A 1031 Delaware Statutory Trust (DST) exchange is a type of joint real estate ownership fund that allows investors to purchase and sell real estate using tax-advantaged transactions. Each investor contributes a specific amount that goes towards the purchase of a property, and the remaining balance is financed via a loan. The trust for the 1031 DST exchange is the borrower, not the individual investors.
If the property is bought for cash flow rather than solely for appreciation, each investor will receive their share of the monthly cash flow. An investor's share is dependant upon the amount of their investment.
When a property is sold within a 1031 DST, the investors don't have to pay capital gains taxes as long as a similar property is purchased with the proceeds. This makes it possible to keep your earnings tax-deferred so you can lower your tax liability. Here are a few things you should know about investing in a 1031 DST exchange.
1. You Can Purchase a Variety of Properties in a 1031 Exchange
There are numerous properties that are eligible for ownership in a 1031 exchange. Some of the options include:
Once a property in a 1031 exchange is sold, the exchange's trustee has 45 days to find a new property and 180 days to close on this property. If something happens and the 1031 exchange trust can't pay the loan for a property, an investor's loss is limited to their investment in the fund. The lender can't go after individual investors or seize their assets to pay off the loan.
2. A 1031 DST is a Passive Option for Investing in Real Estate
If you want to add real estate to your investment portfolio, but prefer a hands-off investment that you don't have to actively manage, a 1031 DST is a good fit for your needs. Most 1031 funds buy and hold properties for at least a few years, and they outsource the work associated with managing, maintaining, and marketing the property. A trustee will make decisions on behalf of all the investors of the 1031 DST.
3. It Takes Time to Sell Your Share of a 1031 Exchange
Many investment professionals view the 1031 exchange as a non-liquid asset. It's possible to sell your share in a 1031 DST to another investor on the secondary market, but these transactions take time (typically at least a few months). If you know that you'll need your investment by a specific date, make sure to plan accordingly.Share
19 March 2020
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