1031 DST Investments: Why All-Cash/Debt-Free Delaware Statutory Trust Properties

10 Reasons to Consider All-Cash/Debt-Free DST Properties For Your 1031 Exchange

  1. No refinancing risk.

  2. Flexibility to hold through any potential market downturns, credit crunches, recessions and/or depressions.

  3. Provides 1031 investors the ability to diversify* a portion of their exchange dollars into an all-cash/debt-free property in an effort to lower potential risk.

  4. Eliminates the risk of taking on equal or greater debt in future 1031 exchanges. If an investor that was debt free purchases leveraged properties in a 1031 exchange, in future 1031 exchanges, they will have to take on equal or greater debt in order to avoid a massive tax consequence. The problem is that leverage may not be available at the time of the future 1031 exchange and/or interest rates may be at sky high levels. For example: the credit crunch of 2008 and the 18% interest rates of the early 1980s.

  5. Provides an investment option for direct cash investors – not currently in a 1031 exchange – to participate in real estate without the risks of using leverage.

  6. Allows clients to protect themselves from the financial catastrophe of a complete loss of their principal due to a lender foreclosure.

  7. Protects investors from a “balloon maturity” which is typically found in most leveraged DST properties.

  8. Oftentimes, all-cash/debt-free DSTs can have lower fees/commissions than leveraged DSTs (hint – one of the reasons we at Kay Properties often see other “advisors” telling clients that have no debt to replace to “leverage up” and buy DSTs with mortgages on them.) This is a blatant disregard to the potential catastrophic risk that the 1031 investors are taking on, by exchanging from an all-cash/debt-free situation into one with a 50-60% loan-to-value.

  9. Oftentimes, an all-cash/debt-free DST can have a higher projected cash flow than leveraged DSTs due to there being no monthly debt service that needs to be paid to a lender.

  10. Buying investment real estate debt-free is considered by many to be one of the safest ways to own real estate.

It just makes sense: Buy it free and clear to potentially lower future headaches, protect your principal and protect your future.

*Diversification does not guarantee profits or protect against losses.