Can you explain How DST properties help to make better decisions to defer taxes in term of 1031 exchange.
Say you have an investment property—for example, a beautiful apartment building—that is now running smoothly. However, one day it becomes necessary to sell it. Normally, when you sell an investment property, you lose a huge chunk of the sale to capital gains tax. That’s not one of the best things in the world.
And this is where 1031 exchanges come into play. It’s just a fancy way to say that you can take your old property, trade it for another “like-kind” property, and not have to pay the capital gains tax right now. It’s kind of like doing a trade-in but for real estate.
Now, on top of that, layer in some DST properties. DST stands for Delaware Statutory Trusts. These are legal structures that own this type of real estate at the institutional level—such as large apartment complexes, warehouses, or even shopping centers.
So, how do DST properties help you make better decisions for a 1031 exchange?
Diversification: With a DST, one does not just buy one property; rather, he is buying part of a much larger, professionally managed one. Spreading an investment across multiple properties minimizes your risk and exposure in the event of any downturn in a specific market.
Access to Better Assets: Those big, institutional-grade properties? They’re often out of reach for individual investors. DSTs may be able to get you in on that action, using access to higher-grade assets, potentially yielding better returns.
Fewer Management Headaches: DSTs are professionally managed, so you don’t have to worry about finding renters, fixing up your property, or collecting rent. It’s a far more passive investment approach.
Seamless 1031 Exchange: The structure of DSTs makes them very appropriate for 1031 exchanges. Qualified Intermediaries, who are experienced in the process of exchange, find the process using DSTs quite easy to fathom and handle.