The majority of investors want to minimize their tax burden when selling an investment property, but as a real estate investor do you know the best way to do that? A Delaware statutory trust is an excellent way to invest in real estate without dealing with the tedious responsibilities of managing it. Additionally, a 1031 exchange advisors near me can defer your capital gains taxes when you conduct a property-into-property transaction. In this blog post, we’ll break down the basics of these two strategies and how they can benefit you as a real estate investor.
What Is a Delaware Statutory Trust (DST)?
A Delaware statutory trust is a legal entity that sets up partnerships with various investors to own large commercial real estate properties. Generally, the investors do not actively participate in the property’s management. Instead, professional management companies manage the property on a day-to-day basis. When investing in a DST, you own a percentage of the property, the start-up costs are low, and you’re not liable for any additional expenses.
How to Benefit From a DST?
Investing in a DST can have significant advantages such as:
• Increased Portfolio Diversification: You can invest in various types of commercial properties through a DST, including retail centers, multi-family apartment complexes, and healthcare facilities.
• Rental Income: Investing in a DST requires a significant investment, and in return, investors get a share of the rental income generated from the property.
• Tax Benefits: When investing in a DST, you can use depreciation to offset your taxable income.
What Is a 1031 Exchange?
A 1031 exchange is a tax-deferred strategy in which an investor can sell an investment property and reinvest the proceeds into a new property of equal or more value. The tax on any capital gains from the sale of the initial property is deferred until the investor eventually sells the new property. A 1031 exchange allows an investor to accumulate wealth through real estate investing while deferring taxes.
How to Benefit from a 1031 Exchange?
There are several benefits to utilizing a 1031 exchange:
• Tax Deferred: The most obvious benefit of a 1031 exchange is tax deferral.
• Maintaining Your Equity: With a 1031 exchange, you can maintain your equity
• Increases Your Purchasing Power: With a 1031 exchange, you can invest the full proceeds from the sale of the initial investment property into the new property.
DST Vs. 1031 Exchange
One key difference between the DST and 1031 Exchange is how they decrease your management responsibilities. When it comes to a DST, you are essentially a member of a passive partnership with a professional management company. On the other hand, with a 1031 exchange, you must invest in a new and already existing property, and you are responsible for the management of the new property.
Conclusion:
In summary, a Delaware Statutory Trust is a contractual arrangement where individual investors own a stake in a real estate property. It provides passive ownership and portfolio diversity. A 1031 exchange allows investors to sell property and reinvest the profits into a new one, deferring their taxes. Both of these strategies offer investors opportunities to avoid taxes and work with professionals in the real estate industry. By understanding these strategies and utilizing them effectively, you can maximize your wealth, reduce your overall tax burden, and increase your investment properties.