DST as a real estate investment option
At Diversified Investment Strategies, we help real estate investors trade their investment properties in a 1031 exchange. This IRS-approved mandate allows investors to sell investment property and purchase other investment property or properties that are like-kind and of equal or greater value. In turn, the real estate investors can avoid paying federal taxes on their investment property sale.
So, what happens if you want to rid yourself of the tiresome management responsibilities, create a potentially greater income or just enjoy life without worrying about your rental property(ies)? There are tax laws in place so you don’t wine up paying Uncle Sam hefty capital gains taxes. There are a few options to purchase institutional grade real estate that normally you wouldn’t be able to afford on your own. You cannot purchase replacement property as a partnership, as partnership interests are excluded from 1031 exchanges. However, you can invest with co-owners. The preferred method of doing so is a DST, or Delaware Statutory Trust.
DST ownership has many perks over the old TIC, or tenancy-in-common, structure. One of the main perks is that DSTs are seen by the lender as one borrower rather than up to 35, such as with a TIC. This may make it easier and more affordable to obtain financing.
Here’s a few other reasons why a DST may be a better option than a TIC:
1. Investors who partake in a DST may receive attractive monthly income, often starting around 4-6 percent each year.
2. DST income may be protected from taxes, if investors take advantage of depreciation and interest deductions.
3. Lenders may offer non-recourse financing, and lenders do not require financial disclosures or loan carve-outs from individual investors. They only look at the financial strength of the DST sponsor and the quality of the real estate at hand.
4. There is no restriction on the number of investors in a DST, unlike a TIC, which only allows up to 35 investors. This may significantly lower the investment minimums required from you.
5. Individual investors are not required to create Special Purpose Entity LLCs, so ongoing costs for you may be less than with a TIC.
6. A unanimous approval of individual owners is not required to make critical decisions, which may make decision-making quicker and more efficient than with a TIC.
7. Investors in a DST do not have personal liability, which may be the biggest perk of all!
If you have questions about DSTs, or about any other type of 1031 exchange, contact our team at Diversified Investment Strategies! Our comprehensive team of tax advisors, attorneys, real estate brokers and financial consultants provide solid information and analysis to help you understand your investment options, so you may make an informed decision on what to do next with your investment property or properties.
We look forward to hearing from you soon!
Bryan Hakola
Diversified Investment Strategies
Visit Our Website
Learn About Your Investment Options
Become Our Facebook Fan
Follow Us on Twitter
Connect on LinkedIn