Experience the Power of DSTs and Private Market Alternatives

Imagine growing your wealth without dealing with daily property management. Passive real estate ownership lets you invest in real estate without the hassle of tenant issues, repairs, or hands-on tasks. From diversifying your portfolio to accessing tax benefits, this approach allows you to reap financial rewards while experts handle the work. 

Let's dive into why this investment approach might be your path to financial freedom.

Why Passive Real Estate Ownership is a Smart Choice?

Investing in real estate doesn’t have to mean being on-call for property emergencies or managing tedious details. Passive ownership lets you benefit from real estate’s financial rewards while leaving the day-to-day responsibilities to professionals.

However, passive investments come with certain risks, including limited control over property decisions and exposure to market fluctuations. Investors should evaluate whether this approach aligns with their individual circumstances.

Now, let’s have a look at the benefits one by one.

Free Up Time and Reduce Stress

One of the greatest benefits of passive real estate ownership is the freedom it offers. When you invest passively, you can leave the day-to-day tasks like tenant management, maintenance, and paperwork to professionals. These tasks, while necessary, can be overwhelming for many investors. By allowing experts to handle them, you free up time to focus on your personal goals, family, and hobbies.

This stress-free approach allows you to build wealth without sacrificing your quality of life. You’re still benefiting financially but without the headaches of active involvement. Whether you're working full-time, retired, or simply want to focus on other projects, passive real estate ownership offers you the flexibility to live life on your own terms.

Note: Always consult with a financial advisor to ensure this investment approach aligns with your financial goals and risk tolerance.

Achieve Diversification in Your Portfolio

Diversifying your investments is a smart way to reduce risk. Passive real estate ownership makes this simple. You can invest in different types of properties—residential, commercial, or industrial. You can also spread your investments across multiple locations.

This variety protects you from being overly dependent on one market or a single property. For instance, if one area faces economic challenges, properties in other places might still do well. Combining property types, like homes and storage facilities, also balances risk since they respond differently to market changes.

Diversification enhances your investment strategy. It helps offset losses in other areas like stocks or bonds. With a mix of properties, you’re more likely to see steady, long-term returns. It’s a strategy that can work to reduce overall risk and a smarter path to growing your wealth.

Note: Diversification does not eliminate all risks. Market conditions and economic trends can still impact investment performance.

Minimize Credit and Liability Risks

Passive real estate ownership helps reduce your exposure to personal credit and liability risks. Unlike active property owners who may need to take out large loans or manage repairs, you can rely on property managers or investment groups.

These professionals handle all operational issues, from maintenance to tenant complaints and repairs. This means you don’t carry the responsibility of keeping your personal assets and credit safe. It offers peace of mind knowing your financial risks are contained, and your focus remains on returns rather than daily property management.

Please note that reliance on property managers or investment groups does not guarantee risk-free outcomes. Perform due diligence before entering agreements.

Develop Multiple Income Streams

One of the most compelling reasons to pursue passive real estate ownership is the ability to create multiple streams of income. By investing in multiple properties, you can generate a more reliable and diverse set of income streams. For example, owning both residential and commercial properties gives you access to income from different market sectors.

Spreading your investments across locations adds another layer of protection. Economic challenges in one region won’t hurt your entire portfolio, as other properties may still earn income. This approach spreads out risk and opens more profit opportunities, helping you establish a solid financial foundation over time.

Note: Income from real estate investments is not guaranteed and depends on market performance and tenant reliability.

Access to Professional Expertise

One of the main draws of passive real estate ownership is the access it gives you to expert guidance. With professionals like property managers, accountants, and legal advisors handling the intricacies of real estate management, you don’t have to worry about the details.

These experts take care of everything, from maintaining the property and managing tenants to ensuring you receive tax documentation in a timely manner  Their knowledge helps maximize returns and avoid mistakes. By relying on professionals, you can focus on the bigger picture and long-term growth of your portfolio.

Note: Always verify the credentials and track record of professionals managing your investments.

Gain Tax Advantages 

Passive real estate ownership also comes with valuable tax advantages. You can claim deductions for property management fees, maintenance costs, and mortgage interest. Additionally, depreciation also lets you write off part of the property's value over time, lowering your taxable income.

