Perch Wealth

Ashley Romiti is a 1031/DST advisor with over a decade of experience in real estate investments. She specializes in DSTs and other passive investment solutions, guiding clients through 1031 exchanges with a focus on tax deferral, income stability and portfolio diversification. She holds a bachelor’s degree from UCLA, FINRA Series 7 and 66 registrations and a California real estate license.

A Retirement Strategy Focused on Passive Income, Tax Efficiency and Wealth Preservation

As waves of Baby Boomers continue to enter retirement, many are taking a second look at how they manage their real estate investments. After decades of active management, the demands of tenants, property maintenance and the ever-changing (and growing) list of regulations no longer align with their retirement goals. For these investors, Delaware Statutory Trusts (DSTs) have emerged as an ideal exit strategy to transition their investments into passive real estate ownership, without being saddled with a massive capital gains tax burden.

What Is a DST?

A DST is a legal structure that allows investors to own fractional interests in institutional-quality real estate, such as multifamily apartments, medical offices or industrial properties. DSTs are designed to comply with IRS rules for 1031 exchanges, enabling investors to defer taxes when reinvesting proceeds from the sale of appreciated property.

Properties within DSTs are fully managed by professional sponsors who oversee acquisitions, leasing, operations and eventual asset sales. Investors receive passive income and potential appreciation without direct responsibility, making DSTs an ideal solution for those looking to simplify their estate, preserve their equity and earn passive income.

What is a 1031 exchange? For those unfamiliar, a 1031 exchange is a tax-deferred strategy that allows investors to sell one investment property and purchase another while deferring capital gains taxes. The exchange rules are outlined in Section 1031 of the tax code, hence the 1031 exchange.

Baby Boomers: Holding Trillions in Real Estate

Baby boomers estimated to control more than $16 trillion in real estate assets. Many acquired their properties decades ago and are ready to move forward and sell their assets. However, selling these assets can often trigger tremendous tax consequences. These include:

• Federal capital gains (up to 20 percent)

• Depreciation recapture (25 percent)

• Net Investment Income Tax (3.8 percent)

• State income taxes (as high as 13.3 percent in California)

This tax burden often discourages sales, keeping investors locked in properties they no longer want to manage. DSTs solve this by allowing a tax-deferred sale through a 1031 exchange, offering a clean exit without a hefty tax hit.

Key Benefits of DSTs for Baby Boomers

1. Tax Deferral through 1031 Exchange

DSTs qualify as like-kind property, enabling investors to defer capital gains and depreciation recapture taxes. This allows boomers to reinvest their full equity into new properties rather than losing a substantial portion to taxes.

2. Passive Monthly Income

DSTs generate consistent monthly income, historically projected between 4% and 6% annually. Backed by stabilized, income-producing properties, this passive cash flow helps support retirement without the headaches of management.

3. Portfolio Diversification

Investors can diversify across multiple asset classes and geographies, reducing concentration risk and increasing income stability. This is especially valuable for those who previously owned a single, locally based property.

4. No Personal Debt Liability

If the DST uses leverage, the debt is non-recourse to the investor. This satisfies exchange requirements without requiring personal guarantees or impacting credit.

5. Defined Exit Strategy

Most DSTs have a set hold period of 5–7 years. The sponsor handles the sale, giving investors clarity on liquidity and eliminating the burden of navigating the market themselves.

6. Estate Planning Benefits

DSTs offer significant estate planning benefits by allowing investors to pass down fractional real estate interests without triggering a taxable event. Upon death, heirs receive a step-up in basis, which can eliminate capital gains and depreciation recapture taxes owed by the original investor.

Exploring the 721 Exchange: A Long-Term Exit Strategy

For investors looking for long-term stability, a 721 DST can offer a unique advantage. These DSTs are designed so that the underlying real estate may eventually be acquired by a Real Estate Investment Trust (REIT). When that happens, the investor’s ownership interest is exchanged for operating shares in the REIT without triggering immediate taxes, thanks to Section 721 of the tax code. This strategy allows investors to defer capital gains taxes while receiving income from a diversified multi-billion-dollar REIT portfolio.

A Modern Strategy for an Aging Investor Base

DSTs and strategies such as Section 721 exchanges redefine how real estate investors transition into retirement. These options offer tax deferral, consistent income, institutional management, and valuable estate planning benefits. For investors considering the sale of appreciated real estate, whether a single-family rental, commercial property, or any asset eligible for a like-kind exchange, a DST can serve as an efficient solution for reinvesting some or all of the proceeds while preserving long-term financial goals.

Disclosures:

This material is for informational and educational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any securities or investment products. DSTs and 1031 exchanges are complex investment strategies that may not be suitable for all investors. The information contained herein is not intended as tax, legal, or investment advice. Investors should consult with their own advisors prior to making any investment or tax-related decisions.

 All investments involve risk, including the potential loss of principal. Income projections are not guaranteed. Past performance is not indicative of future results. Real estate investments, including DSTs and REITs, may be subject to illiquidity, economic and market conditions, tenant risks, interest rate changes, and other factors that may affect performance.

 Ashley Romiti is a Registered Representative of Realta Equities, Inc. and an Investment Advisory Representative of Realta Investment Advisors, Inc. Neither Realta Equities, Inc. nor Realta Investment Advisors, Inc. is affiliated with Perch Wealth. Investment Advisory Services are offered through Realta Investment Advisors, Inc., a US SEC Registered Investment Advisor, and securities are offered through Realta Equities, Inc., Member FINRA/SIPC, 1201 N. Orange St., Suite 729, Wilmington, DE 19801. Realta Wealth is the trade name for the Realta Wealth Companies. The Realta Wealth Companies are Realta Equities, Inc., Realta Investment Advisors, Inc., and Realta Insurance Services, which consist of several affiliated insurance agencies. Realta Wealth is not affiliated with RealEstate Business Review.