1031 EXCHANGE PROCESS EDUCATION
How Does A Delaware Statutory Trust (DST) Work?
First, an investor must acquire a "like-kind" property. Like-kind properties can include office buildings, multi-family complexes, hotels, retail centers, industrial warehouses, tenant-in-common (TIC) interests, and Delaware Statuary trust (DST) interests, just to name a few. Generally, any property that is held for an investment can qualify, but it is important to remember that the new asset value and debt on the replacement property, along with the cash invested in it, most be greater than or equal to that of the relinquished property.
The potential benefits of a 1031 DST Exchange
If exchangers can meet the requirements for a 1031, they potentially benefit from tax deferral, build wealth, potential growth in the underlying value of exchange properties, as well as the monthly income generated from operational cash flow.
Taking it one step further with Delaware Statuary trusts
Exchangers can utilize properties held within a DST as a like-kind replacement property. DSTs are established under Delaware state law, set up as separate legal entities, and created as trusts, qualifying them under Section 1031. Unlike other exchange options, DSTs have the potential to offer additional advantages.
However, like all investments, DSTs carry risks that exchangers must understand. DSTs require a lengthy time commitment and are designed for investors who can commit to a long-term investment of seven to ten years and do not require liquidity from the 1031 investment. Additionally, as with any real estate investment, exchangers are subject to the potential for high vacancy rates and loan default