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• No More Management Responsibilities
– Free yourself from the three-T’s of active management – tenants, toilets and trash. A DST is professionally managed, allowing you to enjoy a passive income stream without the headaches of property management and asset management.
• Diversification Into Multiple Properties in More Than One Market – This may potentially lower your risk and concentration exposure.
• Access to Institutional Quality Real Estate
– DST 1031 Exchange investments are often comprised of $10 million to $50 million multifamily apartment buildings in dynamic and growing markets throughout the country. 1031 Exchange DST investments can also hold long- term net leased properties to tenants such as Walgreens, Amazon and FedEx.
• Low Minimum Investment Amounts – Oftentimes, the minimum investment for a 1031 Exchange DST property is just $50,000.
• Predictability and Flexibility When Closing – DSTs often close in just 2-3 business days.
• Defer Taxes When You Sell Your Property
– 1031 Exchanges allow investors to defer taxes when they sell a property and move your money into a “like-kind” property. And the rules regarding “like-kind” properties are less rigid than many people think. For example, moving from an apartment building into a piece of raw land or a DST property might not seem like a “like-kind” exchange, but the IRS rules allow it.
• Potential for Typically Non-Recourse Debt
– Most debt on DSTs is typically non-recourse which potentially limits your liability to the lender. This helps protect your other properties, investments, etc., as opposed to personally signing on the loan like most real estate investors are used to.
• All-Cash / Debt-Free DSTs – Certain DSTs have no loans and are owned free and clear, completely eliminating the risk of a lender foreclosure. These debt-free DSTs can potentially be an appropriate option if you have already paid off your properties, owning them free and clear. If that’s the case for you, an All- Cash/Debt-Free DST can lower the risk potential and profile for you.
Of course, DST investing may not be for everyone.
DST 1031 Exchange properties are only available to accredited investors, which is generally defined as investors with a net worth of greater than $1 million, exclusive of primary residence. But if you are an accredited investor – and you’re interested in a passive real estate investment that allows for the significant potential advantages of both diversification and tax savings...then a DST 1031 Exchange investment could be right for you.
THE “WINDOW” OF OPPORTUNITY FOR DST 1031 EXCHANGES MAY BE CLOSING SOON
As you can see, DST 1031 Exchange investments offer significant potential advantages for tax deferral as well as an attractive potential hedge against future inflation in the United States. However, with President Joe Biden’s administration moving full speed ahead to offset recent spending by increasing taxes on higher earners, it is important that you consider your options now to avoid taking a significant financial hit. In the short term, some property investors may be wondering: “Should I sell now to get ahead of any change in the capital gains tax rate?”
The simple answer is maybe. There is no one-size- fits-all answer for everyone. It depends on your individual situation and the property you’re holding. All investors are encouraged to speak with their trusted family members, Certified Public Accountant, and attorney prior to making any decisions. But a potential increase in capital gains tax rates for higher earners is not the only reason you may want to move quickly if you’re considering a DST 1031 investment.
In addition to tax hikes, there is also a growing chance that the Biden administration could potentially limit the 1031 exchange program for real estate investors with incomes above $400,000. Many investors are considering selling larger real estate holdings now and 1031 exchanging into a number of Delaware Statutory Trust investments at smaller price points in an effort to potentially protect themselves from 1031 exchange limitations in the future. For example, if an investor had a $3 million property that they sold and exchanged into six different DST investments in $500,000 increments, they would potentially be setting themselves up to continue to defer gains via 1031 exchanges in the future, even if limitations proposed by the Biden administration go into effect.
In the meantime, investment property owners and investors should make the best decisions they can today given what we know now, with the guidance
APARTMENT MANAGEMENT MAGAZINE - DECEMBER 2021 CS-17