Real estate investing has become a popular way to diversify one’s investment portfolio. One of the most effective strategies that investors use to optimize their real estate investments is through the use of 1031 exchanges. A 1031 exchange allows investors to sell their property without incurring capital gains taxes and to reinvest the proceeds into another like-kind property. A lesser-known vehicle for 1031 exchanges is the Delaware Statutory Trust, a specific legal entity that allows multiple investors to pool their money and collectively invest in commercial real estate properties. Here’s a closer look at the potential of 1031 advisor
One of the most significant benefits of DSTs is that they provide fractional ownership of institutional-grade property. This means that individual investors can participate in real estate opportunities that would typically require a lot of capital that only institutional investors can offer. Additionally, DSTs offer passive, hands-off ownership of commercial real estate. Investors do not have to deal with any of the day-to-day property management responsibilities like tenants, leases, or maintenance. Instead, they earn their share of rental income based on their fractional ownership.
Another significant advantage of DSTs is the flexibility they offer in 1031 exchange investments. Investors can choose the properties they’d like to buy into, and if one DST investment doesn’t meet their expectations, they can quickly sell and invest the proceeds elsewhere, without compromising their ability to defer capital gains taxes. Moreover, unlike traditional real estate investments, investors can exchange from DST to DST, allowing them to spread their investment risk across different properties, locations, and management teams while still enjoying the tax benefits of a 1031 exchange.
DSTs also offer investors great potential for investment appreciation. When DSTs acquire commercial real estate, they leverage the returns from the property’s cash flow and appreciation. As a result, compared to traditional investment options, DST investors may earn higher returns, based on the property performance.
It’s essential to note that investing in DSTs come with their risks and disadvantages. While passive ownership is beneficial, the management team of a DST has significant control over the investment decisions, which can impact returns. Additionally, fractional ownership of commercial real estate is not a liquid asset, so investors cannot readily sell their shares on short notice.
Conclusion:
Despite its potential drawbacks, DSTs provide real estate investors who are looking for a hands-free investment opportunity with access to institutional-grade commercial real estate investment properties while also allowing them to defer capital gains taxes. If you’re considering investing in DSTs, consult with a qualified financial advisor, who can help you weigh the pros, cons, and risks to determine whether this investment option is right for you.
