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Strip mall developments are just one popular category for real estate investment under a Delaware Statutory Trust.

Stay Invested in Real Estate Without the Dreaded 'Three T's'

When selling appreciated investor real estate, it’s best to defer income taxes if possible. This can be accomplished by way of a 1031 exchange, sometimes known as a Starker Exchange.

But a 1031 exchange mandates that you stay in real estate, as you are exchanging one property for another. And maybe you have tired of what some real estate servicers call the "three T's of active managementtenants, toilets and trash."

There is an easier way. It’s called a Delaware Statutory Trust. You’ll still be in real estate, but you’ll be on the passive side of the equation andfor a feebe relieved from property management and asset management.

Delaware Statutory Trusts, or DSTs, own tens of thousands of properties across the country, from apartment complexes to medical office buildings to warehouses. They own strip malls and stand-alone retailers. The Internal Revenue Service approved them in 2004, as an enhancement of sorts to tenant-in-common ownership arrangements.

Both a DST and a TIC bring together one or more investors to buy a property. A DST allows up to 499 investors (versus 35 for the TIC), so it can accumulate money for presumably bigger deals. And unlike TICs, DSTs put a manager in charge to make decisions on how to operate the investment.

DSTs have largely shoved aside TICs, which fell out of favor with lenders and were cluttered up with rules such as requiring investors to unanimously agree on major decisions. TIC-DST expert Bill Elson, a certified financial planner in West Des Moines with Spectrum Financial Services, says this shift to DSTs is partly driven by program sponsors who want complete control in determining their profits from acquiring, managing and selling the properties.

"In some situations, this is good, but there could be conflicts of interest," Elson says.

For instance, the manager is getting paid to manage a property, so is it in his best interest to sell it? Also, Elson says they might be paid to buy and sell properties. So the compensation of the manager needs to be fully understood and agreed to before investing.

Yet a DST is the only format Elson has seen where diversified portfolios are being purchased, rather than buying just a single building in one location such as an apartment building, shopping center, office or warehouse. Instead of investing in one building in one town with one tenant in a TIC, investors in DSTs can buy into 10 to 20 buildings from different national tenants in different geographic locations.
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Legacy Bridge

Treasuries: Short- vs. Long-Term & the Inverted Yield Curve

Is the economy headed down? Well, maybe, if you believe in the inverted yield curve.

The yield curve charts the difference between the interest rate paid on short-term Treasury notes and long-term Treasury bonds. Long-term rates typically are higher than short-term. But sometimes they compress, which they are doing now. And when they cross—when short-term rates top long-term—the economy typically slows.

Number crunchers at the Cleveland Federal Reserve Bank tell us that the last seven recessions have been preceded by an inverted yield curve. The last time the yield curve inverted was August 2006. By December 2007, the recession we’re all still trying to forget had begun.

The latest interest rate paid on 10-year notes was 3.06 percent. For three-month bills it was 2.15 percent (double the rate of a year ago), just 88 basis points away from equaling the longer-term rate.

There appears to be about a one-year lag between when the yield curve inverts and when a recession begins, according to the people in Cleveland. So even if the current curve turns negative tomorrow, you should have some time to put your economic affairs in order. That is, if you believe in yield curves as predictors.
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Denton Homes
801 Chophouse

Masterworks Opens Fine Art Investing to the Masses
BY SARAH MIN for Crain's Wealth

For 15 years, Scott Lynn has been collecting midcentury artists. His collection of abstract expressionists includes Jackson Pollock, but he has a particular soft spot for Clyfford Still, one of the lesser-known artists in that movement. Although Lynn has seen his collection appreciate rapidly, he realized the asset class was too expensive for most people to invest in.

Enter Masterworks, an investment platform Lynn started in 2017 with a uniquely democratic approach. Instead of paying more than $2 million to purchase a painting, you can pull out a twenty to buy a share in it.

"When we ask people to invest in a Claude Monet or an Andy Warhol, it's very exciting because they haven't had the opportunity in the past," said Lynn, chief executive officer at Masterworks. It could be an interesting idea for advisers' clients who want to invest in art but are wary of the big financial commitment.

"It could give a client that's very passionate about art some exposure and maybe some pride in owning a piece of valuable artwork," said Anthony N. Badillo, lead financial planner at Gen Y Planning.

Read the rest of the Crain's Wealth story online here.
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Overcoming 3 Common Fears of Giving

The most generous time of the year is just around the corner. With holiday spirits high, corporations and individuals will make important decisions on the best ways to allocate their time, talent and treasure. > FULL ARTICLE

Effectively Utilizing Deferred Compensation Plans
Marcus Iwig, CFP®, CPA, MAcc, Lead Advisor

Deferred Compensation plans can be powerful yet complex financial planning tools for executives. Learn more about a few planning concepts with deferred compensation plans, as well as some common mistakes to avoid when utilizing these plans. > FULL ARTICLE

dsmWealth's Suggested Reading

  • U.S. Trust, the wealth management arm of Bank of America, issues annual "insights on wealth and worth." Their latest report: Putting Wealth Into Action

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