You might also defer capital gains taxes using tools like 1031 exchanges. These allow you to reinvest profits from property sales into new ones without paying taxes immediately. These tax advantages allow you to retain more of your earnings, which can then be reinvested to increase your wealth even further.

Note: Tax benefits depend on individual circumstances and applicable laws. Consult with a tax professional for personalized advice

Benefit from Market Stability

Real estate has long been known as a reliable investment, and with good reason. While stock markets can experience drastic fluctuations, real estate generally offers consistent returns. By owning rental properties, you can earn regular rental income, even during periods of economic downturn.

Unlike other investments that can be heavily impacted by short-term market volatility, real estate provides ongoing cash flow, helping you weather difficult periods. Over time, property values tend to rise, meaning you can benefit from both rental income and long-term appreciation. This makes real estate a smart choice for building wealth with less worry about immediate financial crises.

Note: While real estate may offer consistent returns, past performance does not guarantee future results, and one must be willing to hold real estate investments over long periods of time, which limits liquidity within an investor's portfolio.

Build Long-Term Wealth with Less Volatility

When it comes to building wealth, real estate offers a slower but steadier path compared to other types of investments. By focusing on rental properties, you create a consistent income stream that helps build your financial foundation. While short-term fluctuations can happen, real estate typically rises in value over the long run.

Unlike stocks, which can see massive swings in value, real estate provides a more predictable growth pattern. Even if the market sees temporary dips, your income from rentals and long-term appreciation helps balance things out. This makes it easier to plan for the future, knowing that your wealth is growing steadily, even if there are bumps along the way.

Note: Past performance is not indicative of future results, and market trends may impact returns.

Is Passive Real Estate Ownership Right for You?

Passive real estate ownership offers potential financial benefits but requires careful planning and a clear understanding of risks. By working with qualified professionals, you can navigate this investment strategy more effectively.

Ready to explore your options? Contact us to learn how passive real estate investing can help you achieve your financial goals.

If you’re thinking about reinvesting in real estate, a 1031 exchange can be a fantastic way to defer capital gains taxes while growing your portfolio. But with its strict rules and timelines, the process can be intimidating. 

Don’t worry—we’ve got you covered! This article breaks down the basics of a 1031 exchange, offering tips on how to simplify a 1031 exchange and make informed decisions to ensure a smooth exchange from start to finish.

What is a 1031 Exchange?

A 1031 exchange is a tax strategy that allows real estate investors to defer capital gains taxes when they sell an investment property and reinvest the proceeds into a similar, or “like-kind,” property. This approach lets investors expand their portfolios without immediate tax obligations, reaping potential 1031 exchange tax benefits. However, investors should be aware of potential risks and strict compliance requirements.

While the rules for qualifying as a 1031 exchange are strict, such as choosing like-kind properties and meeting specific 1031 exchange deadlines and timelines, the long-term potential benefits can be significant.

For example, suppose you own a single-family rental home that you sell for $400,000. Instead of paying taxes on the sale, you can use those funds to buy a multi-family unit. This way, you can grow your investment portfolio while avoiding a hefty tax bill.

Step-by-Step Guide to Simplifying the Process

Navigating the 1031 exchange process can seem daunting, but breaking it down into manageable 1031 exchange steps makes it easier. This section will walk you through each stage, ensuring you know what to expect and how to prepare. 

Engage in a 1031 Exchange

Before diving into a 1031 exchange, consider whether it aligns with your investment goals. Assess your current portfolio and future objectives. Are you looking to defer taxes? Are you ready to transition to a different type of property? Understanding your financial aspirations will help you determine if a 1031 exchange is the right move for you.

Seek Professional Guidance

Consulting a qualified intermediary (QI) or tax advisor is crucial to ensure compliance and minimize risks. These professionals have in-depth knowledge of the 1031 exchange process. They can guide you through the complexities, ensuring compliance with IRS regulations. Their expertise can help you avoid costly mistakes, making the process smoother and more efficient.

Choose a Qualified Intermediary

Finding a reputable QI is critical to your success. Look for someone with experience in 1031 exchanges and a solid reputation. Check reviews and ask for referrals. A good QI will facilitate the transaction, manage necessary paperwork, and help you meet critical 1031 exchange deadlines and timelines. Their role is essential in ensuring a successful exchange.

