Many investors want assets that offer long-term stability and resilience, and medical properties are one of the asset classes that can accomplish both. There is one more strategy that adds benefits like tax-deferral and passive income: accessing medical real estate via DSTs. In this guide, Realized 1031 showcases how investing in medical properties through Delaware Statutory Trusts can become a powerful strategy.
DSTs are investment vehicles that own an underlying property. As an investor, you enter by acquiring fractional interests. As the properties generate income through activities like renting, the funds will be distributed to investors on a current basis. DSTs are also eligible for 1031 exchanges thanks to Revenue Ruling 2004-86. This qualification created more rigid structures for DSTs. For example, only the sponsor is allowed to make any decisions or have direct control of the properties’ operations and management.
However, the structure provided additional benefits that made DSTs popular. Hands-off involvement, truly passive income, and deferral of capital gains taxes are some of these advantages.
The demand for healthcare real estate is on the rise. While this sector will always be covered, there’s an increasing desirability due to various factors, such as the country’s aging population, longer life expectancies, and the shift from inpatient to outpatient care. As such, verticals like urgent care clinics, imaging facilities, and medical office buildings are experiencing expansion.
Apart from the growing demand, healthcare facilities usually have long-term leases, with tenants investing heavily in their buildouts. This tendency makes them less likely to relocate, allowing property owners to avoid the headaches of vacancies. Plus, healthcare providers are usually creditworthy tenants with services deemed essential, increasing the potential of strong performance even during market downturns.
While acquiring healthcare property is already a strategic move for your portfolio, doing so through a DST offers a few more benefits. We’ve already mentioned tax-deferral through 1031 exchanges as well as passive income, but here are a few more you can expect.
As with any kind of investment, there are a few risks with DSTs. Understanding how the following can impact your goals can help you assess whether DSTs are the right choice for you.
Medical property DSTs combine the reliability of healthcare real estate with the tax deferral and ease of passive investing offered by DSTs. With the continuing demand for medical services, these investments offer an attractive path for those seeking steady income, long-term stability, and hands-off ownership.
Sources:
https://www.grandviewresearch.com/press-release/global-healthcare-real-estate-market