When doing a 1031 exchange, what bothers most investors is getting through the identification process. But why is it so? The main reason behind this is a limited timeline. As you may know, once you’re done selling your investment property, the IRS requires you to identify one or more replacement properties within 45 days. Though it may not look like a challenge, it becomes challenging once you start hunting for properties.
There is not one but many reasons why it’s not easy to close 1031 exchange identification on time.
Availability – Whether you will get your chosen property when required is what you should be thinking. It’s quite possible that you may not get your identified property at the time of closing your exchange, or the seller changes their mind after confirming. What would you do then?
Price- What if your identified property costs less than your relinquished property? If you go with it, you will lose the opportunity to defer capital gain taxes, as one of the 1031 exchange rules require the relinquished and replacement properties to be of the same value. What would you do then?
No matter whether it’s the availability of the property or its value, these factors can jeopardize your 1031 exchange. However, if you invest in a DST, things can get in order for you.
A DST investment can help you close your 1031 exchange.
A Delaware Statutory Trust or a DST is a private governing trust that owns, manages, and sells investment properties. DSTs usually have high-quality investment-grade properties in their portfolio. DSTs accept investments from investors of all stature and distribute dividends among them regularly. A DST can have up to a hundred investors or even more. Due to its large structure, a DST investment starts as low as $100K. When you invest in a DST, you actually invest in one of its properties. The IRS sees it as a real estate investment and won’t question your 1031 exchange if you invest the proceeds into a DST. DST 1031 Exchange Properties can be easily found if you do a bit of research. You can also obtain DST 1031 Exchange Properties list from a local broker or real estate firm.
Benefits of DST 1031 Investments –
Talking about the benefits of DST 1031 investments, it could be said that there is barely anything that a DST 1031 exchange investment doesn’t offer. From leverage on your investment to relief from property management, a DST investment accompanies all these benefits. Not to mention, the low investment. You don’t need to have a huge fund to be able to join a DST. You can become a DST beneficiary for just $100K. Plus, a regular flow of income for a long time. There is no reason why you should not be investing in a DST as your 1031 exchange replacement property.
A 1031 exchange or DST investment is an investment strategy, and you must speak to your advisor before investing. Planning your 1031 exchange in advance can help you avoid possible financial threats.