Investors who are looking to get into real estate investing often turn to 1031 exchanges as a way to defer paying taxes on the profits they make on their investment properties. While there are several ways to structure 1031 exchange advisor, one option that is gaining popularity is the Delaware Statutory Trust (DST).
In this blog post, we will explore why more and more investors are choosing DSTs for 1031 exchanges. We’ll look at the advantages of DSTs, the types of investors who might find them appealing, and some potential downsides to keep in mind.
Advantages of DSTs
One of the main reasons investors choose DSTs is that they offer a relatively hassle-free way to invest in real estate. Instead of owning a property outright and having to deal with the day-to-day management of it, investors can buy shares in a trust that holds the property. The trust manager takes care of all the details, from leasing the property to managing repairs and maintenance.
Another advantage of DSTs is that they allow investors to pool their money to buy large, high-value properties that they might not be able to afford on their own. This can lead to more diversified portfolios and potentially higher returns.
Finally, DSTs can be a great option for investors who want to do a 1031 exchange but don’t want to take on the responsibility of identifying and closing on a replacement property within the strict timeline required by the IRS. With a DST, the trust manager takes care of all of these details and ensures that the exchange is completed within the required timeframe.
Types of Investors Who Might Find DSTs Appealing
DSTs can be a good option for a variety of investors, but they are especially popular among those who are looking to simplify their real estate investing. This could include busy professionals who don’t have the time or expertise to manage a property themselves, or older investors who are looking to shift their portfolio toward lower-risk, income-generating investments.
DSTs can also be appealing to investors who are looking for a more passive investment opportunity. While there are certainly risks involved with owning shares in a DST, these risks are generally lower than those associated with owning a property outright. This makes DSTs a good option for investors who are willing to give up some control in exchange for reduced risk.
Potential Downsides to Keep in Mind
While DSTs can be a great option for many investors, it’s important to keep in mind that they are not without risks. One potential downside to DSTs is that they can be illiquid investments. Because the properties are held within a trust, it can be difficult to sell your shares if you need to liquidate your investment quickly.
Additionally, while DSTs generally offer lower risks than owning a property outright, they still carry investment risks. Property values can decline, and there is always the risk of poor management by the trust manager, which could lead to lower returns or even loss of capital.
Conclusion:
Overall, DSTs offer a compelling option for investors looking to simplify their real estate investing, diversify their portfolios, and take advantage of the tax benefits of 1031 exchanges. However, like any investment opportunity, it’s important to carefully consider the risks and weigh them against the potential rewards. For investors who are willing to give up some control in exchange for reduced risk and hassle, DSTs can be an excellent option for their 1031 exchange.