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Posted in Family Business

Key rules to consider when enrolling in 1031 DST investment

Key rules to consider when enrolling in 1031 DST investment

First things first, DST stands for Delaware Statutory Trust and it is a legally recognized trust that helps trustees administrate or carry on on behalf of the turstor the property or the professional activities the latters own, everything being done in accordance with the laws. A DST investment is offered as a form of replacement property to an accredited investor who is looking to postpone paying capital gains taxes obtained from the sale of those professional activities or properties by using the 1031 tax deferred exchange. However, in order to be successful, there are several important rules one needs to follow.

It is not personal

The most important rule in the real estate world is that 1031 is for business property and investment, which means one cannot exchange the personal residence for another one. In case you want to follow a career in this domain, you should keep this important rule in mind.

Like-kind is broader than you think

Another important rule in this industry is the fact that like-kind property investment provides more possibilities than beginner investors think. For start, it is worth mentioning that like-kind refers to an exchange that is made tax free between two properties or assets that are considered the same type, but not necessarily of the same quality, and one good example is two pieces of residential real estate. However, you can still exchange raw land for an apartment building, of a strip mall for a ranch for instance, since the rules are more liberal than you think.

Do not worry about delayed exchanges

It is true that an exchange is basically a swap of a certain property or asset for another one between two people, but you should know that it might take some time until you find someone that has the exact property or asset you were hoping for and wanted from the beginning and for that one to want your property. This is the reason why most exchanges are usually delayed and when this happens, the services of a middleman who is supposed to hold the money after “selling” the property are mandatory. This qualified intermediary uses then the escrowed cash money in order to buy the replacement property on your behalf.

Designate replacement property

You should know that there are two timing rules you have to take into account when it comes to a delayed exchange. The moment the sale of the property or asset closes, the middleman receives the cash and from that moment, you have 45 days to provide the middleman with the details of the property you are interested in acquiring in writing. You can designate even three properties if you want, but in the end you would have to close the deal on one of them.

Pay attention to mortgages

Last but not least, you have to pay great attention to mortgage loans or other forms of debt not only on the property you relinquish, but also on the one you acquire, so make sure you do some detailed research before making any deal in order to benefit from the best results.