Rats, Roaches & Mold a Formula for DST Properties

The steady drumbeat of affordable housing goes on. As with healthcare and education, it is now considered a basic human right by the governing class in both Portland and Salem. 

With recent passage of the controversial tenant screening ordinance by the Portland City Council, one more step has been taken down the slippery slope of government takeover.  Next up a ‘Portland Housing Authority’ owning and operating public housing in a manner competitive with that of the private sector.   If private sector landlords can’t or won’t provide ‘affordable’ housing, then it will be up to the government.  What, pray tell, will this get us?

History may not repeat itself, but it certainly does rhyme.  As Portland seems to fancy itself as NYC writ small, a good precedent may be the New York City Housing Authority and its thousands of apartment units full of “rats, roaches and mold.”

In a city whose supply of new and affordable housing has long been strangled by some of the nation’s most draconian rent control laws, government had to step in where private sector developers stepped out.  In so doing, they created one of the nation’s largest (174,000 apartment) pools of sub-standard housing.  “Rats, roaches, mold and leaks have long abounded at the nation’s largest public housing authority.” Power outages in both winter and summer are commonplace.  “Elevators often fail, leaving elderly or disabled residents trapped in their apartments without food or sleeping in building lobbies because they cannot return to their homes.” (WSJ 8/13/2019) Work orders for failing roofing, windows and doors go unfilled for months at a time.

With this egregious example of public sector bureaucracy, irresponsibility, inefficiency and waste staring us in the face, does anyone really believe Portland city government can do things better?  Last time I checked, none of our ‘distinguished’ City Council members had much in the way of commercial real-estate property development, ownership or management experience.

Why then, do we tolerate this steady erosion of our private property rights and its corresponding usurpation by government?  Our minority status and the politics of class envy and vilification have much to do with it.  The craven nature of Portland’s governing class has given itself up to this and uses it as just another tool for personal aggrandizement.

Therefore, if rental property owners want to protect themselves from the rage and stupidity of these political idolaters and avoid being further identified, hunted down and punished as infidels, the logical thing to do is leave.  Fortunately, Section 1031 of the Internal Revenue Code gives you that escape hatch.

For years real estate investors have successfully used section 1031 of the IRS code to exchange their property for bigger and better “like kind” property and defer payment of capital gains tax on their sale.

However, due to the natural limitations of geography and experience, exchanges are often circumscribed to local markets.  Unfortunately, doing so today is like jumping out of the frying pan and into the fire.  If suitable This is where DST properties come in.

As institutionally conceived and managed portfolios of potential income producing commercial properties, you can go anywhere in the nation.  You are not limited to what you can see, touch and manage personally.  This allows you to escape high tax states for low-no tax states.  In so doing, you will forestall further erosion in your private property rights and put your investment equity in front of “millions of people, thousands of businesses and tens of billions of dollars in net income.” (Arthur B. Laffer & Stephen Moore WSJ 4/24/2019)

Run away, run away, run away.

Robert S. SmithPeregrine Private Capital


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.  


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