Advantages of 1031 exchanging into a Delaware Statutory Trust property

Advantages of 1031 exchanging into a Delaware Statutory Trust property

Commercial property owners basically wait for market prices to improve prior to attempting to sell their real estate. When this does not happen, they are in the impossibility of selling their qualified property. Even if they do manage to find a buyer, they are not exempted from paying tremendous capital gains taxes. Nonetheless, there is a solution to successfully completing a real estate transaction without having to pay any tax. This quick fix refers to exchanging into a Delaware Statutory Trust 1031 property. The Delaware Statutory Trust (DST) represents a legal entity that provides people the opportunity to delay paying taxes for the future period. The DST 1031 exchange is not new, being a common business strategy, yet investors are still not familiar with the potential benefits that it can bring about. In this article, we will try to outline the pros of using a 1031 exchange.

Opportunity of paying no tax

When it comes to the sale of a real estate property, capital gains taxes can account for even a third of the selling price. The primary advantage of using the 1031 Tax-Deferred Exchange is that you do not have to pay any tax. You get the chance to sell your real estate property, be it apartment or rental property, and use the proceeds in order to reinvest in an attractive replacement equity. In other words, it is possible to make the transition from a passive role to property ownership. Those who choose to invest in a DST are entitled to receiving disposals from the operation of the trust, such as fees and reimbursements.

Doubling your cash flow

By acquiring a Delaware Statutory Trust property, you have the opportunity of significantly increasing your cash flow. If you are receiving a low amount of money on your current property at present due to rents, it is advisable to exchange into a Delaware Statutory Trust 1031 property. Your current equity position will slowly start to rise on the real estate holdings owing to the fact that you have a reduced income tax expense. Therefore, you will have an increased purchasing power. Once you have sold the original property, you can buy DST properties of all sizes. The loan is actually obtained by the Trust, so you do not have to worry about your credit rating. Since you are not the direct owner of the property, you do not have to struggle to find financing.

No more property management

If you are a real estate owner, then you probably know how difficult it is to deal with maintenance and management. Fortunately, by using the 1031 exchange you will completely eliminate these issues by replacing the property for one with less responsibilities. You enjoy passive ownership which means that real estate management problems are not your responsibility, even though you have a continuous presence in the operation of the property. The on-site manager is hired by the property sponsor. As a result, you can focus your attention on things which are more important to you.