Since investments began even back in ancient times, there was never a guarantee of a return. You could invest in building a house, and a storm could come and blow it down. You could buy a ship, and pirates would come along and take all the goods on your ship and then sink it, leaving you with nothing. You could sail the ocean blue, and discover a new continent, or you could just as easily sail the ocean blue and end up shipwrecked on a deserted island. Investments, like life, hold no guarantees.
Hence, the idea of diversification came along and has allowed investors to mitigate their risk to a tolerable level, so that if you decide to sail the ocean blue, you’ll at least have a cell phone to call for help if a storm arises. This is where DSTs come into play, and these commercial real estate investments can help you diversify your portfolio.
Archer Advisors helps people with 1031 Exchanges and DSTs (Delaware Statutory Trusts). These real estate investment strategies allow you to hold real estate collectively. These are effective vehicles not only for diversification, but also for deferring capital gains taxes through a 1031 Exchange. Below, we’ll explain how you can use DSTs to effectively diversify your portfolio. Contact us today to get started!
WHAT IS DIVERSIFICATION?
Diversification is the old adage of not putting all of your eggs in one basket. If you put all of your eggs in one basket, and you drop the basket, you have no eggs left. If you put your eggs in multiple baskets, and you drop one basket, you’ll have eggs left in other baskets. Diversification is allocating your money into different investment vehicles to mitigate risk. That way, say if the stock market crashes, you have other investments in other places so you’re protected from complete financial ruin.
Diversification is essential in today’s marketplace. Luckily, it’s pretty easy to diversify these days. From having cash investments, stocks, and bonds to having real estate investments and hard assets, such as gold, there is no shortage of places to stash your money. The premise for long-term investing is to have a return on investment (ROI), a steady number when taken as a whole. Thus, at the end of every year, it doesn’t matter so much as what individual investments did as it does what your entire portfolio did. The goal is to grow your money, not lose any, and as long as your money is steadily growing, then your diversification strategy is working.
While having a lot of options for investments and diversification is great for investors, it can make investing a bit complicated. Archer Investors is here to help you diversify your portfolio with these commercial real estate investments and decide if DSTs and 1031 Exchanges are right for you. Get in touch today!
WHY USE DSTs TO DIVERSIFY?
As mentioned above, a DST stands for a Delaware Statutory Trust. These are legal structures and real estate investment opportunities that allow you to own real estate in a property. You can think of a DST as a timeshare you may own, such as a condo. You’ll own a fractional ownership in a real estate asset of your choosing. Frequently, these are large office complexes, retail spaces, health centers, apartment buildings, or even fitness centers. DSTs are long-term investments, so you’ll have to place these in your portfolio as such. When you invest in DSTs, you are still investing in real estate, and for your portfolio, it’s simpler to classify it as such.
A good diversified portfolio consists of a mix of liquid and non-liquid assets. Generally, liquid assets (or assets you can have access to the cash quickly) are cash, money market accounts, and bonds. Archer Investors recommends you can even count stocks as well since they are easily bought and sold. They may be more of an in-between asset for liquidity.
Non-liquid assets are usually the assets that you hold long-term that you don’t need the money for anytime soon. These are assets that are harder to sell and get the cash from. Typical non-liquid assets include your house, cars, real estate, and mineral rights. You typically earn more ROI on non-liquid assets because the risk is higher than with liquid assets.
Thus, a DST makes sense as part of your non-liquid asset holdings within your portfolio. There are many benefits to DSTs as we’ll enumerate below.
BENEFITS OF DSTs
No Management of Properties
This is perhaps the biggest draw of these real estate investment strategies, as many people move from owning their own individual real estate properties to DSTs. When you own your own properties, you are the property manager and have to deal with all of the tenant problems that go along with being the property owner, such as broken hot water heaters in the middle of the night, a leaking roof, or tenants moving in and out. Even when you work with a property management company, although some of the day-to-day responsibilities are removed, you still have hassles to deal with (such as paying the property management company). DSTs take care of everything, including the purchase, financing, property management, and asset management. All you have to do is put your money down.
Some DSTs are set up to provide dividends on a monthly basis, which can be used as income for you, especially if you are nearing retirement. DSTs are also limited liability investments, meaning that if you invested in a property purchase that required a loan, the only thing you could lose in the case of a default is that property. The lender would have no other recourse. In sum, you can only lose your investment and no more. This also allows you to secure future loans with no impact.
Frequently, DSTs are used in 1031 Exchanges. A 1031 Exchange is the tax code that allows you to defer capital gains tax on the sale of one of your real estate properties as long as you reinvest the profits into another real estate transaction. Thus, you can purchase DSTs with the proceeds from another real estate investment sale and not have to pay capital gains tax.
When you invest in a DST, you are buying a certain percentage of a piece of property. Thus, if you decide to sell that property, you’ll get the dollar amount that that percentage is now worth. You can also sell a portion of your DST property in order to invest in other properties as well. In addition, you can now own a part of a piece of property that would be out of reach otherwise. Plus, someone else has already done all of the due diligence on the property. This alone can be worth investing in a DST.
DSTs can be passed on to your heirs should you die. Since it is real estate property, they can then affect a 1031 exchange and avoid taxes as well.
As we’ve seen, DSTs are great real estate investments to diversify your portfolio. The investment amount is usually low (as low as 100 thousand dollars), which allows investors to purchase multiple properties through DSTs, as well as just add to their overall wealth investment strategy. These commercial real estate investments can be further broken by diversifying geographically, by property type, and by the company managing the DST.
WHY CHOOSE ARCHER INVESTMENTS AND DSTs FOR YOUR PORTFOLIO INVESTMENT
Delaware Statutory Trusts are just one egg in a basket full of investment instruments that you should be utilizing to manage your risk factor as you age. These unique real estate investment opportunities not only serve as diversification instruments, but they can grow substantially as well in value. Being that these are longer-term investments so you can’t touch your money easily, you’ll allow the time value of money to really work in your favor. While real estate values can go down, land is one of the few resources (along with commodities like gold and silver) that hold their value and grow their value over time, which is why real estate investments continue to occur.
When you partner with Archer Investors, you’ll get a committed and seasoned real estate manager who specializes in only DSTs and 1031 Exchanges. Our financial experts specialize in these commercial property investments so that you can get the most value for your money. We handle all of the due diligence on properties and the management of them so that you can spend time on what you want to do in your free time. Planning investments takes time. Archer Investors takes our time in ensuring the DST property you are investing in is the right fit for your needs.
In your free consultation, we can go over with you the DST process, how a 1031 could be used in conjunction with a DST, and how we operate. We want to ensure that this specialized real estate investment opportunity is for you. If you are looking for long-term returns and a capital gain tax shelter, contact Archer Investors today to get started!