Think of DSTs as TIC investments. What do you know about TICs? A TIC or Tenancy-In-Common arrangement lets multiple investors own, operate, and share investment properties. Most commercial complexes are owned under TIC ownership.
Under a TIC arrangement, investors have an ‘undivided fractional interest’ in the property, which empowers them to dispose of the property whenever they would want. This undivided fractional interest is considered as interest in real property by the law. Therefore, even though investors don’t own the entire property, every member owns a ‘real estate.’
This is precisely the way ownership works in a DST. All individual investors own a ‘real estate’ even though they only own a portion of the property. The only noticeable difference between TICs and DSTs is the number of investors they have. In TICs, the number of investors is limited to 35, while DSTs can have up to a hundred investors or even more.
What makes a DST investment eligible for 1031 exchanges?
Remember what I mentioned about DSTs in the first paragraph. DSTs or Delaware Statutory Trusts are entities that acquire, manage, administer, and sell real estate. When you invest in a DST, you actually invest in real estate. By becoming a DST beneficiary, you get to co-own investment properties with other investors. That’s why DST 1031 investments are considered as real estate investments. You can look for DST 1031 exchange properties in the property section of the website.
Why is DST a smart investment option?
Suppose, you acquire a replacement property whose value is less than the price you took on your relinquished property. What will happen then? You will have to pay taxes on the leftover money or the cash you saved at the end of the exchange. Instead of paying tax on your gain, you can invest that money in a DST and acquire ownership in one more property. This way, you can have ownership of two properties and still defer your capital gains taxes.
Low Investment – This is another advantage you get with DSTs. You don’t need to invest a hefty amount in a DST. You can start your DST investment for as low as $100K.
No Day-To-Day Responsibilities – The biggest problem with owning an investment property is the amount of effort you need to make in maintaining the asset. From keeping a record of the bills to looking after the repair and maintenance work, investors are usually occupied with day-to-day management responsibilities. With DSTs, you don’t need to bear this pain as professionals manage DST properties.
Lower But Steady Flow Of Income – Your DST investment may not fetch higher returns, but it will surely provide a steady flow of income. The average annual return on a DST investment is generally lower than the returns on other real estate investments. However, the good thing is that DSTs are more stable and safer investment strategies.
1031 sponsors offer a marketplace of fully vetted real estate offerings. Check out some high-performing 1031 DST properties in the 1031 exchange properties list published in the property section of the website