Many investors that are looking at potential properties will investigate properties that are part of a DST (Delaware Statutory Trust) and oftentimes taxpayers get very myopic about the yield or the rate of return on the investment.
If you're chasing yield you may do yourself a disservice because if the only thing you're worried about is getting a 6.5% return, you may take on a property that has a much higher risk and a less certain outcome than if you would have settled for a property with a 5% return but was much more stable and solvent.
A very important aspect of choosing a replacement property is to look at the potential for underlying appreciation of the asset because at the end of this run when you are going to sell the underlying asset you want an asset that will have appreciated and not declined in value. So underlying the monthly rate of return is the more important appreciation of the asset itself.
After-Tax Cash Flow
Another consideration is to look at the after-tax cash flow from the property that would include depreciation and other deductions that pass through to you as one of the fractional owners of the underlying real estate.
Further, not all DSTs are the same when it comes to debt. Some have zero debt. Others have debt that may come due after 5 or 7 years. That maturity date on the debt can create a crisis if you have to sell the property to pay off the financing.
So there are a lot of different variables to look at when exploring what DST is the best for you. If you're chasing yield alone, your eye may not be on the ball for these other very important facets of a DST.
- 1031 Hotline: If you have questions about chasing yield, feel free to call me at 612-643-1031.
Defer the tax. Maximize your gain.
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