We’ve all heard the saying “cash is king.” Today we’ll take a look at the benefits of all-cash DSTs. While an all-cash DST isn’t for everyone, there are some advantages in terms of security and flexibility when compared to DSTs with leverage.
Let’s dive into 7 reasons why we like all-cash DSTs…
1. No Foreclosure Risk
With an all-cash DST there is no foreclosure risk, the trust owns the property free and clear. There is no risk of losing the property to the lender.
2. No Refinancing Risk
Debt markets can change, with an all-cash DST there is no risk of having to refinance and qualify for a new loan when the term is up.
3. Vacancy Won’t Sting as Much
Without having to make debt payments, a tenancy issue is much easier to navigate.
4. No Interest Payments
Over the course of holding a property, interest payments could equal a significant amount. With an all-cash deal, there are zero interest payments.
5. Appreciation Benefits
With no interest payments, when an all-cash property is sold, there is no remaining debt to pay off. All appreciation is realized, and that money can go to the investor instead of the bank.
6. Hold Period Flexibility
With an all-cash DST, the trust is able to hold the property through market downturns. This creates the ability to sell the property at the opportune time to maximize profits.
7. More Conservative Investment for Direct Cash Investors
Direct cash investors can take advantage of an all-cash DST if they are opposed to the risks associated with a leveraged DST.
All-Cash DSTs and Your 1031 Exchange
Like we said, an all-cash DST isn’t for everyone. If you are completing a 1031 exchange, it’s important to follow the “equal or greater” debt guidelines. To completely defer taxes owed on capital gains, your replacement property acquisition cost must be equal to or greater than the value of your exchange funds. The value of your exchange funds typically represents the equity, the debt and any profits earned from the sale of a relinquished investment property.
Debt reduction in a 1031 exchange is considered boot because additional value is received by you, the investor, rather than putting the entire value of the relinquished property into the replacement property. Reducing your debt liability, in effect, is an increase in income, which is taxable. 1031 exchanges defer taxes on such income only if it is reinvested into a replacement property. Some investors will diversify their exchange funds into DSTs with various loan-to-value ratios. At 1031 Crowdfunding we can create a custom blend ensuring all of your exchange funds are properly invested so that you have a completely tax-deferred exchange.
We take great pride in the level of detail and transparency we offer our clients before making any investment decision. Our main goal is to provide an investment that offers preservation of principal, predictable income, and the potential for appreciation. Give us a call today if you’d like to learn more about all-cash DSTs and how they could potentially fit into your real estate investment portfolio.
While the information provided above has been researched and is thought to be reasonable and accurate, it’s important to understand that all investments, including real estate, are speculative in nature and involve substantial risk of loss. Additionally, private placements of securities are not publicly traded, are subject to holding period requirements, and are intended only for accredited investors who do not require a liquid investment.