We have spoken a lot about DSTs. Today we’ll discuss the benefits of all-cash DSTs. There are a few unique advantages in terms of flexibility and security when compared to DSTs with leverage.
Let’s Go Through the Benefits of All-cash DSTs:
1. No-Risk of Foreclosure
An all-cash DST is owned by the trust and therefore is at no risk of foreclosure.
2. No Refinancing Risk
Debt markets are subject to risks and can change. However, with an all-cash DST, there isn’t any risk of refinancing or qualifying for a new loan once the term is up.
3. Vacancy Won’t Bother
With no liability to make debt payments, managing tenancy issues gets more comfortable.
4. No Interest Payments
Another appealing advantage of all-cash DSTs is zero-interest payments.
5. Appreciation Benefits
With no interest payments, when an all-cash property is sold, there isn’t any debt to pay off. All appreciation is realized, and the money straight away goes to the investor.
6. Flexible Hold Period
With an all-cash DST, the trust is qualified to handle the property through market downturns. This produces an opportunity to sell the property at a convenient time and maximize profits.
7. More Conservative Investment for Direct Cash Investors
Direct cash investors can easily benefit from an all-cash DST if they wish to avoid the risks associated with a leveraged DST.
1031 Exchange and All Cash DSTs
1031 Exchange was developed to spur investment in the real estate market and to inspire investors to put back their money back in the system. From a personal standpoint, 1031 Exchange allows you to defer capital gains tax on the sale of a property if you reinvest it in a similar like-kind property. However, some qualifications must be met to complete a successful exchange.
The asset must be held for a year or longer to qualify for the long-term capital gains tax rate as it is lower than the short-term capital gains rate for most assets. The gains from the initial sale are managed by a qualified intermediary and securely kept into a trust. The investor has 45 days to identify a suitable like-kind replacement property and to inform the IRS. The reinvestment or acquisition of the identified properties must be completed within 180 days of the sale of the initial property.
If any of these guidelines laid by the IRS are not met, the money in the trust will be subject to the appropriate capital gains tax. You have a range of prospects for 1031 exchanges. Properties differing from small retail outlets to huge industrial complexes can pass; even smaller investments in investment-grade real estate deeded as tenants in common (TICS) can qualify. DST’s and All Cash DSTs are also a great option.
We understand how challenging it could be to find a suitable replacement property within such a small timeframe of 45 days. Keeping in mind this issue, we have created a pool of suitable 1031 exchange replacement properties. If you are within 45 days of your exchange period, we can help you close a replacement property today itself! Contact us to get a free list of prime off-market properties.