In our last blog post, we discussed the risks of 1031 Delaware Statutory Exchange (DST) Exchanges. While we specialize in DST property investments here at Archer, we would be remiss not to let everyone know what the potential risks are. It’s irresponsible to invest without doing your own due diligence, and we want to help everyone know exactly what they’re getting into.
With that being said, focusing only on the risks of an investment can make it look less appealing than it actually is. If one is to examines risk factors, the benefits of an investment must also be considered as well. It just so happens that 1031 DST Exchanges have a wide variety of benefits. In the hands of the right investor, they can be one of the easiest and safest ways to make money from real estate investment.
Are you looking for something new to invest in, and a way to avoid the high costs of capital gains taxes? Let’s take a look at the many benefits of DST properties.
What Is a DST Investment?
Before we move straight on to the benefits, it’s important to establish what a DST 1031 Exchange is. This type of investment, in a nutshell, is a way for you to reinvest the money you make from a property sale into a new property. When you perform a DST 1031 Exchange, you are not required to pay money on your capital gains taxes. This allows you to profit off your newly-sold property, while wasting no time jumping into a new investment.
In a DST 1031 Exchange, you don’t actually own the property you’re investing in. Instead, you own shares of the property, allowing you to gain residual income from its profits, but without all the stressful tasks that property management entails. With all that being said, let’s look at the reasons why this can be a highly beneficial investment.
No More Management Responsibilities
If you’re considering a 1031 DST Exchange, it’s because you’ve recently sold real estate or you’re at least planning to. After all, one prerequisite of a DST Exchange is that you’re transferring ownership from one investment property to the next.
If that’s true, then you likely have some experience managing a rental property. We can all agree that rental properties can be extremely lucrative, but sometimes the taxing responsibilities of management can make you question whether it’s actually worth it. Rent collection often feels like an exercise in pulling teeth, and it’s never fun having to stay on top of constant maintenance and repairs.
With a DST property, however, all management is out of your hands. Because you own shares of the property instead of the property itself, the property will be managed by an independent team. It’s reasonable to be skeptical about a management team you’re not familiar with, and that’s why at Archer Investors, we only work with national class, professional property managers.
Matching or Exceeding Your Loan
Unless your intent is to cash out, it’s generally prudent to replace one real estate investment property with another. This allows you to retain a steady flow of income and provides an extra cushion of safety. But, it can be hard finding suitable replacement properties that make financial sense, and meet the equity and debt requirements for your 1031 exchange.
The great thing about DST properties is that they can potentially be matched to meet your debt and equity requirements. At Archer Investors, we specialize in DST 1031 Exchanges, and part of our job is connecting ourselves with a wide variety of reliable and responsible DST sponsors. Between the large selection of properties, and the fact that ownership is doled out in shares, it’s very likely that you’ll be able to find a property that matches or even exceeds your loan needs.
Higher Quality Properties
Unless you’re obscenely rich, you probably aren’t going to be the sole owner of hundred-million dollar properties. You can get by with cheaper properties and still make a respectable living renting them out, but ultimately, a higher-quality property is safer in the long run. High-quality properties attract wealthier and more reliable tenants, and you don’t have to worry about them becoming irrelevant.
DST properties are usually valued between $25-125 million, far too much for most individual investors. But, by owning shares in these properties, you can collect a residual income from them without any of the work that you’d normally have to put into your cheaper property. The management is already in place, and the tenants are reliable.
Here are some examples of the most common types of DST properties:
- Apartment communities
- Retail shopping centers
- Offices and industrial complexes
- National and regional single tenant properties
- Multifamily rental properties
Readily Available Property
The trouble with a traditional 1031 Exchange is the timing of it all. You probably don’t need us to tell you that real estate transactions can take time — many average homeowners take months just to sell a single home. If you’ve recently sold your property or are planning on doing so, you might have a tight timeframe.
Since you’re not going all-in on ownership, DST properties are much more readily-available. 1031 exchanges typically come with a 45-day identification period — you can easily meet that with a DST exchange.
The readily-available nature of DST properties also makes them prime candidate for other options. If you need a backup property, or have leftover equity from an exchange that needs to be placed somewhere, DST properties are a great option.
Easy Exit Strategy
DST properties are unburdened with the uncertainty that often comes from other rental properties. The conditions and timeline are made quite clear from the start — you’ve given a holding period for your shares, and once that period is over, you have the option of swapping to a new property. Holding periods average between five and seven years, but could be longer or shorter depending on the property in question.
When it comes to investing, certainty is always better than ambiguity. By investing in a DST property, you’re giving yourself an established, defined timeline around which you can plan other aspects of your life, both present and future.
If you’re an experienced rental property investor, you probably know that it’s generally better when you’re able to stay in close proximity. Property management is an ambitious task, and unless you’re hiring a team to manage for you, you’re going to have to be nearby at all times. This limits your options — you’re either confined to property in your immediate area, or you face the prospect of relocation.
DST properties allow you to collect your income remotely. This is not only far easier and more relaxing than being a property manager, but it also allows you to diversify. You can put your money into DST properties of different types, in different markets, with different managers. Diversification is a prudent move in the world of real estate investment, because it means you’re not putting all your eggs in one basket. In a market where conditions can change at any time, it’s nice to have multiple investments that cover all your bases.
We Can Help With DST 1031 Exchanges
At Archer Investors, we specialize in DST 1031 Exchanges, and we’ve connected ourselves with only the best DST sponsors all over the country. If you’re interested in this unique and valuable investment, we urge you to contact us today to get started — we’ll find the absolute best investment for your needs.