DSTs And the Two Americas

It should be obvious to all and sundry that the United States is now reorganizing itself into two Americas – blue and red.  Even though we have a President and Vice President, the vacuous nature of the former and the nakedly opportunistic character of the later, is increasingly driving policy decisions and accompanying narrative down upon governors.  This has profound implications for income property owners of all types.

This is because there are two different economic and social systems manifest in these separate Americas.  Blue state America embraces and promotes a top down structure, while red state America appears to draw its inspiration more from its citizens and small business owners.

The most conspicuous exemplars of this are New York and California on one side and Florida and Texas on the other.  Governors of the former states use their bully pulpit to promote fear and loathing of anyone or anything that falls outside what is considered ‘woke’ while the latter continue to embrace the personal independence and individuality that has been such a conspicuous part of the American character since our nation’s founding.

This means there are also two business systems in America now.  Blue states seem increasingly driven by the new, vicious, lockstep, lockdown mantra of social justice.  Inherent in this is a disregard for both personal liberty and property rights. 

At both the local and state level government officials actively ignore the former and belittle or slander the latter.  This has resulted in social chaos and economic collapse.  This is borne out by empty streets, boarded up store fronts and sprawling homeless encampments.  If it hasn’t already registered with you, this is not good for property values, commercial or otherwise.

Red state America on the other hand still looks and acts normal.  People and businesses conduct their affairs on a day to day basis with a minimum of government interference.  In most instances taxes remain low and the regulatory burden even less so.

The relative attractiveness of these two systems is attested to by the internal movement of Americans.  Americans are moving from California to Texas in greater numbers than ever before, with California seeing its first net decline in population since 1900.

The same is true of Florida.  There are not enough homes listed for sale there to accommodate all the refugees from the Northeast.  All one need do is spend a day on the now deserted streets of NYC to experience this population relocation at the most visceral level.

In light of this demographic shift, it’s important to note that, in my assessment, big government’s plans for the economy, whether at the state or federal levels, almost always go awry.  In so doing, they have the potential to deliver unintended negative consequences to small business owners and investors.  This is particularly true for income property owners.

This is in large part a byproduct of the illiquid nature of real property.  When social change that is possibly threatening occurs, it can be hard to dispose of. This is also what makes it such an attractive target to blue state progressives.

Investor equity and the cash flow it seeks to generate can easily be held hostage to their big government, socialist ambitions.  Owners can be left to twist in the wind for months and even years before being able to relocate.

It may be possible to ameliorate this threat and mitigate possible damage to the value of your real property portfolio with DSTs.  Because there is almost always DST inventory of some sort available for 1031 exchange purposes, income property owners need not wait for perfect market conditions or a perfect replacement property before listing.

True, the same guidelines for replacement property identification and closure still apply.  However, potential sellers can begin the replacement property hunt at any time by simply perusing lists of available DST properties on different broker-dealer websites.  This will go a long way to informing distressed property owners what is available for replacement purposes outside their troubled blue state markets.

Even though this entails significant work regarding:  different property types, their future in a post covid-19 environment and the people who manage them, we believe it beats sitting on your hands being economically despoiled by woke, blue state progressives vainly hoping things may someday change for the better.


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