Sell the Relinquished Property

Once you have your QI in place, it’s time to market and sell your current property. Utilize online listings, social media, and real estate agents to reach potential buyers. Highlight the property’s best features and make necessary improvements to attract interest. A swift sale is key to starting your 1031 exchange process.

Identify Replacement Properties

After selling your property, focus on identifying replacement properties. You have a 45-day window to list potential properties. Consider factors like location, property type, and potential return on investment. Be mindful that economic fluctuations and local market conditions can impact property value and returns.

Be strategic in your selections, ensuring they align with your investment goals. Keep your QI informed of your choices to stay within 1031 exchange deadlines and timelines.

Close on the Replacement Property 

The final step is closing on your new property. You have 180 days from the sale of your original property to complete this transaction. Work closely with your QI to finalize all necessary paperwork and ensure compliance. This is a crucial time, so stay organized and adhere to all deadlines to successfully complete your 1031 exchange.

It’s important to note that 1031 exchanges come with liquidity limitations and strict compliance rules. Investors should be prepared for the potential of illiquid holdings during the exchange process.

Avoiding Common Pitfalls

While the 1031 exchange offers potential benefits, it also comes with potential pitfalls. Awareness of these common mistakes can save you time, money, and stress. In this section, we’ll highlight the most frequent errors investors make during the 1031 exchange steps and provide tips on how to sidestep them, ensuring a smoother exchange experience.

Missing Deadlines

One of the most common mistakes investors make is overlooking crucial deadlines in the 1031 exchange process. The 1031 exchange has strict time frames. You have 45 days to identify replacement properties and 180 days to close on them. Missing these deadlines can disqualify your exchange and result in significant tax liabilities. 

Tips to avoid this pitfall:

• Create a Timeline: Draft a clear timeline that outlines key dates for your exchange and keeps each of the 1031 exchange steps organized.
• Set Reminders: Use calendar alerts or project management tools to remind you of upcoming deadlines throughout the 1031 exchange process
• Regular Check-ins: Review your progress regularly to ensure you're on track.

Failing to Properly Identify Replacement Properties

Another frequent error is not clearly identifying replacement properties within the 45-day window. The IRS requires specific details about each property, including address and type. Failing to provide this information can jeopardize your exchange. 

Tips to avoid this pitfall:

• Work with a Qualified Intermediary (QI): Your QI can guide you through the identification rules and ensure you meet all requirements of the 1031 exchange process.
• Be Specific: When identifying properties, include complete addresses and any necessary details.
• Keep Options Open: Identify more properties than you plan to purchase to maintain flexibility.

Mixing Personal-Use and Investment Properties

A major mistake is confusing personal-use properties with investment properties. The IRS has clear guidelines about what qualifies as an investment property in a 1031 exchange. If you attempt to include properties that are primarily for personal use, you risk disqualification in the 1031 exchange process. 

To avoid this, make sure all properties you plan to exchange are strictly for investment purposes. Consulting with a tax advisor can help clarify which properties qualify.

Tips to avoid this pitfall:

• Consult a Tax Advisor: They can help clarify which properties qualify for the exchange.
• Understand IRS Guidelines: Familiarize yourself with the IRS definitions of personal and investment properties before starting the 1031 exchange process.
• Strictly Define Your Portfolio: Ensure all properties you plan to exchange are used solely for investment purposes.

Key Timelines and Deadlines

In a 1031 exchange, strict 1031 exchange deadlines and timelines are essential. You have 45 days from the sale of your relinquished property to identify potential replacement properties. This means you must create a list of properties you are considering to acquire. Each property must meet IRS guidelines, so clarity is vital.

After identifying your properties, the clock continues. You have an additional 135 days to complete the purchase of at least one of those identified properties. This 1031 exchange deadline is non-negotiable. Failing to meet either timeframe can result in disqualification of the exchange, triggering significant tax liabilities and penalties.

To stay organized, consider these helpful strategies:

• Create a Detailed Schedule: Make a detailed timeline that highlights each important date within the 1031 exchange deadlines. Clearly mark the start and end of both the 45-day and 180-day periods.
• Set Digital Reminders: Use calendar apps or task management apps to set alerts for each milestone. This will keep deadlines top-of-mind and help prevent last-minute rushes.
• Conduct Weekly Check-ins: Review your progress regularly. This allows you to make any necessary adjustments to your plans without feeling rushed as the deadlines approach.
• Engage Your Qualified Intermediary (QI): Your QI is a valuable resource. They can provide reminders of key dates and offer guidance to ensure compliance throughout the process.

