Is one of your 2018 real estate goals to sell your current investment property and replace it with new investment properties with better cash flow, less hands-on duties or more diversification? Our team at Diversified Investment Strategies is here to help! Contact us to see if a 1031 exchange may be a smart option for you, which allows you to defer federal taxation on your property sale.
One smart 1031 exchange option may be a Delaware Statutory Trust, or DST, which allows an investor to own a portion of a trust, called a Beneficial Ownership interest. With this option, there are numerous DST owners and each owns a percentage of the trust.
Examples of DST property include office buildings, shopping centers, apartment buildings, industrial properties, warehouses and more. These types of investment properties may be too expensive for one person to purchase, but through a DST, you can own and invest in a portion of the trust. By completing a 1031 exchange, you may be able to defer federal taxes and have more money to invest.
Potential benefits of a DST include:
No property management – This is ideal for landlords who are tired of the day-to-day management duties of dealing with tenants, maintaining facilities, etc. You can still receive cash flow without the daily duties!
Higher monthly cash flow potential – Income generated from a DST is often stable and secure because it’s coming from credit-worthy tenants, and you may enjoy cap rates between 5-7 percent cash-on-cash return on your equity investments.
Greater capital investment appreciation – Individual investors may have the opportunity to compete with institutional investors on a larger and more profitable scale by pooling funds for larger properties.
Tax benefits – Tax deferral if using a 1031 exchange, new depreciation allowances that may allow for 50-80 percent of cash flow to be sheltered from taxes, and excellent estate tax valuation discounts available.
Short holding period on property ownership – Many sponsors only hold property for between 3-6 years and investors can then take net proceeds and exchange into property of their own choosing or another program. (Each holding period is dependent on the case and may be held for up to 20 years.)
Diversification – Over dozens of sponsors and many different types of property to choose from.
It may be a great back-up replacement vehicle – If a primary property doesn’t close, if you’re having trouble finding good replacement property in a tight market, etc., a DST can bide time and still ensure that a 1031 exchange goes through.
Please note that DST ownership has many advantages, but potential investors should also be cognizant of the risks. You can read more about the possible risks here.
For more information about DST ownership, and other investment options, visit our website at Diversified1031.com. If you have questions concerning DSTs or 1031 exchanges, please don’t hesitate to contact our team! We are here to answer questions and to guide you through this process.
Bryan Hakola
Diversified Investment Strategies
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