What is the difference between a REIT and a DST?

Is a DST a REIT?

Two common structures for real-property investments are Real Estate Investment Trusts (REITs) and Delaware Statutory Trusts (DSTs). Though DSTs and REITs are focused on real property buy-ins, they are not alike. Understanding their differences is important when it comes to making the right choice for your portfolio.

What is a DST in real estate?

A DST is an investment trust which holds one or more pieces of real property in which investors can purchase ownership interest in, thereby allowing investors to have a fractional ownership interest in the property held by that trust.

Is a DST a good investment?

DSTs can offer many retirement, tax and estate planning options. Passive income, elimination of personal liability, freedom, ability to manage cash flows and wealth transfer are just a few of the opportunities that DSTs can afford investors and their retirement planners.

Does a REIT qualify for a 1031 exchange?

Many investors are attracted to the diversification made possible by REITs so many wonder if such an attractive investment qualifies for a 1031 exchange. The bad news: REITs do not qualify as suitable replacement property for a 1031 exchange.

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What is the average return on a DST?

The typical range you can expect to see on DST investments will usually be a fixed percentage based on the expectations on projections of the DST portfolio of properties. The rate of return is anywhere from 5-9% on your cash-on-cash monthly distributions.

Is income from a DST taxable?

If any income is earned from a DST, it is entered on IRS form E at the end of the tax year. This income is generally taxed as ordinary income. There are also deductions and depreciation that might reduce income tax burdens for a DST property.

Who pays DST?

The tax is paid by the person making, signing, issuing, accepting or transferring the documents. However, whenever one party to the taxable document enjoys exemption from the tax, the other party thereto who is not exempt shall be the one directly liable for the tax.

Can you sell a DST?

Simple answer is, yes Delaware Statutory Trust Liquidity is available. It is not a quick and easy process to liquidate or sell your fractional interest in a DST 1031 and receive the proceeds.

Who can invest in a DST?

Who can invest in a DST? You must be an “accredited investor” — an individual with a net worth in excess of $1 million, not including his or her home, OR an individual with income of over $200,000 per year over the last two years. If married, the combined income required is $300,000.

How do you invest in a DST?

Investors can buy into a DST through a 1031 exchange. IRS Revenue Ruling 2004-86 allows DST investments to qualify as replacement property in a 1031 exchange.

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Can you 1031 into a DST?

Full Cycle – Yes, you can 1031 exchange out of a DST when the property goes full cycle. … DSTs are considered illiquid investments as they are real estate which itself is considered illiquid as well as there is no stock market type exchange whereby you can log online and sell your DST investment quickly.

What is a zero coupon DST?

In a Zero Coupon DST, all of the cash flow goes to the lender to service the debt on a property. Typically, Zero Coupon DSTs involve a property that is leased to a high-credit tenant, such as a large industrial distribution facility or corporate headquarters of an investment-grade public company.

Can I 1031 into my own property?

Normally the IRS does not allow you to conduct a 1031 exchange with your primary residence. That’s because the home that you live in isn’t being used as an investment property or being held for business purposes. Instead, your primary residence is used to provide shelter for your family.

Is there an alternative to 1031 exchange?

The deferred sales trust is an effective 1031 exchange alternative to help business and real estate owners sell their assets and defer capital gains tax. Both the 1031 exchange and deferred sales trust are well-established investment strategies.

Does a 1031 make sense?

A 1031 Exchange allows you to delay paying your taxes. It doesn’t eliminate your capital gains tax. Only if you never sell your 1031 exchanged property or keep on doing a 1031 exchange, will you never incur a tax liability. … The median holding period for property in America is between 7 – 8 years.

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