Top 3 Reasons People are Choosing DSTs
Updated: Apr 22, 2021
Delaware Statutory Trusts solve a lot of the headaches of owning and managing rental properties, but real estate investors are looking at them for more reasons than just that. And many are getting involved through 1031 exchanges.
Top 3 reasons people are choosing DSTs: 1) Potential Better Overall Returns and Cash Flows Many real estate investors may not be earning the cash flows they think they are. An investor wanting to determine their cash flows can take their net rental income from their Schedule E, add back depreciation, then subtract the principal portion of their payment. Next divide that number into the property market value. For example, if one had net rental receipts of $50K and $10K depreciation, and also $10K of principal payment, then the net number would be $50K. If the property value is $1 million then the investor would have a 5% cash flow. DSTs could potentially offer a better cash flow and risk return profile while at the same time offering an investor a passive alternative. 2) Tax Planning and Preserved Step-Up in Basis DSTs offer the same tax advantages of real estate that an investor would own and manage themselves. Depreciation and amortization are passed along to DST investors by their proportionate share. DSTs can be exchanged again in the future into another DST via a 1031 exchange. Hold times for DSTs average from five to seven years. See your tax adviser for more clarification and for specific tax advice when evaluating DSTs as an option for your 1031 exchange. 3) Diversification Many DST holdings own multiple assets within one DST structure. For example, an investor might exchange one apartment building for a portfolio of 10 to 15 Walmart stores and/or Walgreens and other single tenant triple net leases inside a DST structure. ... The above article contains information extracted from an article published on Kiplinger.com called "Top 10 Reasons Real Estate Investors Are Jumping into DSTs by: Daniel Goodwin - March 21, 2021. link to online article
*** DST investments are illiquid, highly speculative and like all real estate, may involve substantial risks. DST owners do not maintain control over management decisions and are subject to additional IRS regulations. Potential tax benefits must be weighed against the costs and fees associated with a DST investment and its management.
Contact Don Meredith of Tactical Income, to learn more about Delaware Statutory Trusts (DSTs) and 1031 Exchanges at: firstname.lastname@example.org or (619) 726-6100.
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