DST's and covid-19

DSTs and the Covid-19 Landscape

For the last several years we have been telling investors to “Go South, Young Man.” (Horace Greeley, forgive me) from a DST standpoint.  According to Arthur Laffer (Arthur Laffer’s April 24, 2018 WSJ article entitled So Long, California, Sayonara, New York), In the years to come millions of people, thousands of businesses, and tens of billions of dollars of net income will flee high-tax blue states for low-tax red states.  This migration has been happening for years.  But the Trump tax bill’s cap on the deduction for state and local taxes, or SALT, will accelerate the pace.  The losers will be most of the Northeast, along with California.  The winners are likely to be states like Arizona, Nevada, Tennessee, Texas and Utah.”

This pre-existing trend is now exacerbated by the current pandemic.  With the U.S. economy finally moving into recovery mode from the coronavirus, a sharp distinction has developed between the red/Republican states which are opening up much more quickly than the blue/Democratic states that are remaining closed.

In a new study by Arthur Laffer and Stephen Moore for Laffer Associates, they find that the “start date” for reopening a state will have a significant impact on how deep and long the recession will last.

Laffer and Moore find that “states that start to open up immediately will have much fewer small business bankruptcies and much steeper declines in unemployment and poverty rates this summer and fall than states that keep commerce shut down for another month or longer.” 

This greatly increases the likelihood that the blue states, which already suffer from a reverse migration of employers, workers and capital because of higher taxes and more onerous anti-business regulations, will have much more painful recessions in part because businesses will accelerate their exodus from these “closed for business” states.

Saving lives must remain a priority for all governors.  However, in ignoring best health practices in allowing people to get out of their homes and go to stores and the great outdoors while keeping their states in economic paralysis, blue states run the risk of creating a depression like scenario for themselves.

While other red state/sunbelt areas return to some semblance of normalcy these blue state swamps risk “prolonged high levels of unemployment, a surge in the rates of child poverty and economic deprivation, trillions of dollars of reduced wealth and household savings, and millions of small business failures with all the human misery that is associated with these economic maladies.”

As a real property owner and landlord, DST programs give you the ability to move with this changing epidemiological and economic landscape.  As your own, best fiduciary you owe it to yourself to avoid those states whose governors seem intent on putting their state in the most economic peril.  DST properties are the key that can unlock these government handcuffs.

*General Disclosure

Not an offer to buy, nor a solicitation to sell securities. All investing involves risk. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing. While information provided herein is from sources believed to be reliable, the author has not independently verified the statements. This information cannot be relied upon when making an investment decision. 

Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC is not affiliated with any other entities identified in this communication.

1031 Risk Disclosure:

  • There is no guarantee that any strategy will be successful or achieve investment objectives;
  • Potential for property value loss – All real estate investments have the potential to lose value during the life of the investments;
  • Change of tax status – The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities;
  • Potential for foreclosure – All financed real estate investments have potential for foreclosure;
  • Illiquidity – Because 1031 exchanges are commonly offered through private placement offerings and are illiquid securities. There is no secondary market for these investments.
  • Reduction or Elimination of Monthly Cash Flow Distributions – Like any investment in real estate, if a property unexpectedly loses tenants or sustains substantial damage, there is potential for suspension of cash flow distributions;
  • Impact of fees/expenses – Costs associated with the transaction may impact investors’ returns and may outweigh the tax benefits

 

 

 

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