real estate, you need to understand how these shifts affect your investment property and overall return on investment.

In this article, we’ll break it all down in simple terms and give you actionable investment strategies to navigate a shifting market and optimize your investment approach.

What Are Interest Rates & Why Do They Matter?

Interest rates are the price you pay to borrow money. When you take out a mortgage, the lender adds interest on top of the amount you borrowed. The higher the rate, the more you pay over time.

For real estate investors, even a small rate increase can make a big difference. A lower interest rate keeps costs down and increases your return on investment (ROI). A higher rate can make an investment property less attractive by raising monthly payments.

Knowing how interest rates work helps you make smarter decisions. Whether you’re buying your first rental or expanding your portfolio, staying informed gives you an edge.

How Do Interest Rates Affect Real Estate Investments?

Interest rates have a powerful impact on real estate investments. They influence borrowing costs, property values, rental yields, and even market liquidity. Understanding these effects can help investors make smarter decisions and maximize returns.

Let’s break down the key ways interest rates shape the real estate market.

The Cost of Financing

Interest rates determine how much it costs to borrow money for real estate purchases. Even a small rate change can significantly impact mortgage payments and overall affordability.

• High Interest Rates: When rates rise, loans become more expensive. Monthly mortgage payments increase, reducing how much buyers can afford to borrow. As a result, fewer people enter the market, which slows down housing demand and gives remaining buyers more negotiating power. Sellers may need to lower prices or offer incentives to attract buyers.
  
  
• Low Interest Rates: More buyers enter the market when borrowing is cheaper. This increased housing demand may drive up property prices, making investing in real estate more competitive. Investors may benefit from lower mortgage payments, which can improve cash flow and potentially support long-term return objectives. However, returns are not guaranteed and depend on multiple factors.

For real estate investors, financing costs play a major role in profitability. Those who secure low-interest loans may reduce their financing expenses, which can enhance their potential return on investment (ROI), though outcomes are subject to market and property-specific factors.

Property Values

Interest rates and property prices may exhibit an inverse relationship, though this can vary based on local market conditions and broader economic factors. When rates go up, home prices tend to level off or decline. When rates drop, property values typically increase in value.

• Rising Interest Rates: Higher borrowing costs shrink the pool of potential buyers. With less competition, home prices may stabilize or even decrease. This can create opportunities for investors to buy commercial properties at lower prices before the market rebounds.
  
  
• Falling Interest Rates: When borrowing is more affordable, demand for homes increases. More buyers in the market can lead to rising property prices. Investors who already own properties benefit from this appreciation and can sell for a higher profit.

Understanding market trends is important. While some investors aim to purchase during lower-price periods and sell during favorable market conditions, real estate values are subject to change and can fluctuate based on broader economic factors.

Rental Yields & Demand

Interest rates also influence the rental market, affecting both supply and demand for rental properties.

• High Interest Rates: When borrowing becomes expensive, fewer people purchase a home, and more turn to renting. This increases demand for rental properties, allowing landlords to charge higher rents. In turn, rental yields improve, making income-producing real estate more attractive.
  
  
• Low Interest Rates: When mortgage rates are low, more renters transition to homeownership. Rental demand decreases, which can put downward pressure on rental prices. However, landlords may benefit from lower financing costs, which means they don’t have to charge as much rent to cover their expenses.

Investors looking for rental income should consider how interest rates influence tenant demand and pricing.

Market Liquidity & Investment Timing

The speed at which properties sell—and how easy it is to enter or exit the market—depends heavily on interest rates.

• Low Interest Rates: When financing is affordable, properties sell quickly because more buyers are competing. Investors who flip homes benefit from strong demand and faster transactions.
  
  
• High Interest Rates: Homes take longer to sell as buyers are more cautious. Sellers may need to lower prices or offer creative financing options to attract buyers. Long-term investors, however, can benefit from strong rental demand during these periods.

For investors, knowing when to buy or sell based on interest rate trends can make a big difference in profits.

How to Navigate a High-Interest Rate Market

Interest rates play a significant role in shaping real estate investment decisions. When rates rise, borrowing costs increase, impacting purchasing power, property values, and cash flow. However, strategic planning and adaptability can help investors thrive in a high-interest-rate environment. Here’s how:

Monitor Interest Rate Trends

Staying informed about interest rate trends helps investors make proactive decisions. Consider:

• Tracking Economic Indicators: Watch for inflation rates, employment data, and GDP growth, which influence interest rate changes.
  
  
• Following Central Bank Announcements: Institutions like the Federal Reserve or the Bank of Canada provide insights into future rate adjustments.
  
  
• Understanding Market Sentiment: Stay updated on industry trends and expert forecasts to anticipate potential shifts.

By staying ahead of rate movements, investors can time their investments wisely and make well-informed financing decisions.

Consider Fixed-Rate Mortgages

When interest rates are rising, securing a fixed-rate mortgage can provide long-term financial stability. A fixed-rate loan locks in current rates, protecting against future increases and ensuring predictable monthly payments. Benefits include:

• Predictable payments – Fixed-rate loans offer predictable payment structures, preventing unexpected cost spikes.
  
  
• Shielding against future rate hikes – Investors can avoid the risk of rising variable rates, which can erode cash flow.
  
  
• Long-term financial planning – Predictable financing costs allow for more accurate budget and investment planning.

If already holding variable-rate loans, investors may explore refinancing options to switch to a fixed-rate loan while rates remain manageable.

Diversify Across Property Types

Spreading investments across different asset types and financing structures can reduce risk in a high-rate environment. Real-estate investment strategies include:

• Mixing property types – Investing in residential, commercial, and multi-family properties can balance risk exposure.
  
  
• Exploring cash-flow-positive properties – Prioritize properties with properties with the potential to generate income under varying rate conditions.
  
  
• Investing in different markets – Consider areas with growing rental demand, strong job markets, and limited housing supply to minimize market downturn risks.

Diversification ensures that losses in one segment do not significantly impact the overall portfolio.

Evaluate Market Conditions Before Investing

Interest rates don’t operate in isolation—they interact with broader market dynamics. Before making investment decisions:

• Assess Supply and Demand Trends: Understand how rising rates affect buyer demand and rental occupancy.
  
  
• Analyze Local Economic Indicators: Job growth, population trends, and industry development influence property values.
  
  
• Study Competitor Pricing: Evaluate comparable property prices and rental rates to determine competitive positioning.

A thorough market analysis ensures that investments align with current and future economic conditions.

Plan for Contingencies and Stress-Test Investments

Interest rates impact cash flow, so it’s essential to prepare for worst-case scenarios. Steps to mitigate risk include:

• Running Stress Tests – Analyze how increased interest rates affect loan payments, cash flow, and profitability.
  
  
• Building Financial Reserves – Maintain an emergency fund to cover unexpected costs or temporary vacancies.
  
  
• Exploring Refinancing Opportunities – If interest rates stabilize or decrease in the future, refinancing can help reduce costs.

By proactively planning, investors can safeguard their portfolios and maintain financial stability.

Take Control of Your Investments

Interest rate fluctuations don’t have to derail your real estate goals. With the right planning, risk management, and financing strategies, you can identify opportunities even in a challenging market.

If you’re looking for tailored advice on how to navigate the market, reach out today—we’re here to help you make informed investment decisions.