When considering replacement properties, you must consider the risk-reward ratio, the 45-day identification period, whether you must replace the debt from the relinquished property (and the time required to do that), and whether you are interested in managing your new property. In addition, you must consider whether or not the property could require additional capital expenditures in the future. You have two options:
- 1. ACQUIRE PROPERTIES THAT REQUIRE MANAGEMENT AND FREQUENTLY ADDITIONAL CAPITAL
- Complete control of ongoing management and decision-making.
- You, the owner, can only occupy 14 days per year or 10% of the number of days it’s rented, whichever is greater.
- Hard to find and complete due diligence within 45-day identification period.
- Generally, require additional investment for maintenance and repair.
- Complete control of ongoing management and decision-making.
- Hard to find and complete due diligence within 45-day identification period.
- Require ongoing management.
- Require ongoing investment in maintenance, repairs, commissions, and tenant improvements.
- 2. ACQUIRE MANAGEMENT-FREE PROPERTIES
- Strong guarantees from credit tenants such as Walgreens, McDonalds, Bank of America.
- Consistent monthly income.
- Tenant pays for all expenses in most cases.
- Long-term value tied to length of term remaining on lease and current interest rates. As lease terms decrease and interest rates increase, values generally decline.
- Investing all your proceeds into one property increases risk. You could have vacancy which necessitates leasing commissions and tenant improvement costs, loss of income while vacant and you’ll be out of pocket for taxes and insurance while vacant.
- The best long-term returns in real estate come from diversification. You can diversify your proceeds among a number of DSTs to reduce risk and stabilize your monthly income.
- DST properties are management-free. You own part of the property with other investors; the Trustee makes all management decisions.
- You are never out-of-pocket for any additional expenses, including repairs, improvements, and commissions.
- DSTs are not liquid. You will need to hold your interest until the property or properties in the DST are sold which, on average, is 5-7 years.
Vacation Homes or Rental Homes
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Multi-Family, Multi-Tenant Office, Industrial, and Retail Properties
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Single Tenant Absolute Triple Net Lease Properties (NNN)
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Institutional-Quality Properties Held in a Delaware Statutory Trust (DST)
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