It is said that “Cash is King”. Have you given a thought about all-cash DST? Let us brief you about the benefits of all-cash DSTs. While an all-cash DST is not for everyone, there are some security and flexibility benefits when compared to leveraged DSTs. Read some of the benefits of all-cash DSTs mentioned here.
No-Risk of Foreclosure
There is no risk of foreclosure with an all-cash DST because the trust owns the property free and clear. There is no risk of the lender seizing the property.
No-Risk of Refinancing
Because debt markets fluctuate, there is no risk of having to refinance and qualify for a new loan when the term expires with an all-cash DST.
Vacancy Will Not Be As Painful
Resolving a tenancy issue is significantly easier without the burden of debt payments.
There Are No Interest Payments
Interest payments can accumulate to a significant amount throughout a property’s ownership. There are no interest payments associated with an all-cash transaction.
Appreciation Advantages
There is no remaining debt to repay when an all-cash property is sold. All appreciation is realized, and the investor receives the funds rather than the bank.
Flexibility in the Hold Period
The trust can hold the property during market downturns with an all-cash DST. This enables the property to be sold at optimal prices to maximize profits.
A More Conservative Investment for Investors With Direct Cash Flows
Direct cash investors who are averse to the risks associated with leveraged DSTs can benefit from an all-cash DST.
DSTs in All-Cash and Your 1031 Exchange
As previously stated, an all-cash DST is not suitable for everyone. When conducting a 1031 exchange, it is critical to adhere to the “equal or greater” debt guidelines. To completely defer capital gains taxes, the cost of acquiring replacement property must be equal to or greater than the value of your exchange funds. Typically, the value of your exchange funds reflects the equity, debt, and any profits earned on the sale of a relinquished investment property.
Debt reduction in a 1031 exchange is considered boot because the 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 Investment.net, we can create a custom blend ensuring all of your exchange funds are invested adequately 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 gives preservation of principal, predictable income, and the potential for appreciation. Call us today if you’d like to learn more about all-cash DSTs and how they could potentially fit into your real estate investment portfolio.