Most investors lose a significant part of their monthly income in paying operating expenses. When you invest in real estate, in most cases, you are burdened with landlord responsibilities. Keeping track of property bills, paying operating expenses like utilities, property tax, insurance, etc., take away a large portion of your time and money. As a result, the most you can do is sell your property and pay hefty capital gain taxes.
Don’t sell your property, swap it with the less management-intensive property.
One way to get rid of landlord responsibilities and also save capital gain taxes is the 1031 exchange. Using a 1031 exchange, you can sway your current property with another property that includes no day-to-day responsibilities. Plus, you won’t be liable to pay capital gain taxes. Isn’t it a win-win situation?
DSTs are one of the best options for passive investment.
If you don’t have sufficient time to dedicate to a property, you can choose a DST investment. Delaware Statutory Trust (DST) is a private trust that owns, sells, and manages investment properties. You can invest your 1031 exchange proceeds for beneficial ownership in a DST. In other words, you own the trust, and the trust owns the property.
Here are some big benefits of 1031 DST Exchange –
- No landlord responsibilities – The best thing with a DST investment is that you can pass the management responsibilities to the experienced asset or property managers who know the tweaks and tricks of managing investment properties.
- No liability – DSTs act as the sole owner of properties. Investors within a DST are its beneficiaries. DST investors don’t receive the title of the property. Hence, they don’t have any liabilities either.
- No need to qualify for a debt – DST investors don’t need to apply for the property’s mortgage loan or qualify for the same. Instead of the investors, the DST is liable for any mortgage loan on the property. Consequently, investors do not need to submit personal documents loan approval. Neither they need to worry about any other elements affecting the loan status.
- No fear of boot – Another advantage of a DST investment is that you can invest as much as you want. You don’t need to add extra funds or leave equity un-invested. You can either invest your entire 1031 exchange proceeds into a DST or choose to invest the leftover amount after acquiring a property that didn’t worth as much as your relinquished property.
Triple Net Investment shifts the burden of operating expenses from the landlord to the tenant.
Another way of saving your income from operating expenses is a triple net or NNN investment. A NNN lease asks the tenant to pay all operating costs – property tax, insurance fee, and maintenance – and frees the property owner from their responsibilities. You can invest your 1031 exchange proceeds into a net leased property and enjoy passive income. Some real estate firms put NNN 1031 Exchange properties listings on their websites.
Real estate investment requires market knowledge and experience. It’s recommended you speak to an expert before investing.