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Tax-Deferred 1031 Exchange

An exit strategy for owners of investment real estate

Learn how to move from Landlord to Investor!

Our 1031 Exchange Mission

To assist our landlord clients in deferring taxes, reducing hassles and diversifying their concentrated investment real estate into a nationally diversified, professionally managed real estate fund. Our clients eliminate the headaches associated with being a landlord and actively managing their rental properties while maintaining the benefits of owning real estate in their globally diversified portfolios.

The 1031 Exchange Into a DST

Section 1031 of the Internal Revenue Code allows an investor to exchange property that was held for rental or investment purposes for other “like-kind” property that will also be held for rental or investment purposes. This enables the investor to defer payment of ordinary income, capital gain, depreciation recapture and/or Medicare surcharge income tax liabilities.

A traditional 1031 exchange is great for current real estate investors who wish to continue to own and actively manage physical real estate property. However, for those investors who would prefer a less active approach to owning real estate and need an exit strategy, utilizing a DST may be the answer.

A Delaware Statutory Trust (DST) is a legally recognized trust for conducting business and can be offered as a conduit for replacement property for accredited investors during a 1031 exchange. The replacement property now becomes a direct ownership of an interest in a professionally managed property or pool of properties.

The real estate sponsor firm acquires properties under the DST and then sells shares of the DST to investors. Investors are able to roll their 1031 exchange proceeds into the DST to purchase a beneficial interest. By pooling their funds together, investors are able to access these institutional quality properties with professional management that otherwise may be out of reach. 

The benefits of a 1031 Exchange using a DST include the deferral of taxes, elimination of active property management responsibilities. Using a DST also increases diversification by geography, number of properties and type of property. The investor has the potential to diversify and include real estate such as multi-family apartments, NNN retail, self-storage, assisted living facilities and more. If an investor passes away while owning an interest in a DST, their heirs receive a step-up in cost basis, which eliminates the taxes due on the initial gain forever.

Advantages of Hiring Endowment Wealth Management

1

Independent SEC Registered Investment Adviser (RIA)

Our fee-only fiduciary advisors ALWAYS keep your best interests first and foremost.
2

Avoid Commission Costs

Typically between 6-8% when reinvesting proceeds.
3

Tax Mitigation

We work with you and your tax professional/CPA to mitigate the tax impact of owning investment real estate, including the 20% QBI deduction.
4

Diversified Professional Real Estate Funds

Gain access to a diversified pool of real estate using fund managers with expertise.
5

Ongoing Guidance

We work with you to make sure your 1031 exchange process runs smoothly and provide ongoing monitoring and reporting.

Risks of The 1031 Exchange into DST

1

Lack of Management Control

The DST Sponsor puts in place real estate professional to manage DST operations. Poor management plans or operational execution could reduce the income and overall value of the properties. For those investors that prefer to participate to take active roles in strategy and management of their real estate investments, the DST structure would not be a good fit.
2

Lack of Liquidity

DST properties are typically held for 3 to 10 years. The DST sponsor has total control over the length of the investment and the exit. If an investor wants to exit early, the only option is to sell the DST interest to another accredited investor. The sale would also be subject to the same 1031 exchange guidelines, or the investor would be responsible for the capital gains tax due upon the sale. There is not an active secondary market for DST ownership shares and there is no assurance one may develop.
3

Interest Rate Risk

As with any type of income-oriented investment, interest rate fluctuations could reduce cash flow potential and price appreciation.
4

Economic Risks

DSTs are subject to economic risks in the communities in which the underlying real estate properties are located. Economic downturns may increase vacancy rates, or cause rental rates to decline, increased tenant turnover, or other factors, all of which may reduce income or the value of the properties.
5

Regulatory Risks

If strict regulatory rules of DST exchanges are not followed, the 1031 exchange may be disqualified. DSTs are also susceptible to changes in the IRS’s treatment of tax-deferred exchanges, which could impact liquidity and values of the DST and/or underlying properties held by the DST.

Endowment Wealth Management

Your Fiduciary Advisor

Get Started

Your first step in a DST 1031 Exchange is learning whether or not it is right for your situation. As a fiduciary advisor, Endowment Wealth Management will objectively look at your situation and advise whether or not a DST 1031 Exchange is a smart choice for you.

If there is a basis to move forward, Endowment Wealth Management will help you find quality real estate funds to invest in, curated by our experienced team of investment professionals.

If you think that a DST 1031 Exchange might be something you’re interested in:

  • Call us at 920-785-6010,
  • Email us at [email protected], 
  • Click the button below to schedule an appointment to talk with one of our elite wealth advisors.
Schedule a Consultation

The content on this page is neither an offer to sell nor a solicitation of an offer to buy any security which can only be made by prospectus. Investing in real estate and 1031 exchange replacement properties may not be suitable for all investors and may involve significant risk, which include, but are not limited to those highlighted above. DST investments involve fees, which will reduce income and investment returns. Endowment Wealth Management, Inc. and its employees do not provide tax or legal advice, as such advice can only be provided by a qualified tax or legal professional, who all investors should consult prior to making any investment decision. For additional risks of alternative investments, please click HERE .