At Archer Investors, we know a thing or two about finances. However, the world of finance and investing is so huge that it’s important to have a specific area of focus. At our advising and investment firm, we specialize in Delaware Statutory Trust (DST) investments. We’ve helped countless clients to invest in high-quality commercial properties that generate reliable returns.
Of course, we wouldn’t blame you if you had no idea what a 1031 DST investment even is. It’s certainly not something that you’ll hear about much unless you go out of your way to learn about it, and that’s why a major component of our business is educating our clients on the benefits of 1031 DST exchanges. On top of the book that our founder Leslie Pappas has written, Cashing in Tax Free, we also provide informative pages on our website and blog posts such as this to help you learn everything there is to know about this unique type of real estate investment.
In this post, we’ll keep things elementary by asking a simple question: why invest in a 1031 DST property? That’s arguably the most important question of all, and fortunately, we have answers.
Why Should I Invest in a 1031 DST?
You Want to Defer Your Capital Gains Tax
If you’re a real estate investor and you’re here on our website, you’re probably all-too-familiar with what capital gains taxes are. But for the uninitiated, it’s pretty simple — when you sell a real estate property, you’re taxed on the amount of added value relative to the original acquisition price. For example, if you bought a property for $100,000 and then sold it ten years later for $900,000, that’s an $800,000 increase in value, and that’s the amount you’d be paying capital gains taxes on. Yeah, that’s not very fun.
If you’re a real estate investor who’s absolutely sick of paying these taxes, rest easy knowing there’s a way around them: 1031 DST investments!
When you sell your property, a DST investment provides a replacement commercial property that you can reinvest your money back into. By doing this, you can waive the capital gains taxes that you would otherwise have to pay. For most investors, this is the most compelling reason for a 1031 DST. There are, however, more advantages.
You Don’t Want to be a Landlord Anymore
You probably don’t need us to tell you how great real estate investments can be. They’re one of the most reliable investments you can make as long as you do your research, but that comes with a drawback — they can be a lot of work!
The most tried-and-true method of generating a positive return on real estate investment is to acquire a property, manage it yourself as the landlord, and collect on rent. But what if we told you that you could enjoy the financial benefits of a real estate investment without having to do all that landlord work? With DST investment properties, you can.
The ownership structure allows for you to own shares of interest in large, institutional-quality, professionally managed commercial properties along with other investors. You’ll be an individual owner within a trust, and you receive a percentage share of cash flow income, tax benefits, and appreciation. No more dealing with nightmare tenants and building maintenance!
You Want to Change Up Your Lifestyle
Given that you’re not engaging in landlord duties with a DST property, the investment is lower maintenance all-around. This is a benefit unto its own, because it opens up new opportunities, such as managing your investments from a distance. Did you know that net lease properties are becoming more and more popular for overseas investors? One potential reason for this is because they provide great returns, but they don’t require the investors to be on-site.
Whether you’re relocating, retiring, investing in excellent property out-of-state, or working outside the country, there are many viable options for 1031 DST investments. By joining a trust, it provides major flexibility for lifestyle changes.
You Want to Simplify Your Portfolio
When you’ve got skin in the game, it’s hard to stop. One successful real estate investment can quickly lead to another, and on and on, until you’re managing a massive portfolio of properties all over the place. For obvious reasons, this can be exhausting or overwhelming (or both), and many of our clients have sought out DST 1031 exchanges for the purpose of simplifying their investment portfolio.
When you invest in a DST property, you can consolidate your holdings of smaller properties into a smaller amount of bigger properties — this makes management much easier, allowing you to take a more passive role in your investments.
You Want to Diversify Into Higher-Quality Real Estate
It goes without saying that higher-quality real estate garners higher-quality returns. Bigger properties generally have more tenants, and they’re usually paying more money on top of that. But if you don’t have significant experience, resources, and capital, it can be tough to break into that market.
DST properties are tremendously helpful in this regard. They can help you get your foot in the door, so to speak, so that you can learn a lot of the nuances of high-quality property investment without the risks you’d face doing it on your own. Because you’re part of a trust with other investors, the nitty-gritty management work is taken care of by professionals while you collect your share. In the meantime, you can scrutinize the details and gain some familiarity with how everything works in these high-ticket properties.
You’re Seeking Greater Cash Flow and Appreciation Returns
Sometimes, DST investments can provide more than you’re currently earning from your independent properties, and for less work to boot! If the stars align, there’s no compelling reason not to consider a DST investment.
Naturally, it’s much easier said than done to find that magical property that exceeds everything in your portfolio, and that’s why expert firms such as ours exist. At Archer Investors, we know everything there is to know about DST exchanges, and we go out of our way to find the best possible investment properties on the market. If you want an in-depth analysis on how your finances would look by investing in one of these, be sure to contact us.
There is one thing you should always keep in mind: DST properties are an investment, and like every other investment, there is a risk of loss. While we work hard to eliminate as much of that risk as possible, it’s always a factor.
You Want to Leave Your Heirs in Good Hands
One of the best things about DST properties is that the capital gains tax deferral can pass on to your heirs after you pass away. While we’ve written about this more extensively in another blog post, the basic gist of it is this: if you maintain ownership of your DST property at the time of your death, the capital gains taxes you had deferred won’t end up passing on to your heirs.
Capital gains taxes always come back to get you unless you continually swap your property ownership through DSTs, but your heirs will be free of that if your investment property is passed to them upon death. Furthermore, they will benefit from a step-up in cost effect; this means that they will acquire your property for its current market value (at the time of your passing) instead of the original price you paid for it. Ultimately, DST properties are a great way to leave your heirs with high-value real estate ownership without the burdensome expenses.
You’re In Your 45 Day Identification Period
If you’re in your 45 day identification period following a real estate transaction, DSTs are a viable option for a replacement property. We urge you to contact us today if you’re in this position, as we can connect you with some of the best properties in the market. DST properties are also good to look at if you want a solid backup plan in case your primary property falls through.
Get Started With a 1031 DST Exchange Today
Are you ready to relieve yourself of the burdens of being a landlord? Do you want a more passive return on real estate? Are you looking to avoid copious amounts of capital gains taxes? 1031 DST properties are the answer, and we can help you get started. Contact Archer Investors today to get connected with high-quality, reliable commercial properties, and be sure to check out our education page to learn more about this unique form of real estate investment.