Why DST 1031 Exchanges Are Growing In Popularity for Thousands of Multifamily Investors

Written by Landlord Property Management Magazine on . Posted in Blog

By Dwight Kay, Founder, Kay Properties & Investments LLC

A 1031 exchange is considered by many to be one of the most effective tax deferral tools available.  Under IRS Code Section 1031, investment real estate owners are able to defer the capital gains tax on the sale of appreciated investment property if they reinvest in “like-kind” property. Real estate held for business or investment purposes can qualify as “like-kind” property, including the following:

  • Single-Family Rentals
  • Apartment Complexes
  • Office Buildings
  • Self-Storage Facilities
  • Industrial Buildings
  • Triple Net (NNN) Leased Properties
  • Other Types of Commercial Properties

This offers a fantastic tool that many real estate investors have employed for 100 years. It is used for $100,000 transactions and it is used for $100,000,000+ transactions – and everything in between. Now…although you may have heard of a 1031 Exchange, a surprising number of professionals – including investors, Certified Public Accountants, real estate brokers, and attorneys – do not know about the use of a Delaware Statutory Trust (DST) to complete a 1031 exchange.

DSTs offer you the unique opportunity to complete a 1031 exchange – and realize its tax advantages – without the hassle of taking on the management responsibilities that come with typical 1031 exchanges into traditional real estate.  A DST 1031 investment offers many potential benefits for someone who is looking to sell their appreciated real estate.  Not only does it allow you to defer your capital gains tax if you use it to complete a 1031 exchange – something that looks to be even more important in a higher tax rate environment – a DST can also offer potential benefits, such as:

  • No More Management ResponsibilitiesFree yourself from the three-T’s of active management – tenants, toilets and trash.  A DST is professionally managed, allowing you to enjoy a passive income stream without the headaches of property management and asset management.
  • Diversification Into Multiple Properties in More Than One Market – This may potentially lower your risk and concentration exposure.
  • Access to Institutional Quality Real Estate – DST 1031 Exchange investments are often comprised of $10 million to $50 million multifamily apartment buildings in dynamic and growing markets throughout the country. 1031 Exchange DST investments can also hold long-term net leased properties to tenants such as Walgreens, Amazon and FedEx.
  • Low Minimum Investment Amounts – Oftentimes, the minimum investment for a 1031 Exchange DST property is just $50,000.
  • Predictability and Flexibility When Closing – DSTs often close in just 2-3 business days.
  • Defer Taxes When You Sell Your Property – 1031 Exchanges allow investors to defer taxes when they sell a property and move your money into a “like-kind” property. And the rules regarding “like-kind” properties are less rigid than many people think. For example, moving from an apartment building into a piece of raw land or a DST property might not seem like a “like-kind” exchange, but the IRS rules allow it.
  • Potential for Typically Non-Recourse Debt – Most debt on DSTs is typically non-recourse which potentially limits your liability to the lender. This helps protect your other properties, investments, etc., as opposed to personally signing on the loan like most real estate investors are used to.
  • All-Cash / Debt-Free DSTs – Certain DSTs have no loans and are owned free and clear, completely eliminating the risk of a lender foreclosure. These debt-free DSTs can potentially be an appropriate option if you have already paid off your properties, owning them free and clear. If that’s the case for you, an All-Cash/Debt-Free DST can lower the risk potential and profile for you.

Of course, DST investing may not be for everyone.  DST 1031 Exchange properties are only available to accredited investors, which is generally defined as investors with a net worth of greater than $1 million, exclusive of primary residence.  But if you are an accredited investor – and you’re interested in a passive real estate investment that allows for the significant potential advantages of both diversification and tax savings…then a DST 1031 Exchange investment could be right for you.

The “Window” of Opportunity for DST 1031 Exchanges May Be Closing Soon

As you can see, DST 1031 Exchange investments offer significant potential advantages for tax deferral as well as an attractive potential hedge against future inflation in the United States. However, with President Joe Biden’s administration moving full speed ahead to offset recent spending by increasing taxes on higher earners, it is important that you consider your options now to avoid taking a significant financial hit.  In the short term, some property investors may be wondering: “Should I sell now to get ahead of any change in the capital gains tax rate?”