How to Choose Like-Kind Properties

Choosing the right like-kind properties is crucial in a 1031 exchange. Here are some detailed guidelines to help you make informed decisions:

Clearly Define Your Investment Objectives

Start by identifying your investment goals. Consider what type of property you want—residential, commercial, or industrial. Think about the location and how it aligns with your long-term growth and cash flow expectations. Having clear objectives will guide your property search.

Work with Experienced Real Estate Professionals

Engage with real estate agents or brokers who specialize in the properties you are interested in. Their expertise can provide valuable insights into market trends and property values. They can also help you navigate the complexities of the 1031 exchange.

Conduct Thorough Market Research

Dive deep into the local real estate market. Analyze property values, rental rates, and vacancy rates. Understanding economic trends will give you a clearer picture of which properties are likely to appreciate over time. This research is vital for making sound investment choices.

Ensure that any chosen property meets IRS requirements for like-kind exchanges. Consulting a qualified tax or real estate advisor can help confirm compliance.

Attend Real Estate Investor Meetings and Conferences

Networking can be a game-changer. Attend local real estate meetings and conferences. Connect with other investors and professionals. These interactions can reveal new opportunities and keep you informed about market dynamics.

Leverage Technology

Use online platforms and real estate listing websites to streamline your property search. Many of these tools offer customizable filters, allowing you to narrow down options based on your specific criteria. Just remember, the 45-day identification period for a 1031 exchange is strict. Conduct thorough research to ensure you identify suitable replacement properties on time.

Ready to start your 1031 exchange journey?

Navigating the 1031 exchange can be complex, but with the right knowledge and support, it becomes manageable. Remember to set clear goals and work with qualified professionals. 

For personalized assistance, reach out to us at Stax. We're here to help you simplify your investment journey.

Are you interested in real estate but don’t want the hassle of managing properties? 

A Delaware Statutory Trust (DST) might be the perfect solution for you. DSTs offer a passive real estate investing approach to building wealth through large-scale property investments, leaving the tough work to the professionals. 

In this post, we’ll dive deep into what a DST is, how DSTs work, and why they’re a smart choice for passive real estate investors.

What is a DST?

A Delaware Statutory Trust (DST) is a legal entity created under Delaware law that allows investors to own fractional interests in large commercial real estate assets. DST investors are typically passive, meaning they don't manage the properties themselves. The trust is managed by professional sponsors who handle all aspects of property management

One key benefit of DSTs is the opportunity for diversification. This reduces your risk because your money is spread across different properties. However, while DSTs offer a passive route to real estate investment, they come with risks like limited liquidity and dependence on the sponsor’s performance.

Typical DST investments include multifamily apartments, industrial buildings, and Self Storage facilities. This diversification allows investors to invest in different real estate sectors while enjoying the perks of passive income without the hassles of property management.

Benefits of Passive Ownership with DSTs

Hands-Off Property Ownership: When you invest in a DST, you enjoy the benefit of a hands-off approach to property ownership. No late-night calls about leaky faucets or finding new tenants—everything is managed by professionals. However, investors should be aware that they have no control over property decisions, as all management responsibilities lie with the sponsor.

Diversification Through Multiple Properties: DSTs enable you to diversify your investments easily. Rather than investing heavily in just one property, you can spread your investment across multiple assets, minimizing your risk exposure. 

Tax Benefits and 1031 Exchange Opportunities: DSTs offer significant tax benefits. If you sell a property, a 1031 exchange lets you reinvest your profits into a DST without immediate tax consequences. However, it is essential to consult a qualified tax advisor to understand the tax benefits of DSTs and the risks associated with DST investments.

Potential for Passive Income Streams: With DSTs, you can enjoy the potential for passive income through rent. A DST may generate passive income without you handling daily property management. Yet, income isn’t guaranteed; market shifts can bring lower returns or even temporary losses.

Note: DSTs also carry risks, including limited liquidity, fluctuating market value, and a lack of direct control. Past performance is not indicative of future results. Investors should consult with their tax, legal, and financial advisors to assess whether DST investments are suitable for their individual situation.

