DST RETURNS – TAX CONSEQUENCES – MONTHLY DISTRIBUTIONS
If you are considering utilizing the benefits of the 1031 exchange DST from the sale of your rental property, you may have some questions. What are the DST Returns? How much can I expect to make on a monthly basis in a 1031 exchange DST. What are the tax consequences in a 1031 exchange DST from the monthly income? We will help answer some of these major questions like DST Returns in this article.
DST Returns On Investment – What Could You Expect?
Typical DST Returns on a 1031 exchange investment could yield between 5%- 8% of monthly distributions based on your fractional interest. The variation in projected monthly distributions is due to a number of factors such as property type – commercial properties typically provides a higher estimated distributions than apartment complexes, location -strong primary markets like Los Angles and Boston typically have lower projected cash flows than smaller secondary or smaller markets, quality of the real estate, years remaining on the primary lease term and strength of the tenant and management company. Does the real estate company have a positive growth outlook or is it a shrinking industry?. These are just some of the factors that can influence projected distributions on DST 1031 exchange properties. The estimated distributions on DST 1031 exchange properties is a “net” number to 1031 exchange DST investors. This means the anticipated distributions is “net” of all property management fees, debt obligations, and repair expenses.
DST Returns On Your Exchange From The Sale Of A rental Property
Here is an example of potential DST Returns, if you invests $1 million into a DST 1031 exchange property with a projected distribution of 7%, the estimated amount to be sent to the 1031 exchange DST investor that year is $70,000. The DST Returns would yield roughly $5,800 per month. DST 1031 exchange properties’ estimated distributions is typically paid to the 1031 exchange DST owners on a monthly basis via either ACH direct deposit straight into the 1031 exchange DST investors checking or savings accounts or a physical check could be mailed on a monthly basis.It is important to note that distributions from real estate and DST 1031 exchange properties, as well as past performance, is not guaranteed, as it is a function of the underlying real estate and tenants and their economic performance. Just as with all other types of real estate, estimated distributions could be lower than anticipated in a 1031 exchange DST investment. It is very important for you as a 1031 exchange DST investor to believe in the real estate, its location and its tenants before investing, as well as to review the risk factors of the offering materials in their entirety.
1031 Exchange DST Tax Consequences To The Investor
With DST 1031 exchange properties investors are able to utilize depreciation and interest write-offs to partially shelter their estimated distributions from taxes. This allows for tax-advantaged potential rental income to the investor in a 1031 exchange DST. This is another reason why many people have invested non-1031 exchange discretionary funds into DST 1031 real estate. A typical DST 1031 exchange property can be closed anywhere from 48 hours to five business days after submitting subscription documents on the 1031 exchange DST. DST 1031 exchange properties can be closed on this quickly because typically all of the appraisals, environmental reports, property condition reports, financing, tenants, and formal documents have already been finalized in the PPM, as DST 1031 exchange properties are pre selected portfolios for 1031 exchange DST investors. This is one of the reasons why DST 1031 exchange properties have become very popular with investors that are in their 45-day identification period and close to running the risk of a failed traditional 1031 exchange and a major tax burden of paying the capital gains. They like the fact that they can close on DST 1031 exchange deals quickly and complete their 1031 exchange within IRS guidelines.
DST 1031 exchange investors do not receive a K-1 or 1099 at the end of the year for tax purposes. At the end of the year you will receive an operating statement (sometimes referred to as a substitute 1099). This will show your pro-rata portion of the DST properties rental income and expenses. You will then provide this to your CPA, who will take this information and input it into Schedule E on your tax return, the same as all of your other commercial and rental properties.
DST 1031 exchange properties are only available to accredited investors. An accredited investor (1) is generally defined as an investor with a net worth (assets minus liabilities) of greater than $1 million, exclusive of primary residence. That being said, there are a number of ways that an entity can potentially qualify as an accredited investor, and we encourage all investors to speak with their CPA and attorney before considering a DST 1031 exchange investment to fully ascertain if you and your investment entity (trust, partnership, LLC, etc.) qualify as an accredited investor.
If you are interested in learning more about some of the 1031 Exchange DST Returns or any other questions please fill out the form below, call 805-5832720 or email email@example.com and we will help answer any questions that you have!
What Is a 1031 Exchange DST And How Does It Work?