The simple answer is maybe. There is no one-size-fits-all answer for everyone. It depends on your individual situation and the property you’re holding. All investors are encouraged to speak with their trusted family members, Certified Public Accountant, and attorney prior to making any decisions.  But a potential increase in capital gains tax rates for higher earners is not the only reason you may want to move quickly if you’re considering a DST 1031 investment.

In addition to tax hikes, there is also a growing chance that the Biden administration could potentially limit the 1031 exchange program for real estate investors with incomes above $400,000.  Many investors are considering selling larger real estate holdings now and 1031 exchanging into a number of Delaware Statutory Trust investments at smaller price points in an effort to potentially protect themselves from 1031 exchange limitations in the future.  For example, if an investor had a $3 million property that they sold and exchanged into six different DST investments in $500,000 increments, they would potentially be setting themselves up to continue to defer gains via 1031 exchanges in the future, even if limitations proposed by the Biden administration go into effect.

In the meantime, investment property owners and investors should make the best decisions they can today given what we know now, with the guidance of their Certified Public Accountant and attorney, recognizing that regardless of the tax policy, real estate is likely to remain an attractive asset class for many investors interested in diversification and the pursuit of income and appreciation potential.  And with the many potential advantages offered by DST 1031 investments – in addition to the tax deferral benefits outlined here – there truly has never been a better time to consider a DST 1031 Exchange investment.

Let a DST Expert from Kay Properties Help You with Your 1031 Exchange Investment Today

We at Kay Properties and Investments are a national Delaware Statutory Trust (DST) investment firm whose experience speaks for itself.  Our proprietary online platform provides access to the marketplace of 1031 exchange DSTs from over 25 different DST sponsor companies, custom DSTs only available to Kay Properties and Investments’ clients, independent advice on DST sponsor companies, full due diligence and vetting on each DST (typically 20-40 DSTs) and a DST secondary market.  The Kay Properties and Investments’ team members collectively have over 115 years of real estate experience, are licensed in all 50 states, and have participated in over $21 billion of DST 1031 investments.  Most importantly, however, when you work with the team at Kay Properties, you’ll be working with experienced, friendly professionals who can answer all your questions and guide you through every step of the process.

Let us help you determine if a DST 1031 investment is right for you…and help you begin your journey toward smarter, more tax-advantaged real estate investing today.  To get started, simply give us a call at (855) 878-3421 today or register at www.KayAAGLA.com

About Kay Properties and www.kpi1031.comKay Properties is a national Delaware Statutory Trust (DST) investment firm. The www.kpi1031.com platform provides access to the marketplace of DSTs from over 25 different sponsor companies, custom DSTs only available to Kay clients, independent advice on DST sponsor companies, full due diligence and vetting on each DST (typically 20-40 DSTs) and a DST secondary market.  Kay Properties team members collectively have over 115 years of real estate experience, are licensed in all 50 states, and have participated in over $21 Billion of DST 1031 investments.

This material does not constitute an offer to sell nor a solicitation of an offer to buy any security. Such offers can be made only by the confidential Private Placement Memorandum (the “Memorandum”). Please read the entire Memorandum paying special attention to the risk section prior investing.  IRC Section 1031, IRC Section 1033 and IRC Section 721 are complex tax codes therefore you should consult your tax or legal professional for details regarding your situation.  There are material risks associated with investing in real estate securities including illiquidity, vacancies, general market conditions and competition, lack of operating history, interest rate risks, general risks of owning/operating commercial and multifamily properties, financing risks, potential adverse tax consequences, general economic risks, development risks and long hold periods. There is a risk of loss of the entire investment principal. Past performance is not a guarantee of future results. Potential cash flow, potential returns and potential appreciation are not guaranteed.Nothing contained in this article constitutes tax, legal, insurance or investment advice, nor does it constitute a solicitation or an offer to buy or sell any security or other financial instrument. Securities offered through Growth Capital Services, member FINRA, SIPC, Office of Supervisory Jurisdiction located at 2093 Philadelphia Pike Suite 4196 Claymont, DE 19703. NOTE: Past performance does not guarantee future results and DST investments may result in a complete loss of investor principal. This is an example of the experience of one of our clients and may not be representative of the experience of other clients. These clients were not compensated for their testimonials. Please speak with your attorney and Certified Public Accountant before considering an investme

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