- Scarcity of attractive 1031 replacement properties. For many investors, the biggest challenge to successfully completing a DST 1031 Properties Exchange is to find a suitable replacement property. Attractive properties that receive broad exposure on public listing sites will invariably attract multiple bids and likely be won by buyers who are often willing to pay more than fair market value. Attractive properties may also be available for too short a time to allow adequate due diligence forcing buyers to take added risks. By contrast, Delaware Statutory Trust (DST) properties are generally purchased “off market” by DST sponsors directly from owners or developers and ownership interests are then resold to investors over a period of at least several weeks allowing more time to conduct due diligence and assess suitability. Once reserved, DST real estate interests are also 100% certain to close subject to remaining availability and investor qualifications.
- Deferral of taxes owed upon sale.Proper use of the 1031 Exchange guidelines can permit investors to save as much as a third of the gains that they have received from the sale of their investment properties. Funds that would have been otherwise used to pay taxes, can be reinvested tax-free and put to work generating greater future income and appreciation. DST properties are “like-kind” properties and meet IRS guidelines for 1031 Exchanges.
- Converting appreciated equity into potentially greater tax-sheltered income.Many US markets have experienced significant price appreciation over the past 10 years. Investors however do not generally benefit from their appreciated equity unless properties are sold, and the equity is reinvested in income producing properties. Potential first year DST yields generally are in range of 5% to 7% and income can be partially tax sheltered through expense and depreciation write-offs. In many US markets, DSTs can produce greater potential income than what owners are currently receiving.
- Hassle-free management.Since DSTs are fully managed by in-place management firms, investors are relieved of their former management responsibilities and are free to use more of their time as they wish. Returns are typically paid monthly, and investors are provided with periodic property reports and annual tax reporting.
- No loan responsibilities. For DSTs that have loans, the trustee is the sole borrower. Investors who are beneficiaries in the trust do not have to qualify or be responsible for any loans. This may be especially appealing to older investors who may lack income to qualify for new loans.
- The minimum investment in a DST is typically between $25K to $100K. These relatively low minimums allow investors to diversify their investments across multiple DSTs and spread out the risk of an excessive concentration of funds in a single asset. DST replacement properties are available in a wide range of debt-to-value ratios ranging from zero debt offerings to high leverage offerings including zero coupon DSTs designed for those investors who need to replace high debt.
- Estate planning.DST interests are generally more easily divisible among heirs than ownership interests in a single property. At time of sale, individual heirs can go their separate ways without being constrained by other heirs.
FGG1031 is an affiliate of First Guardian Group and is headquartered in San Jose, California. Our team consists of highly experienced real estate and investment professionals who have provided services to thousands of clients across the US for more than 12 years.
At FGG1031 we specialize in providing a custom 1031 exchange experience by working with the investor one on one throughout the entire 1031 exchange process. We provide advice on selecting suitable 1031 Exchange options including properties structured as a Delaware Statutory Trust (DST) as well as access to wholly owned real estate.
Our seasoned team holds real estate and securities licenses and can provide our clients with suitable 1031 Exchange options across the US. We are dedicated to providing our clients with optimum solutions to meet their complete range of real estate needs and will provide assistance throughout the entire selection and investment process to ensure that our client’s objectives are achieved.