Who Can Benefit from DST Investments?

Individuals Looking for Retirement Income: If you're nearing retirement and desire passive income, DSTs can be a great option. They provide potential rental income without the hassle of managing properties. With cash flow from rent, you can spend retirement doing what you love—be it travel, family time, or exploring hobbies.

Accredited Investors: For accredited investors, DSTs can be an ideal option. They allow you to invest in quality real estate without the hassle of hands-on management. Experienced managers handle everything, from tenant issues to maintenance. This lets you expand your investment portfolio without sacrificing time for work or leisure. However, be aware that DSTs are long-term commitments and may come with potential risks.

Individuals Transitioning from Active Real Estate Ownership: If you have been actively managing real estate and want to move to a more passive role, DSTs can help. They allow you to stay invested in the real estate market while eliminating the headaches of daily management. This can be particularly appealing if you want to enjoy the benefits of real estate investing without the stress of constant oversight.

How to Get Started with DSTs

Step 1: Educate Yourself

The first step is understanding what a DST is and how DSTs work. Look into how they are structured, what types of properties are available, and the benefits of DST investments, such as passive income and tax advantages. Read books and articles, and seek out professionals who specialize in DSTs to gain insights. It’s important to have a solid foundation before diving into an investment.

Step 2: Set Your Investment Goals

Before investing, it’s important to define what you’re hoping to achieve. Are you seeking passive income, or are you more interested in using the tax-deferral benefits of a 1031 exchange? Defining your financial goals will help you focus on the right DST opportunities and avoid unnecessary risks.

Step 3: Engage a Qualified Intermediary (QI)

In the world of DST investments, a QI plays an essential role. They help manage the transactions and ensure all legal and tax-related requirements are met. It is important to work with a trusted QI to help manage your exchange process and ensure compliance with tax regulations. Knowing how to invest in DSTs often begins with securing a qualified intermediary who can guide you through the complexities of the process.

Step 4: Identify Suitable DST Properties

Now that you've set your goals and have the help of a QI, it's time to identify DST properties that match your investment goals. Consider factors like the property's location, its type (commercial or residential), and the track record of the property sponsor. Ensure you understand the potential performance and risks of the property before you proceed. This step is vital for anyone learning how to invest in DSTs. Remember, selecting the right properties can greatly affect your investment success.

Step 5: Conduct Due Diligence

Before committing to any investment, conduct a thorough review of the financial documents and property reports. This due diligence ensures that the DST property is sound and aligns with your financial objectives. Consulting your financial advisor can provide an extra layer of assurance during this process.

Step 6: Invest and Monitor Your Portfolio

Once everything checks out, proceed with your investment. Even though DSTs are meant for passive ownership, it’s important to monitor how your investments are doing. Keeping up with your portfolio and market trends helps ensure you reach your financial goals. This way, you can adjust your strategy if necessary.

The Importance of Working with Qualified DST Professionals

Investing in a Delaware Statutory Trust (DST) has many benefits. You can enjoy tax deferral, potential income, and diversification for your portfolio. However, DST transactions can be complex. To navigate these challenges, it’s essential to work with qualified DST professionals. They guide you through the investment process. They ensure you comply with IRS regulations and help identify any potential risks in your transactions.

Here's why it's crucial:

• Complex IRS Guidelines: DSTs are governed by strict IRS rules, especially within the framework of 1031 exchanges. A qualified professional ensures compliance with these regulations to help you avoid disqualification.
• Tax Strategy Optimization: DST professionals help you maximize the tax benefits of DSTs. They structure your transactions correctly and ensure proper reinvestment. This helps reduce potential tax liabilities.
• Thorough Due Diligence: DST professionals conduct detailed market analysis and property evaluations. This ensures you find investments that fit your financial goals and risk tolerance.
• Understanding Market Conditions: DST experts stay updated on real estate trends and performance indicators. They ensure you invest in properties that have the best potential for passive income.
• Replacement Property Identification: Timing is critical in 1031 exchanges. Qualified DST professionals help you identify replacement properties within the 45-day IRS window.
• Managing the Exchange Process: From sale to acquisition, DST professionals simplify the exchange process. They handle all documentation to meet deadlines properly.
• Managing Transaction Risks: Professionals provide an in-depth understanding of DST limitations, market risks, and property performance. This helps you make informed decisions about your investments.
• Minimizing Investment Errors: Qualified professionals reduce the chance of mistakes. This safeguards your investment from disqualification or penalties.

