One of the most significant benefits of a 1031 exchange is that it allows investors to defer capital gains taxes on the sale of their properties. However, the 1031 exchange process can be quite complicated, and investors need to make careful decisions regarding their replacement properties. Delaware Statutory Trusts (DSTs) have emerged as a popular option for exchanging property because of their multiple benefits. In this blog post, we will discuss why investors choose DSTs for their 1031 exchanges with 1031 advisor.
Access to Institutional-Grade Properties: DSTs offer investors the opportunity to own a fractional interest in institutional-grade properties that would otherwise be out of their reach. Unlike individual ownership, DSTs allow smaller investors to pool their resources with other investors to acquire high-quality properties that generate steady cash flows and appreciate over time. These properties could include retail centers, office buildings, industrial parks, multifamily apartments, and so on.
Passive Investment: Investing in a DST allows you to be a passive investor, which means that you don’t have to be actively involved in the management and operation of the property. The DST sponsor takes on all the responsibilities of managing the property, including leasing, maintenance, repairs, and so on. This frees up your time to pursue other activities and can be particularly beneficial if you’re an out-of-state investor or have a busy schedule.
Income-Generating Properties: DSTs are primarily income-generating investments, and investors can expect to earn steady cash flows from rental income. This income is generally distributed to investors on a monthly or quarterly basis, depending on the terms of the DST agreement.
Diversification: DSTs offer investors the opportunity to diversify their real estate portfolios, which can help reduce risk. By owning a fractional interest in multiple properties, investors can spread their investment across different geographic regions, asset classes, and tenant types. This minimizes the impact of any single property’s performance on their portfolio and ensures a stable income stream.
Tax Advantages: DSTs offer many tax advantages for investors, including the ability to defer capital gains taxes on the sale of their properties through the 1031 exchange. Additionally, since DSTs are structured as pass-through entities, investors can avoid double taxation on their investment earnings. Finally, investors can leverage the depreciation benefits associated with owning real estate to reduce their taxable income.
Conclusion:
Investing in a DST is a great way to defer taxes and own institutional-grade income-generating real estate without the hassles of active management. DSTs provide investors with access to high-quality properties that would otherwise be out of reach, generating steady cash flows and helping diversify their real estate portfolio. Additionally, DSTs offer many tax advantages, including deferring capital gains taxes, avoiding double taxation, and leveraging depreciation benefits. If you’re considering a 1031 exchange, it might be worth investigating DSTs as a replacement property option.