Most of our 1031 Exchange experts have heard this question a lot of time when they talk to the investors about their 1031 Exchange – What are the benefits of All-Cash DST’s? Today we’ll try to explain to you the benefits of all-cash DSTs. Well, most of the investors don’t have the option for All-Cash DST’s but there are few advantages in terms of security and flexibility as compared to DSTs with leverage.
Let us give a few reasons why investors like all-cash DSTs…
- There is no risk on foreclosure
The DST (trust) owns the property clear and free, so there is no risk on a foreclosure with an all-cash DST. There is no risk associated with losing the property to the lender.
- There is no risk in Refinancing
Since the Debt markets keep changing over time, there is no risk involved in having to refinance and qualify for a new loan when the term is up, with an all-cash DST.
- Vacancy in Properties is not a Big issue
Since there are no debt payments to be made, a vacancy issue is much easier to go through
- You will have no Interest Payments
Interest payments generally become a significant amount over the course of holding a property. With an all-cash DST deal, you don’t need to make any interest payments.
- You get Appreciation Benefits
There is no remaining debt to pay off when an all-cash DST property is sold since there are no Interest Payments. All appreciation is realized, and that money always goes to the investor instead of the bank.
- You get flexibility in your Hold Period
The DST (trust) can hold the property in an all-cash DST whenever there are market downturns. This helps the trust to sell the property at the most favorable time to maximize profits for investors.
- This is a better investment for all Cash investors
The direct cash investors do not like the risks associated with a leveraged DST, so they can take advantage of an all-cash DST if it fulfills their investment needs.
So that was most of the benefits that an All-cash DST has.
As we started this article by saying that All-Cash DST’s are not for all the investors. If you are doing a 1031 Exchange, with an All-cash DST, you must remember to follow the “equal or greater” debt guidelines laid down by the IRS. Your cost of acquiring the Replacement Property must be equal to or greater than the value of your exchange funds, for you to be able to completely defer your capital gains taxes. The Equity, debt, and profits earned from the sale of your relinquished investment property constitute the value of your exchange fund.
Few Investors like diversification in their investments, so they exchange into multiple DSTs with different LTV ratios. At 1031Xchange.com, our 1031 Exchange experts can help you create a mix of options ensuring that all your exchange funds are properly invested, and you have a complete tax free 1031 Exchange.
Our goal at 1031Xchange.com is always to provide the investor with the best possible match of 1031 Exchange expert, who can help investors take maximum benefits in their 1031 Exchange process. Click here today, to learn more about the 1031 Exchange Process and get connected with a 1031 Exchange expert who would understand your investment needs and guide you through the entire process.
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