1031 DST vs. Non-Traded REIT
Last week I held a retirement planning workshop and after everyone left the room an attendee asked me “so what are the differences between a 1031 DST and a Non-Traded REIT?” (Real Estate Investment Trust). The prospect is planning to sell a large commercial property in the near future and could have a substantial tax gain to pay.
I tried to relate it in a simple way… if you compare the Empire State Building with your personal home, they are both real estate, but they certainly are very different in their structure and effect to the owner.
- An investor purchasing a 1031 DST can defer capital gains appreciation from taxation…not so with the Non-Traded REIT.
- The structure of a Non-Traded REIT is that of a blind pool… when you invest you are buying shares in the REIT where some of the properties have yet to be purchased. This is not the case with a 1031 DST… you know the exact property(ies) and many of the financial specifics detailed in the Private Placement Memorandum (PPM).
- The offering size is usually much smaller with a 1031 DST, which may help find buyers
for the eventual sale vs. a larger Non-Traded REIT offering.
- While Non-Traded REITs can have income/net worth qualifiers, 1031 DSTs are only available to Accredited Investors.
- With 1031 DST the dividends have to be paid out in cash… not so with a Non-Traded REIT.
- A 1031 DST, when sold, are usually purchased by an entity - not publicly listed on a stock exchange. With the liquidation of a Non-Traded REIT many avenues are available, but a public listing on a stock exchange has been quite common as of late.
As you can see there are advantageous and drawbacks to each of these real estate investments but they are certainly different animals.
Could a 1031 DST make sense with your specific circumstances? Deferring taxes on highly appreciated investment property can be a long term wealth builder. If you have any questions with 1031 DST Exchanges please contact me at 1-800-727-1031 or at www.1031propertyxchange.com.