Why Choose Stax?

At Stax, our team of professionals has over 35 years of experience in providing  DST investment guidance and 1031 exchanges. We focus on providing thorough due diligence, comprehensive support, and a client-first approach. Here’s how we can help:

• Personalized Guidance: We provide tailored advice, ensuring your investment strategy aligns with your financial goals.
• Thorough Due Diligence: Our professionals conduct in-depth market and property analysis to select investments that meet your criteria for risk and return.
• Comprehensive Support: From managing compliance to handling every detail of the exchange process, Stax supports you at every stage to ensure a seamless and successful transaction.

Understanding Minimum Investment Requirements and Risks in DSTs

Investing in a Delaware Statutory Trust (DST) offers unique opportunities. However, you should be aware of minimum investment levels and possible risks:

• Minimum Investment Requirements: DSTs typically require a minimum investment of around $100,000. Also, they are usually available only to accredited investors who meet certain income or net worth criteria. These limits ensure that investors are committed to long-term strategies and can benefit from fractional ownership in high-quality properties.
• Illiquidity Risk: DSTs are long-term investments, and there is no secondary market for trading. Investors should be prepared to hold their investment for 5-10 years or more, as early liquidation is usually not an option. Understanding these illiquidity factors is crucial for minimizing risk with DSTs.
• Market Sensitivity: Real estate investments, including DSTs, are subject to economic factors such as inflation, interest rates, and market fluctuations. These factors may impact property value and income potential.

By understanding these requirements and risks, you can make informed decisions about whether a DST investment aligns with your financial goals.

Ready to start your Journey Toward Passive Real Estate Investing?

DSTs may offer opportunities for passive income and long-term capital appreciation. However, it’s essential to understand both the benefits and risks associated with investing in DSTs.

It is also crucial to work with qualified professionals to make the most of your investment. With Stax, you get expert guidance every step of the way, ensuring your DST investments align with your financial goals.

Ready to explore your DST options? Contact Stax today to get started.

Andrew Carnaby's statement that 90% of millionaires build their wealth from real estate has become famous over time. Said at the turn of the century, this insight still holds true today.

However, back in the late 1800s, things were a little different. There was no capital gains tax for one, as this was only instituted in 1913.

Of course, capital gains tax or not, real estate is still a promising investment type. What's more, capital gains tax can be minimized through informed tax planning strategies. The use of DSTs is one example of this.

But what is a DST? DST stands for Delaware Statuary Trust, and we are about to share with you how they work, as well as how they can qualify as 1031 exchange property.

If you are looking into liquidating your real estate assets for reinvestment purposes, we advise you to continue reading to find out more about DSTs and 1031 property exchanges.

What Is a DST?

A Delaware statuary trust or DST is a legal entity designed for the purpose of conducting business activities. Contrary to its name, Delaware statuary trusts are not registered exclusively in Delaware. What is a DST in real estate? DSTs are also known in some instances as unincorporated business trusts or UBOs.

Similar to LLCs, DSTs are pass-through entities. This means they are not taxed on income generated.

Instead, the tax liability is passed through to the trustees. However, as a legal entity, DSTs do provide trustees and beneficial owners with limited liability.

Do DSTs Quality as 1031 Exchange Property?

If you are curious to know whether a DST investment can fall as a like-kind property for a 1031 exchange, the answer is yes.

Although DSTs have been around since the '80s, they have recently become popular structures for the purpose of reinvestment of real estate proceeds. The reason for this is that DSTs can qualify as 1031 exchange property. Investors should keep in mind that DST's are only suitable for Accredited Investors and one must qualify as an accredited investor to participate in these programs.

1031 Exchanges Explained

If you are unfamiliar with 1031 exchanges, let's quickly take a look at how they work and what their requirements are.

In a nutshell, 1031 exchanges allow for real estate property to be sold without attracting immediate capital gains tax. Any applicable capital gains tax is deferred, allowing investors to enhance the growth potential of their portfolios. A further benefit is properties purchased through a 1031 exchange can be passed down to heirs tax-free.