A 1031 Exchange Delaware Statutory Trust, or DST, is an entity that is used to defer capital gains tax from the sale of rental property into a portfolio of real estate. A 1031 Exchange Delaware Statutory Trust is similar to how a TIC or tenant in common and can invest a fractional interest into real estate; however, unlike a TIC, a DST 1031 property will qualify as “like kind” exchange replacement property for a 1031 exchange. This qualification as “like kind” property is pursuant to the Internal Revenue Code Section 2004-86. A 1031 Exchange DST entity can be used to hold title to a wide variety of properties; however, a typical DST 1031 exchange property is a triple net (NNN) leased retail or office property or a multifamily apartment building. A triple net leased property is a property in which the tenant is usually responsible for property taxes, maintenance costs, and insurance. Hope this is a quick explanation on what is a 1031 exchange DST?
What Are Some 1031 Exchange DST Properties?
Other types of DST 1031 exchange properties that have been available to investors have included multifamily apartment buildings, retail centers, self-storage buildings, or medical offices. These properties typically have long term lease contracts with the tenants. With our 1031 exchange DST portfolios, there are many properties available to our qualified accredited clients, with a typical minimum direct investment of $25,000.
DST 1031 exchange properties also have various financing ratios to satisfy an investor’s exchange requirements of taking on “equal or greater debt,” as defined by the Internal Revenue Code Section 1031. However, some DST 1031 exchange properties are offered all-cash, debt-free in order to mitigate the risk of using financing when purchasing properties. The financing used on DST 1031 properties is typically non-recourse to the investor. Non-recourse financing is typically defined as financing whereby the lender’s only remedy in the case of a default is the subject property itself. The lender is not able to pursue the investor’s other assets beyond the subject property. So, investors could lose their entire principal amount invested in the property in the case of a major tenant bankruptcy, marketwide recession or depression, but their other assets would be protected from a lender. We hope this will help you understand What is a 1031 exchange DST.
What Is A 1031 Exchange DST In Terms Of Financing?
The non-recourse financing used on DST 1031 exchange properties is typically longterm (usually seven to 20 years) and already locked and in place with the lender. This can greatly help to reduce 1031 exchange DST closing risk for investors that must be able to identify a property within their 45-day identification period that they know that are going to be able to close on.The typical loan to cost of a DST 1031 exchange property ranges between 40%-65%. A DST 1031 exchange property with a 50% loan to cost is a property wherein the investors are putting down 50% of the required equity or cash amount to purchase the 1031 exchange DST property and the lender is providing the other 50%, in the form of a loan.As an owner of the DST 1031 exchange property, you will typically receive 100% of your pro-rata portion of any potential principal pay-down from the loan on the real estate, allowing the investor to build equity in the property. This should help you understand what is a 1031 exchange DST
It is important to note that some DST 1031 exchange properties are structured with principal pay-down beginning the first year, others with principal pay-down beginning in year two to five and others that are interest-only financing for the life of the loan. DST 1031 exchange properties are structured whereby the investors in the DST receive 100% of their pro-rata portion of the potential rental income generated by the property’s tenants. 1031 exchange DST investors receive 100% of their pro-rata portion of any potential net appreciation of the real estate over investment timeline. This is an area that truly separates DST 1031 properties from tenant in common deals. In a tenant in common, the offerings sponsor is typically entitled to a portion of the potential rental income and potential appreciation of the property. This should help you understand What is a 1031 exchange DST when it comes to financing.
What Is A 1031 Exchange DST When The Property Appreciates And Is Sold?
Investors are keenly interested in the fact that when a DST 1031 exchange property is sold, they are allowed to do another 1031 exchange DST into any type of “like kind” replacement property to defer the capital gains tax. Once invested into a 1031 exchange DST, and the properties you are invested in are sold, there could be more capital gains accumulated from the appreciation. Being able to invest into another portfolio of properties without taking constructive receipt of the proceeds makes a 1031 exchange DST an effective tax savings tool. We hope this explains what is a 1031 exchange DST when the property appreciates and is sold.
If you are interested in learning more about what is a 1031 exchange DST – you can fill out the form below and one of our 1031 exchange DST representatives will reach out to you. Or you can call into our office at 805-583-2720 or email firstname.lastname@example.org to learn more about what is a 1031 exchange DST.