Author Topic: DST vs TIC via 1031  (Read 146 times)

kenmoremmm

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DST vs TIC via 1031
« on: September 25, 2020, 11:24:28 PM »
i will soon be listing a rental property for sale and am planning to 1031 the proceeds (expected around $300k).

i'm looking at investing in one of three possible replacements:
1. direct purchase of self storage unit via traditional 1031
2. 1031 into DST that would be invested in assortment of NNN properties (walgreens, autozone, etc)
3. 1031 into self storage syndication in which i would be tenant in common with the overall equity partner (the syndicator)

#1 is pretty straightforward to me, but one i am leaning away from due to learning curve, time commitment, and other factors
#2 seems appealing, but the projected cap rate, while much much better than my current property, is lower than i had been dreaming of
#3 seems like it could be the most lucrative, but feels a little riskier since the holdings don't seem to have as many legal assurances and other things that i'm not well versed on

anyway, my question pertains to depreciation for #2 and #3.
for #2, the DST takes investor money and couples with lender financing. as a result, your 'share' is larger. so, if you put in $100k, there might be $200k of lending for your share. As such, you would be able to depreciate $300k of value.
for #3, i think the way it would work is that there isn't financing involved and you'd only get depreciation on your direct money invested.

i'm curious if anyone here has experience in either of these situations. i know it's likely a rare condition in the grand scheme of RE investing.

SndcxxJ

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Re: DST vs TIC via 1031
« Reply #1 on: September 26, 2020, 10:10:49 PM »
I do not have personal experience with a DST or TIC, but it seems like getting away from residential real estate and into commercial real estate is where you want to head.  You seem knowledgeable about these topics, but just in case you haven't considered it, the depreciation schedules could be vastly different depending on the exact deal you end up with.

For example, in one scenario you might find a TIC that is doing a straight line depreciation and you are replacing an existing member, and the property has been owned by the TIC for a number of years the depreciation might be unexpectedly low (Don't forget commercial real estate is generally depreciated slower than residential real estate).  Alternatively, if you find a TIC that is just forming and they break out each component of the asset and depreciate each component separately there might be more depreciation than expected.

Lastly, and this is coming straight from my bias, be super careful when allowing others to have a say on managing your money and assets as in a TIC.  I have a business associate who lost a very hefty sum on a commercial real estate venture when a 30 person TIC couldn't agree on various items, and ended up losing the property to foreclosure, and with it the entire TIC equity stake.