Get Better Returns with A DST 1031 Exchange Investment

Get Better Returns with A DST 1031 Exchange Investment

By | September 8th, 2020|DST|0 Comments

A 1031 exchange, another term for Section 1031, is an arrangement that allows investors to defer capital gains tax on exchanging an investment property for another like-kind property. Generally, income-producing properties qualify for 1031 exchanges. Therefore, you can exchange any investment property (but not the personal ones) for another and defer up to 100% capital gains tax.

In 1031 exchanges, the term like-kind is used to define properties that are similar in nature and may not be similar in use. For example, a retail shop can be exchanged for a multi-family apartment or industrial property or any other investment property. Properties involved in 1031 exchanges need to be like-kind to ensure that an investor is not changing the nature of the investment. On the other hand, in the case of a 1033 Exchange, the properties involved in the exchange need to serve the same purpose as well. However, that’s an entirely different exchange and shouldn’t be confused with 1031 exchanges.

You don’t need to be an accredited investor to qualify for a 1031 exchange.
The Securities and Exchange Commission (SEC) suggests that to be called as an accredited investor, your individual income must be greater than $200k per year or a joint income equal to $300k. Many real estate investment options are open only to accredited investors, and non-accredited investors are not allowed to invest in such structures. However, you don’t need to be an accredited investor to qualify for a 1031 exchange. 1031 exchanges are open for every investor if they adhere to the guidelines established by the IRS. You don’t need to have a particular sum of money in your account to qualify for a 1031 exchange. All the IRS evaluates is an investor’s intent behind the investment.

You can do a 1031 exchange anytime you want to.
You may want to get rid of a non-performing asset or sell your property if it has reached depreciation. In any situation, you can do a 1031 exchange on your current property and reinvest the proceeds in a new asset. Moreover, 1031 exchanges are also used by investors who don’t want to bear landlord responsibilities. Section 1031 or a 1031 exchange lets you exchange an investment property for another like-kind asset and defer up to 100% capital gains taxes. Depending upon the market value of your current property, you can save a hundred to thousands of dollars in taxes. To proceed with a 1031 exchange, you must stick to the guidelines established by the IRS. For example, you can only exchange income-producing properties, or you must complete your transaction within 180 days.

Replacement options for 1031 exchanges –
In a recent event organized on the present real estate market, experienced investors and financial advisors mentioned several benefits of a DST investment and why one should consider it as a tool for closing a 1031 exchange. Here we bring you the five biggest benefits of a DST investment. But before we get into it, let’s go through the DST investment structure.

A DST is a separate legal entity…

A Delaware Statutory Trust or DST is a trust formed under the Delaware Statutory Law. DSTs allow an investor to invest in one or numerous properties along with other investors. Although DST investment isn’t a new investment strategy, current tax laws have made it popular among 1031 exchange investors.

Buying interests in a DST is considered a direct interest in real estate; you acquire fractional ownership of equity and debt, which fulfill 1031 exchange requirements. The minimum DST investment usually ranges between $25K and $100K. Every investor in a DST gets a fractional interest in an entire property and receives distributions from the trust’s operation, from rental income and the sale of the property.

Extraordinary benefits of a DST investment –

1. Relief from management responsibilities.
No real estate investor will deny that property management is time-consuming and isn’t pocket-friendly. DSTs take this burden away from investors and hand over the day-to-day management and decision-making responsibilities to a professional team of experienced asset managers.

2. Get your hands on bigger and better properties.
Small real estate investors cannot afford to invest in million-dollar properties individually. Delaware Statutory Trusts give such investors a precious opportunity to acquire partial ownership and enjoy the benefits that accompany expensive investment-grade properties.

3. A unique way to diversify your portfolio.
As a DST investor, you can split your investment among multiple DST properties and diversify your real estate portfolio.

4. Regular distribution of funds.
DSTs keep a specific amount of cash reserves to be used in case the property requires repairs or any unexpected expenses. However, all earnings and proceeds apart from the reserves are distributed among the beneficiaries on a regular basis.

5. Investors don’t need to qualify for debt.
DST investors don’t need to qualify for a property mortgage loan. The Delaware Statutory Trust is liable for the mortgage loan, and it’s nonrecourse to investors. As a DST investor, you don’t need to bother about providing personal documentation for loan approval. Neither you have to worry about other personal assets or liabilities affecting the status of the loan.

As you can see, DSTs offer a wide range of benefits. Plus, DST investment is easy to close as it is pre-packaged, which means you don’t need to search or locate properties by yourself. DSTs have a number of income-producing assets in their portfolio, and you can invest in one or multiple DST assets at one time.

“Our tax-deferred 1031 exchange programs can save millions in taxes, increase investor equity, and compound annual cash flow distributions and returns”