Broker Check

Selling Investment Property

Similar homes on a beachfront to represent the kind of property sale suitable for 1031 DST

Need to Sell Investment Property? Think 1031 DST!

You need to sell property, so you plan to purchase replacement property in a 1031 exchange to avoid hefty capital gains taxes.

Smart decision.

But what if you have money left over?

The chances of selling investment property and purchasing replacement property for the exact same amount is zero, or very close to it. 

That leftover money is called the “boot.” And it’s taxable. 

That’s why you should “Think 1031 DST!”

A Delaware Statutory Trust 1031 exchange, commonly known as a DST, offers more flexibility to investors by allowing them to pool their resources to invest in diversified investment real estate. Investors get access to premium properties, professional property management, and speedier transactions.

You can purchase a DST with the extra funds and, because a DST purchase amount can be customized down to the dollar, with certain minimums, you can completely eliminate the “boot.” And there’s no money out of your pocket.

When you purchase a DST as part of your 1031 exchange, you are buying fractional shares of investment real estate. You may purchase a single DST or several DSTs for added diversification. This gives you the potential to earn monthly passive income.

Because DSTs use professional managers, you never have to worry about the responsibilities and hassles of being a landlord.

There are specific criteria to be met with a 1031 exchange, such as a time limitation for identifying and purchasing replacement property, the way title is held, etc.

By using a DST, if all criteria are met, you can sell investment property and then purchase fractional shares of a DST, thereby deferring capital gains taxes, while still retaining growth and income potential.

Depending on the DST, selected benefits may include:

  • Diversification of real estate holdings by type, reducing risk associated with owning a single property (e.g. commercial property, multi-family housing, storage units)
  • Diversification of real estate holdings by geography, reducing risk associated with owning a property in just one location (properties available throughout the nation)
  • Investment in premium property that might not have been available to you as an individual owner
  • Monthly income
  • Professional management of DST property, eliminating the hassles and headaches associated with direct ownership
  • Tax-deferred real estate investments can continue to build wealth, compounding over the years
  • Expedited timing, a DST purchase can be made more quickly than traditional real estate
  • Limited liability and non-recourse financing

Remember, certain timelines must be met when performing a 1031 exchange. And, using a DST for your 1031 exchange requires that you be an accredited investor. As with all real estate investments, there are risks, so be sure to speak with someone skilled in explaining DSTs to get all your questions answered.

If you want to sell investment property with a DST, our experienced DST 1031 representative, Robert Butts, will be more than happy to answer your questions.

 Because investor situations and objectives vary this information is not intended to indicate that an investment is appropriate for or is being recommended to any individual investor. This is for informational purposes only, does not constitute individual investment advice, and should not be relied upon as tax or legal advice. Please consult the appropriate professional regarding your individual circumstance. DST 1031 properties are only available to accredited investors (typically defined as having a $1 million net worth excluding primary residence or $200,000 income individually/$300,000 jointly of the last two years; or have an active Series 7, Series 82, or Series 65). Individuals holding a Series 66 do not fall under this definition) and accredited entities only. If you are unsure if you are an accredited investor and/or an accredited entity, please verify with your CPA and Attorney. There are material risks associated with investing in private placements, Delaware Statutory Trusts ("DSTs") and real estate securities including the potential loss of the entire investment principal, illiquidity, tenant vacancies impacting income and revenue, general and real estate market conditions, lack of operating history, interest rate risks, competition, including the risk of new supply coming to market and softening rental rates, general risks of owning/operating commercial and multifamily properties, short term leases associated with multi-family properties, financing risks, potential adverse tax consequences, general economic risks, development risks, long hold periods, and investors should read the PPM carefully before investing paying special attention to the risk section. Diversification does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk. Potential cash flows/returns/appreciation are not guaranteed and could be lower than anticipated.