Real estate investment is a lucrative business, however, with a high cost of entry, it can be challenging to make significant gains in the early years. The Delaware Statutory Trust (DST) and 1031 exchanges offer an excellent opportunity for investors with smaller capital to participate in large-scale real estate transactions. In this article, we will take you through the basics of 1031 exchange advisor. We explore what they are, how they work, and the benefits they offer.
What is a DST?
A DST is a separate legal entity that holds ownership interest in real estate properties. Investors can buy any portion of ownership in the DST to have a stake in the property. The trust structure allows several investors to hold ownership in different percentages without having to worry about management, liability, or day-to-day operations. Typically, a trustee oversees the property management, making it a passive income investment for the investors. DSTs are ideal for 1031 exchanges and can cater to various types of commercial and residential properties.
What is a 1031 Exchange?
A 1031 exchange, also known as a tax-deferred exchange, refers to a transaction that allows investors to defer capital gains taxes when they sell their investment properties. This applies to any investment property, including real estate, securities, collectibles, and personal property. In essence, 1031 exchanges substitute the property being sold for a like-kind property to defer capital gains taxes.
How Do They Work Together?
When selling a property that has appreciated in value, the tax burden on capital gains can be overwhelming. However, by using the 1031 exchange to sell the property and purchase DSTs, an investor can defer the taxes and participate in a larger-scale real estate transaction. Additionally, the DST structure allows for a passive form of investment where the trustee oversees the management of the property, making life easy for investors who want to invest in real estate but do not want to commit to the complexities of real estate management.
Benefits of DST and 1031 Exchange
Tax Efficiency: Through 1031 exchanges and DSTs, investors can defer capital gains taxes and enjoy passive income without worrying about costs of management, making them tax efficient.
Portfolio diversification: Investors can acquire fractional ownership in various properties, diversifying their investment portfolios further.
High-Quality Investments: DSTs are ideal for investment in high-quality real estate properties with reputable tenants, assets that would be inaccessible for individual investors.
Conclusion:
The Delaware Statutory Trust and 1031 exchanges provide a unique opportunity for investors to participate in significant real estate transactions by investing in fractional ownership. It is a tax-efficient way to invest in high-quality real estate properties managed by reputable professionals without worrying about property management. As an investor in the real estate market, consider exploring DST and 1031 exchanges to diversify your portfolio and increase your income streams.