Robert S. Smith
If Pacific Northwest income property owners have any remaining doubt regarding Delaware Statutory Trust properties, all they need do is turn to the Wall Street Journal.
On Monday, January 6th, it ran an article entitled “The Housing Shortage in Profile.” This article profiles Oregon’s “land-use rules (which) have been dysfunctional for decades. The urban growth boundaries established by lawmakers in the 1970s have choked off much needed development and disincentivized builders.”
Furthermore, the rest of Oregon “is following Portland’s bad example with more price controls. Last year, it became the first state to impose universal rent control.” Combined with the new limits on evictions, this should give landlords even more to think about regarding the long-term trajectory of their investment properties.
Only two days later in an article entitled “Blue State Redistribution” the WSJ stated that “high-tax states are continuing to lose people and money… The Census Bureau and IRS last week released state population growth and income migration data for 2018 that show the exodus from high-tax to low-tax states is accelerating. New York was the biggest loser as a net 180,000 people left for better climes.”
What all these states have in common is large tax burdens and politically powerful public unions. Sound familiar Oregonians?
Where are high-tax state exiles going? “Zero income tax Florida drew $16.5 billion in adjusted gross income last year. Many have also fled to Arizona ($3.5 billion), Texas ($3.5 billion), North Carolina ($3 billion), Nevada ($2.3 billion), Colorado ($2.1 billion), Washington ($1.7 billion) and Idaho ($1.1 billion).” (WSJ)
Is there a pattern here? Yes. All these states have either no tax or very low-income tax rates. Most are also right to work states, so union influence is low. Finally, most have less government at the state and local level rather than more. Shades of Ronald Reagan and his famous quote, “The nine most terrifying words in the English language are: I’m from the Government, and I’m here to help.”
However, without other options, most investment property owners do not have the flexibility, expertise or reach to take advantage of these profound demographic shifts which are reshaping our economy. I believe, when suitable, a Delaware Statutory Trust may be a viable option for many.
Most income property owners cannot expect to bring the same level of experience to property management in distant markets as they do close to home. This says nothing of the risk incumbent in the process when acting alone. However, with DSTs you can ally yourself with commercial real estate specialists with decades of experience buying, operating and selling potential income producing properties.
The fractional nature of the DST ownership structure has the potential to also work to investors advantage in our current richly priced asset environment. In my opinion, after ten years of near zero interest rates and money creation nothing is cheap; stocks, bonds and real estate are all expensive. Therefore, I believe a defense against overpaying for a single asset on the way back in is to diversify over as many as possible. With DSTs, you can spread your equity out over many more property types and locations.
This material and views are prepared solely by the author and does not necessarily represent the views of the its affiliates. Statements concerning financial market trends are based on current market trend, which will fluctuate. Projections are inherently limited and should not be relied upon as an indicator of future results. Historical figures and performance are not indicative of future results. This is for informational purposes only and does not constitute an offer to buy or sell any investment.
DST 1031 properties are only available to accredited investors (typically have a $1 million net worth excluding primary residence or $200,000 income individually/$300,000 jointly of the last three years) and accredited entities only. There are risks associated with investing in Delaware Statutory Trust (DST) and real estate investment properties including, but not limited to, loss of entire principal, declining market value, tenant vacancies and illiquidity. Diversification does not guarantee profits or guarantee protection against losses. Potential cash flows/returns/appreciation are not guaranteed and could be lower than anticipated.
Because investors situations and objectives vary this information is not intended to indicate suitability for any particular investor. This information is not meant to be interpreted as tax or legal advice.