- Deferral of Capital Gains Tax- This is the primary reason why real estate investors use 1031 exchanges. After selling a real estate property, investing in a like-kind property allows the owner to defer their capital gains tax. One DST benefits that has caught the industry’s attention is their prepackaged structure. This allows investors to close DST business deals in potentially as little as 3-5 business days. This timeframe easily fits within the mandatory 45-day identification deadline and 180-day closing deadline.
- Potentially increased cash flow- When conducting a 1031 exchange, property owners calculate the cash-on-cash return they receive from their current property. From our observations at Kay Properties, we speculated in 2015 that DSTs have a projected cash-on-cash return between 5-8%. These potential benefits are gaining notice from the real estate community and driving up its demand.
- Increased Diversification- Real estate owners often have a large amount of equity in a single property. However, many investors have become increasingly wary of placing all of their capital in one property. This is the real estate equivalent of placing all of one’s retirement savings in a single stock. DST properties provide investors the option to acquire several portions of many different properties. Diversifying a real estate portfolio by selecting properties in various businesses and locations reduces, but does not eliminate, the risk of investment loss.
- Passive ownership- Investing in a DST allows you to transfer everyday management tasks to the property’s tenant. This allows DST owners to redirect this time towards family and other passions, while still potentially reaping the benefits of the investment.
To learn more if a 1031 DST exchange is right for you, sign up today!