Is Dst A Good Investment?
- Author Lisa Taylor
- Published February 7, 2020
- Word count 394
Various types of DST properties are available for investors, including multifamily apartment buildings, retail centers, medical offices, or self-storage buildings. The DST properties have long-term lease contracts with the tenants. With our 1031 exchange portfolios, there are numerous properties available for our qualified accredited clients, with an average minimum direct investment of $25,000.
Although DSTs are typically considered securities under federal securities laws, they are treated as direct ownership of real estate under Section 1031 of the IRS tax code. Thus DST investments are eligible for 1031 exchanges both when you initially invest and when the DST liquidates.
The real estate sponsor firm obtains properties under the DST and then sells shares of the DST to investors. Investors then roll their 1031 exchange capital into the DST to acquire a beneficial interest. Investors are able to easily access these institutional quality properties with professional management by pooling their funds together.
Advantages of a 1031 DST:
Tax Deferral and the elimination of complex property management responsibilities.
A DST also increases diversification by the number of properties, geography, and types of property.
The investor also gets the freedom to diversify and include real estate like NNN retail, multi-family apartments, assisted living facilities self-storage, and more.
If an investor passes away in the event of owning an interest in a DST, their heirs get an immediate capital gain, and it eliminates the taxes due on the initial gain forever.
In a nutshell, a Delaware Statutory Trust (DST) is a legally recognized trust for carrying out business and can be used as a conduit for replacement property for accredited investors during a 1031 exchange.
DST 1031 exchange has multiple financing ratios to satisfy the investor's exchange requirements of taking greater or equal debts as defined by the Internal Revenue Code (IRC) section 1031. However, some 1031 DST exchange properties offer all-cash, debt-free in order to decrease the risk of using financing when buying properties. The financing used on 1031 DST Exchange is typically non-resource to the investor. Non-recourse financing generally is as financing whereby the lender's only solution in the case of a default is the subject property itself. The lender is not able to proceed with the investor's assets beyond the subject property. So, investors could lose their entire principal amount invested in the property in the case of a primary tenant bankruptcy, market-wise recession or depression, but their other assets would understand What a 1031 exchange DST is?
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