Commercial property investments are down but far from out of the sight of investors. In riskier times, crowdfunding is becoming an attractive alternative to traditional investment in commercial real estate. Crowdfunders have a growing appetite for commercial property markets. 1031 Delaware Statutory Trust (DST) properties provide a unique opportunity to pool investments and also benefit from tax advantages.
Following are reasons why you should consider a 1031 DST exchange.
Risk Diversification
More investors are tipping their toes in the commercial property market. But with rents down and vacancies higher, some are not jumping in and investing. That's a shame given the opportunity to invest at lower valuations and earn higher returns over time. DST exchanges provide the opportunity to make fractional investments in high quality commercial property on a non-recourse debt basis. In the event of default, lenders only have recourse to the property.
DST 1031 properties are a win-win for the commercial real estate market and investors. Multi-tenant residential and office building sellers have the potential to receive higher valuations and less dilution when investors pool their resources. Investors can diversify their risk while investing in real estate with monthly income from rents. To enter the DST exchange market, the average minimum investment is $100,000.
Tax Advantages
The 1031 DST exchange offers the added advantage of deferring capital gains taxes. When an investor sells a commercial property, they typically have to pay taxes on the capital gains. With a 1031 DST exchange, an investor can defer capital gain taxes, as long as the new investment is in like-kind commercial property.
As long as you continue investing your proceeds from commercial property divestments in 1031 exchanges, you can continue to defer the capital gains taxes. Instead, you can put the savings into commercial property investments that earn returns and provide steady revenue streams.
Regular Cash Flow Streams
Unlike many traditional crowdfunding assets, DST 1031 exchanges provide steady cash flow from rents from multi-tenant residential and office properties. These triple net leased properties require the tenant, not the landlord, to pay building management and maintenance fees, property taxes, and insurance.
This means your share of the cash flows from rent payments are not hit by the traditional deductions from management fees, taxes, and so on. The average monthly yield on a DST 1031 investment is 5–8 percent.
Your return on a DST investment is your monthly cash flow plus appreciation. Appreciation ranges on multi-family properties and may go into double digits on storage facilities. Plus you benefit from tax deferrals.
For more information on investing in DST 1031 properties, talk to financial planners in your area.
