1031 Properties For Non-Accredited Investors-DST Alternatives

DST Alternatives For Non-Accredited Investors In 1031 Properties

The need to manage properties and receive a consistent monthly income is inevitable for real estate investors when they would like to retire from managing properties and receive a consistent monthly payment without the need to function as landlords or manage properties. As a result, they have typically been able to defer what is now typically a considerable capital gains tax liability through tax-deferred exchanges. Because of this significant incentive, most property owners intend to “swap till they drop.” As a result, they can defer this tax until their death when their heirs inherit the real estate at a “stepped-up” cost basis, eliminating the tax liability. Property owners often want to invest in real estate that pays monthly income without managing it but are unfamiliar with the investment options available. What is the best place for them to explore options? Is the homeowner working with a financial advisor or a real estate agent? Can you tell me who their CPA is? Since 1031 exchange investments are somewhat niche, few advisors or agents can help exchangers find investment options. The internet is, therefore, a popular place for people to look for solutions.

Investors who are not accredited face a dilemma

Delaware Statutory Trusts, or DSTs, will always appear when searching for 1031 property options online. Despite their popularity as 1031 exchange investments, DSTs may not be the best option for all investors. Securities and Exchange Commission (SEC) regulations limit DSTs to sophisticated and accredited investors. Do you know what the term means? Your situation is not unique. Since DSTs are so popular, people will have trouble finding other viable alternatives. A non-accredited investor may find investing in passive real estate today challenging. Before discussing non-accredited investor options, let us discuss what an “accredited investor” is.

What are accredited, investors?

DST investments require accredited investors, and this category comprises approximately 3% of Americans, which limits the availability of DSTs to many individuals. According to the Securities and Exchange Commission (SEC), investors who are accredited meet Rule 501 of Regulation D.

Accredited investors can qualify in eight different ways, but the following two are usually the most common:

  • Banks, insurance companies, registered investment companies, and companies that develop businesses;
  • The Employee Retirement Income Security Act defines employee benefit plans as those that a bank manages, insurance company, or registered investment adviser;
  • corporation, partnership, or charitable organization with more than $5 million in assets;
  • Securities sold by an officer, director, or general partner of the company;
  • Investors who own all equity in a company;
  • Individuals or couples with an individual net worth, or a joint net worth with their spouse, exceeding $1 million at the time of purchase, or who manage assets exceeding $1 million, excluding their primary residence;
  • Individuals who have earned more than $200,000 in each of the two most recent years or who have earned more than $300,000 jointly with their spouse and have a reasonable expectation of maintaining the same level in the upcoming year;
  • A sophisticated person purchases securities through a trust with assets over $5 million.

How can non-accredited investors invest in 1031 alternatives?

The dilemma is: what if I am not an accredited investor, but I want to benefit from alternative investments such as DSTs? It’s a scenario we encounter quite often. Investing in investment-grade properties allows investors to invest their proceeds in investment-grade properties without having to manage them. The good news is – there’s hope. Another investment format that followed DSTs was tenants-in-common or TIC. As with DSTs, TICs allow investors to invest as little as $100k in investment-grade properties. Our clients can invest in TIC properties without being accredited, unlike DSTs, which are securities.

As far as 1031 exchanges are concerned, TICs came before DSTs. Since the early 2000s, DSTs have become a far more common choice than in the early 2000s. Some might use this to discredit TICs, but the primary reason DSTs are so popular is that over 90% of TIC/DSTs have leveraged (i.e., they have a loan secured against the property(ies)), and DSTs make it much easier for deal sponsors to leverage as well as for investors to take on their portion of the leverage upon investing.

TIC deals may be harder to find these days, but this in no way diminishes their validity or benefits. It would be our pleasure to assist you with exploring what options are available to you if you are interested in both TICs and DSTs, and you can contact us to find out what options are available.


We’ve been helping non-accredited investors benefit from secure and stable monthly income provided by investment-grade 1031 properties for nearly 20 years. Talk with one of our advisors.

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