Over the course of several years, there has been an incremental growth of investors who are choosing Delaware Statutory Trust (DST) properties as a preferred means of passive real estate investing for like-kind, tax-deferred 1031 exchanges.
Related: What is a 1031 exchange? Check out an earlier post about the 1031 exchange.
1031 Exchange Basics
Per section 1031 of the Internal Revenue Code, real estate investors, under specific guidelines, can potentially defer their capital gains, depreciation recapture tax, and other taxes (Please seek your CPA or financial advisor to see if you qualify). On the sale of the property, all the sales proceeds are kept with your Qualified Intermediary, then the investor must identify like-kind real estate of equal or greater value within 45 days and close on one of those properties within a concurrent 180 days.
IRS/DSTs
Through what is known as the IRS Revenue Rulling 2004-86, DSTs are now recognized as a qualified vehicle for real estate investors looking for replacement properties after the sale of their relinquishing property. Performing a 1031 exchange into a DST does not end the 1031 exchange lineage. An investor has the ability to conduct another 1031 exchange upon the sale of the DST property.
Passive Real Estate Investing
The hot buzzword in personal finance for millennials and gen-x’ers is “Passive Income”. For the investors who tire of self property management/asset management consuming their lives, DSTs offer the opportunity to be passive and diversified via the 1031 exchange into multiple DSTs, in multiple states, in multiple property types. You’re not limited to just 1 DST property, in fact, some DST funds contain multiple properties.
Why is it easy?
It’s important to note that these management companies do not call for investors’ funds, then go out and purchase the properties. It’s actually the real estate firms that purchase the properties first (to reduce risk for 1031 exchange closing risk), then create the DST trust entity to call for investors’ funds. In a way, this is essentially crowdfunding real estate.
Summary
DSTs may not satisfy every investor’s criteria, but ultimately, it’s a tool in the tool belt for a means of passive investing and a different angle for real estate investors. I strongly encourage those that are interested in DSTs to read more into the pros and cons as there are many – refer to https://www.re-transition.com/ and http://www.kpi1031.com/. I am not affiliated to any of these websites, but they provide a wealth of information regarding basic 1031 exchanges and especially DST 1031 exchanges.
Born and raised in the Pacific Northwest, I eat, sleep, and breathe real estate. As your agent, I’m attuned to your needs, knowledgeable of market trends and conditions, and dedicated to helping you reach your real estate goals. Buying a home is one of the biggest decisions in life, and it’s my passion to help you find the right home and to be on your side through the entire process.