1. What transaction fees are involved from IREXA?
All transaction fees are built into each purchase and are paid for by the sponsor. IREXA receives its fees from the sponsor. They include normal closing costs, and costs of securitization. On a 50% leveraged purchase, total fees are approximately 4%-6% of the overall purchase price.
2. Does the investment have to be an even multiple of $100K or $200K or $300K etc…can it be $320K?
No. Once you meet the minimum, the investment amount can be to the nearest penny ($123,456.78).
3. If I have $175K cash on $320K basis for $145K debt or around 50% LTV….what is the debt rate/term…sounds like approval is automatic?
The properties are offered on a turn-key basis with financing and management in place. Most of the properties have leverage in the 50%+/- loan to value (LTV) range. You do not have to provide separate financing for your portion of the property.
4. Is a check for the proceeds issued monthly? Is any debt payment taken from cash flow prior to sending to the investor?
Distributions normally occur around the 15th of the month following the month for which income is received. Most sponsors will pay your distribution via ACH directly to your bank account. If you look at the forecasted income analysis in the Private Placement Memorandum (PPM) , income is received, then expenses including mortgage are deducted, leaving cash flow to the investor.
5. Do I get to write off my portion of the debt interest payment?
Effectively, yes. With a DST property, the year-end tax form most often used is a 1099. The 1099 shows net income. All expenses, including mortgage have been deducted to get the net income number.
6. When I decide to sell is this liquid, and if so, what are the conditions?
Since you are buying a percentage interest in the property, it is generally better to wait until the Trustee decides to sell the entire property. We are obligated to say that these investments are illiquid. This is really the same as direct real estate investment. If the time isn’t right to sell for whatever reason, you’re not going to sell. In my opinion, the Trustee is looking to sell at some point in the market cycle where the investors can have a positive outcome. You can, however, through an auction market, list your interests for sale. If your property is doing better and timing is good, you’ll do better on a sale than if it’s not. There is a likelihood that you will get less than fair market value, which may be less than your original investment in an auction setting. This could trigger additional tax liability. Case Study No. 1, that can be accessed here, demonstrates one way to mitigate the impacts of additional tax liability.
7. Is the goal to pay off all these investments then cash flow or sell? How does this work, thinking 20-30 year out?
The goal is stabilized cash flow. Appreciation is a secondary consideration. DSTs have an inherent time limitation to the investment, the financing term. Typically, the time frame is 10 years. So, somewhere in the 10-year term there is an expectation of a sale. In most cases, there may be periods of interest only payments. In some cases it can be interest only for the entire 10 year investment term. When we are in a market cycle having expectations for a downturn in the near term, I look for properties that tend towards being recession resistant assets.
8. Why do some investments have a 1st year projected return of 0%?
Zero cash flow (Zero Coupon) assets are used by investors that have high debt components. Often the Zero Coupon is used as a debt sponge alongside another asset that produces cash flow. Zero Coupon DSTs are used to meet specific requirements in more complex exchanges.
One of the advantages of DST properties over direct real estate investments in a 1031 exchange is the ability to more closely match the 1031 requirements necessary to fully defer gains and eliminate “boot.” A Zero Coupon DST can help achieve that goal.
IREXA® Financial Services / Wealth Strategies
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