Differences Between Conventional “Active” Exchanges and DST 1031 Exchanges
Many times, the public, and even CPAs and lawyers are surprised to find out that a licensed securities Financial Advisor can help people/investors with their 1031 Real Estate Tax-Deferred Property Exchanges. So, let’s talk about the major differences between an “Active” 1031 Exchange (property-to-property) and a 1031 DST Exchange (which we have available).
- First of all, a 1031 DST can only be purchased from a licensed securities Financial Advisor. The property is managed by a national institutional manager in a Reg D securities (SEC) offering. Many licensed security Advisors do not have the ability to transact these types of real estate tax-deferred securities/exchanges through their Broker Dealer or RIA platforms. Our Broker Dealer has for many years had these tax-deferred real-estate offerings available to its Advisors for their clients’ needs.
- With the purchaser’s beneficial interest in a 1031 DST comes passive management. You do not have control of collecting rent, property management, ultimately selling, etc., but gone are the headaches and stress of having active landlord duties.
- To purchase a 1031 DST you must be an accredited investor. There is no public or secondary market where you can sell your fractional DST ownership. You can assume that your equity in the DST will remain invested until the properties are sold, which typically ranges from five to ten years.
- With a conventional “Active” 1031 Exchange each investor is responsible for loan liabilities, having to supply in-depth personal financials to the banker/lender and being financing accepted. With a 1031 DST the owner is the Delaware Statutory Trust (DST). You have a fractional, beneficial ownership with one (or multiple) properties within the trust. The lender only needs to make one loan since the DST owns 100% of the real estate. This means you/the investor, do not have a deeded title, or any personal liability for the property. You do not have to go to your banker/lender to arrange personal financing.
Whether you are looking at a conventional (property-to-property) 1031 Exchange or 1031 DST Exchange, there are benefits and drawbacks with each. If you’re tired of being a landlord, want to defer your capital gains, pay less taxes, plus have the potential to receive a steady stream of competitive tax-advantaged income from real estate that is institutionally managed, looking into the 1031 DST Exchange may give you another viable and competitive wealth-building option.
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 about 1031 DST Exchanges or want info on our current DST offerings, please contact me, Dave Pimper, at 1-800-727-1031 or at www.1031propertyxchange.com.