Real estate investors, at some point in their investing career, want to grow their wealth by exchanging their real estate assets for higher returns. One of the ways to do that is through 1031 exchange advisors near meLet’s explore the basics of Delaware Statutory Trust and exchanges to consider them as a part of your investment strategy.
Delaware Statutory Trust –
A DST is a legal entity used primarily as a turnkey investment for real estate investors. It is composed of multiple investors who purchase properties through a trust that allows each investor’s ownership to be defined by the amount they contributed. DST has a trustee that safeguards the property by ensuring that everything goes in compliance with the trust operating agreement.
1031 Exchanges –
section 1031 of the Internal Revenue Code (IRC), allows investors to defer paying capital gains tax on real estate they sell if they purchase similar real estate within a 45-day identification period and 180-day closing period. In essence, 1031 exchanges enable investors to reinvest their property’s proceeds into another property without paying capital gains tax or boot, which is the term for cash or other personal property received in the trade.
Benefits of DST and 1031 Exchanges –
The primary benefit of DST is the ability to pool funds to invest in a high-quality property that would be costly for an individual investor. DST offers a lot of flexibility with cash flow since real estate properties in a trust generate rental incomes, which are distributed to investors on a pro-rated basis.
1031 exchanges offer a chance to avoid the significant capital gains associated with the sale of property, which often means less money to reinvest in the next property. It allows investors to utilize the proceeds of the sale to acquire more significant properties.
How to participate in DST and 1031 exchanges –
The first step to participating in DST is finding an experienced commercial real estate broker or sponsor specializing in DST offerings. Additionally, investors must demonstrate financial qualifications, such as meeting net worth and annual income requirements. It’s important to read a private placement memorandum to understand the DST investment risks and returns, including all fees associated with participation.
To participate in a 1031 exchange, you must close and identify your replacement property using a qualified intermediary. The intermediary is a neutral third party that preserves the exchange’s integrity by holding the funds between the sale of the previous property and the purchase of the replacement property.
Conclusion:
Delaware Statutory Trust and 1031 exchanges provide opportunities to grow your wealth by deferring taxes and generating cash flow. As with any investment, investors should do their due diligence, understand the investment risks, and ensure they’re financially qualified. Consulting with an experienced commercial real estate broker or sponsor to discuss funding opportunities and tax implications with a financial advisor is an excellent place to start.
