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1031 Exchange Into A DST. If That's Confusing, Keep Reading
I'm Excited To Tell You About A Way To Make 1031 Exchanges Sing
The great thing about 1031 Exchanges is that you can sell your property, and instead of paying taxes on your capital gains, you can roll that money into a new property and not have to pay any taxes!
The problem with 1031 Exchanges is the timing the government requires you to hit in order to qualify. Once you sell your property, you have 45 days to identify a new property and 180 days to enter into a contract, obtain financing, and close in order not to pay taxes on the profits of your sale.
If you live in a dense urban area, this may not be much of an issue. But, what if you don't live in West Hollywood, CA, OR you don't want to go through the hassle and would rather sit poolside? Or are you just over being a landlord and are ready to get out if it weren't for those taxes?
Enter the Delaware Statutory Trust (DST).
You, the savvy real estate investor, let's say you purchased a multifamily apartment complex in 1990. You've had tenants, you've kept it a great place to live, and your investment has appreciated while you collected rent.
The rent has provided you with (for example) $60,000 in net revenue/year. However, while your income has been steady, the equity that has built up in your property due to appreciation far eclipses it. You now have $1.3M in appreciated equity if you were to sell.
The dilemma.
Option 1: Sell the property and retire. Sure, you've earned it. But now you have to pay taxes on that $1.3M, and even though your post-tax net gain is admirable, that tax hit SUCKS.
Option 2: Sell the property and roll the gain into a 1031 Exchange. Smart developer move, but now the clock starts to tick. Every day, every minute, you have less time to complete a new transaction; otherwise, you have to take a hit on your taxes. This is stressful, and maybe you don't want to keep being a landlord.
Option 3: Sell the property, and roll your capital gains into a DST. A DST is a 1031 Exchange compatible program. This means that instead of having to identify a new property to protect your capital gains, you now gain equitable ownership in a trust that owns several properties (kind of like a REIT) and get paid as a partial owner.
Not only does a DST save you from the hassle of going through the arduous process of a 1031 Exchange, but it can also increase your net income and free up your time. Additionally, DST's are made up of Class A commercial real estate so you can have a portion of equity on that new $300M Amazon distribution warehouse, or that credit-tenant office complex. The point is that all of these properties are stabilized and institutional grade.
DST's and 1031 Exchanges are a complicated subject, and I've barely scratched the surface. If you want to learn more about DST's I'd highly recommend checking out our friend Tom Straw's webinar and lunch series. The webinars begin next Friday the 24th of September and if you live locally in San Diego you can attend the in-person luncheons.You can learn more about these informational events by clicking the link or image below.
Disclaimer
- EN Capital is not a law office, or a tax advisor, and we do not provide legal counsel or tax advice on your situation. Always consult with your attorney before making any decisions.
P.S. If you're brand new to the EN Capital newsletter; each week we promote a new capital source for a variety of commercial real estate properties. So if the above lender is not relative to you, the chances are high that we'll have the perfect capital source for you soon.
P.P.S.
EN Capital is a commercial real estate mortgage brokerage shop.
We are not direct lenders. Seriously, every time we do a blast some guy responds and gets pissy when he realizes we're brokers. It's on the top of our website, LinkedIn, clear in all our marketing. We honestly don't know how to make it more obvious. Don't be that guy.
P.P.P.S.
If you have a commercial real estate deal, unrelated to the above, that needs capital right now reach out to us and let's chat!
Be sure to connect with EN Capital on Linkedin. and visit our website here.
Connect with EN Capital President, Nate Whigham on Linkedin Here
Connect with EN Capital Associate, Justin Ashcraft on Linkedin Here
Nathan WhighamPresidentCA DRE Broker License: 01793655EN Capital Contact Info:www.encapital.com[email protected]Justin Direct Line: 323-521-4766