However, there are a number of requirements for 1031 exchanges. These include:

• Proceeds from the sale of the real estate have to be reinvested in "like-kind" replacement property (properties that are considered similar)
• The replacement property or properties have to be identified within 45 days from the sale of the previously held property
• The replacement property or properties need to be successfully closed on within 180 days
• Replacement property has to be utilized for investment purposes or business purposes

The requirements for 1031 exchanges can often prove onerous for investors. Identifying qualifying replacement property, conducting due diligence on the property, and closing on it within the required time frames can be difficult.

DST 1031 investments can, however, remove some of the obstacles involved in a 1031 exchange.

Let's take a look at some of the pros and cons associated with DST property investment.

Pros and Cons of 1031 Exchanges via DST Properties

DST investments are becoming increasingly sought after thanks to the fact that they can facilitate 3031 exchanges and the tax benefits that come from these. Besides the tax shelter that DST property investments can provide, they also pose a few other concrete advantages.

At the same time, not all investors may find DST property ideal. Below are the pros and cons investors should be aware of when considering DST property.

DST Investment Pros

DST property investment poses a number of advantages. DST investors can enjoy the benefits of 1031 exchanges, with fewer hurdles, and minimized risk of exchange failure. DST property investment allows for enhanced diversification and reduced personal management duties.

Streamlined 1031 Exchanges

The overarching benefit of DST investments is that 1031 exchanges can be accomplished in a streamlined manner, providing that the DST investors find a properly structured DST product.

When investing in a well-managed DST, investors can enjoy the tax shelter of a 1031 exchange without the legwork of identifying, investigating, and closing on qualifying properties. Without the pre-established framework of a DST investment, investors run the risk of disqualifying their 1031 return due to factors outside of their control.

Zero Property Management Duties

Properties that are owned by DSTs are typically managed in full. This means that DST investors enjoy monthly income from their investment, without the need for hands-on management.

Property management can be a significant drawback of real estate ownership. Dealing with tenants and property maintenance can be a full-time job in and of itself.

With structured DSTs, investors do not have to worry about this aspect. Instead, all property management tasks are handled by the trust.

Opportunity for Portfolio Diversification

Another benefit of DST properties is the entry point for DST investment can be significantly lower than when buying total ownership of a property.

DST investments often consist of multifamily assets, mixed-used property, office space, and CRE assets. These types of real estate assets are often out of reach for private investors. DST investments, on the other hand, typically start at a minimum value of $100,000.

This means that DST investors can buy into a property with less capital. This also facilitates diversification, where buyers can choose to invest multiple properties types simultaneously.

DST Property Cons

While investing in a DST 1031 property has many advantages, there are also several potential cons. These include a loss of control, illiquidity, and market and financial risks.

Loss of Control

For some investors, having full property management might not be ideal. Thanks to the structure of DSTs, investors are not able to manage the affairs of the real estate investment.

In many cases, this can be a substantial bonus. However, if investors disagree on the way property management is carried out, this can become a point of conflict.

Illiquidity

Another potential drawback to investing in DST property is its illiquid nature. DST property is normally only sold once the DST has completed its cycle, and there is no public market for ownership interests.

In some situations, an investor may be able to sell early. However, this is not guaranteed.

Therefore, DST investments are only suitable if you are looking to invest for long-term gain, typically over 5-10 years.

Market Risk

DST's or Delaware Statutory Trusts are real estate investments and therefore subject to all the risk related to real estate ownership. Some of these include occupancy, local employment base, rent collections, general economic risk, etc.

Financing

DST's usually employ the use of leverage to help investors meet their 1031 loan replacement requirements. Whenever leverage is part of a real estate purchase, it opens up the property to a potential foreclosure if at some point the property cannot generate enough net income to make ongoing loan payments.

Would You Like to Know More About DST Investments?

Now that you know the answer to "What is a DST," are you interested in learning more about potential DST investments?

If so, you have come to the right place. We specialize in DST property and real estate investment and are here to help you with your alternative investment journey. Do your portfolio a favor and find out more about our DST investment offerings.

We pride ourselves in providing open and honest investment information and opportunities that facilitate our clients' financial freedom. If you have any questions about DST investing, please do not hesitate to reach out and we will be happy to assist you.