Most property owners have spent decades and even generations working to grow their businesses, their assets and their real estate holdings. In our experience, most haven’t put equal thought into how they and their families might wish to exit. It is important for folks to have an eye on both sides of that equation.
Crafting effective exit strategies for landowners is a cornerstone of advisory services at Insight Investment Advisers.
Exit strategies
The firm understands the importance of optimizing tax implications and land management, while continuing to build and grow a lasting legacy for our clients and their families. In this regard, Delaware Statutory Trust properties emerge as a compelling solution; offering unique benefits for landowners seeking to sell their land asset(s), defer capital gain taxes, diversify into a portfolio of passive real estate and collect income.
DST properties present a tax-efficient avenue for real estate investors, including landowners, looking to transition out of their current holdings. Through a 1031 exchange, clients can defer capital gain taxes upon the sale of their property by reinvesting the sale proceeds into one or more DST properties. This mechanism not only preserves wealth but also allows for continued growth and income without immediate tax liabilities.
Passive income streams
One of the key advantages of DST properties is their passive income streams. By participating in fractional ownership of professionally managed commercial properties, clients can enjoy cash flow without the day-to-day responsibilities associated with property ownership. This approach is particularly appealing to landowners seeking retirement or diversification.
Moreover, DST properties offer diversified investments across various property types and geographic locations, reducing risk exposure and enhancing a resilient real estate portfolio. Professional asset managers oversee property operations, including tenant relations and maintenance, ensuring optimal performance and risk mitigation for investors.
However, while DST properties offer compelling benefits, it’s essential for clients to understand the potential risks and limitations associated with this strategy. Not all DST properties are created equally. Just like any real estate on the market, there are properties available that a client would never want to own. They are priced too high. They are not in the right location. Supply and demand factors will not support them. They are poorly operated and will require continued capital reinvestment. A client will lose money by owning them.
Due diligence
Proper and thorough due diligence is essential to capital preservation and overall investment profitability. DST properties may include illiquidity, limited control and variability in income distributions. Insight Investment Advisers dives into the details on each DST property and each DST operator, tossing aside up to 70% of available properties. Additionally, advisers work with clients to assess individual goals, risk tolerance and liquidity needs, ensuring informed decision-making and alignment with their overall financial and estate planning objectives.
Furthermore, for landowners seeking to pass wealth to heirs who may not wish to continue farming, ranching or managing land, DST properties offer a viable exit solution. By incorporating DST properties into their estate planning strategies, clients can facilitate seamless wealth transfer while preserving the integrity of their agricultural legacies.
At Insight Investment Advisers, we recognize the importance of tailoring exit strategies to meet the unique needs and objectives of each client. The team of experienced advisers collaborates closely with clients to design comprehensive plans that optimize tax efficiency, ensure responsible land management and create pathways for generational wealth transfer. Through strategic guidance and personalized approach, professional advisers empower landowners to navigate the complexities of exit planning with confidence and clarity, securing a prosperous future for themselves and generations to come.
Julia Fritzlen is an investment adviser with Insight Investment Advisers of Leawood, Kansas.
