Delaware Statutory Trusts, or DSTs, have become quite a popular way for people to invest in real estate when they are looking to yield a long-term return on their investment. While full of perks, these investments can also have their negative qualities. Take a look at the pros and cons of DST 1031 investments.
Pro: The money contributed to a DST 1031 property is not taxable.
The IRS treats the DST as a real estate investment, which means the money held in a DST is not taxable. This is probably the single biggest reason investors consider DST 1031 investing to start with; it is a good way to add some diversification to a retirement investment portfolio and avoid having to pay taxes on that investment. The money gained from these investments, however, may be taxable. For example, if one of the properties held in the DST is an apartment complex that yields all investors a portion of rent payments, this money may be taxable.
Con: You won't have any major control over a DST property as an investor.
As an investor in a DST, you won't really get any control over the properties that are held in that DST. You may be able to offer suggestions to the sponsor, but you can't just go in and make final decisions yourself. Even something as simple as changing the landscape is not something you will be allowed to do. For some investors who want to up property values, not having any control can be discouraging.
Pro: DST 1031 is designed to generate wealth over time.
Investors enjoy the idea of placing their money in a situation where it can grow over time and that is what a DST offers overall. The properties held in these arrangements are picked specifically because they have a stable market value that is practically guaranteed to grow over time. Apartment complexes, commercial buildings, and even healthcare facilities are all good examples. This means when you do pull the money out after several years, you can see a drastic return on your investment.
Con: These are not short-term investment opportunities.
The one big downfall for some investors is that a DST is not a short-term kind of thing; it will usually be pretty long-term. Once the money is put in a DST, taking it back out is simply not an option for a bit in most cases. For some investors, this long-term setup is not the most feasible thing.
Take these pros and cons into consideration as you consider whether or not to invest in DST 1031 properties.