Perhaps the most critical relationship an investor needs with a potential 1031 exchange or DST transaction is the licensed securities professional who will ultimately help guide the investor through the entire process. Finding the right one can be challenging.
It’s estimated there are over 300,000 Financial Advisors in the U.S.1 Some have deep experience in helping investors with 1031 exchanges. Others have none.
There are 40,500 Google searches every month for ‘1031 exchanges.’ Clearly, there are thousands of individuals looking for advice on a business property transaction.
There was $2.52B in securitized 1031 exchange sales in 20182; up 28% from 2017 and DSTs accounted for nearly $2B3. That’s a lot of inventory to choose from.
With statistics like these, it’s imperative for investors to find a licensed securities representative they can trust and one with the necessary experience and know-how to get DST transactions completed accurately and efficiently.
What makes this search so pressing for many individuals is the fact there are inherent deadlines and time constraints associated with DST transactions, and that permits only limited time to develop a close relationship with a rep.
As you start your search, however, here are four things to look for that will help you in finding the right representative for you:
Prior Commercial Real Estate Experience
Licensed securities representatives may be experienced with financial planning, portfolio creation and stock and bond investing. But that doesn’t mean they are knowledgeable about commercial real estate. Look for a rep who has broad experience selling and evaluating income-producing real estate and one who also understands DSTs and can answer the tough questions on how DST offerings compare to each other.
References from Recent and Long-term Clients
Your investment in a DST is the beginning of what should be a long relationship with your securities representative. Ask for references, new and old, and make sure those clients have had positive experiences with the rep and that he’s earned their trust with the hard work and commitment he’s shown.
When forming a new relationship, nothing can replace the value of an in-person meeting. In fact, a recent study by Harvard social psychologist, Amy Cuddy, suggests that people quickly answer two critical questions when they first meet someone:
- Can I trust this person?
- Can I respect this person?
Technology is your friend for this last element to evaluate in selecting the right securities professional. The regulatory body that oversees the broker/dealer industry – FINRA – offers a website called BrokerCheck. It provides a detailed employment history on all securities representatives actively registered with broker-dealers. For other representatives registered as Investment Advisors, the SEC provides a website with detailed employment and industry experience for each individual.
We’d also encourage you to identify only securities reps who have real estate licenses, and similar background checks can be conducted on these licenses by visiting the Department of Real Estate website in the state where the license is held.
Benefits You’ll Receive
So, once you find the right rep, what can you expect them to do for you regarding your DST transaction. Well, a multitude of things including help with:
- Identifying and vetting the best sponsors
- Evaluating the experience and skill of the operator
- Assessing the structure of the master lease
- Analyzing the projected returns and property valuation
- Examining fee structure for competitiveness
- Weighing the reasonableness of the asset class and business plan
- Reviewing exit strategies for appropriateness
- Uncovering any conflicts of interest