We’ve published several articles about Delaware Statutory Trusts (DSTs), including the advantages and disadvantages. DSTs let investors enjoy the potential benefits of real estate - rental income, appreciation, tax benefits - without having to have operational control or management of the property. We’re going to take another look at the pros and cons but in relation to debt-free versus leveraged DSTs.
While many choose to go the route of having a leveraged DST for its benefits, buying investment real estate without debt is considered one of the safest ways to own real estate. Debt-free DSTs are for those who don’t want to deal with another mortgage and the risk of increased leverage. All-cash DSTs are an option if you want to manage your risk level.
If you’re considering going debt-free, weigh your options and the pros and cons of a debt-free DST 1031 exchange:
Advantages
Disadvantages
Higher exposure to risk means higher possible return. A leveraged DST is used to increase cash flow to its investors. There are varying degrees of leverage. Depending on the property, you may take on as much or as little debt as necessary. Here are some of the advantages and disadvantages of leveraged DSTs compared to going debt-free.
Advantages
Disadvantages
If you’re debating whether to go debt-free or use leverage, it depends on what you’re willing to risk and how much you expect in return. Going debt-free depends on risk tolerance and investment goals. If you’re seeking to maximize your after-tax returns, taking on debt may be an option worth exploring.
This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete, and is not intended to be used as a primary basis for investment decisions.
There is no guarantee that the investment objectives of any particular program will be achieved. The actual amount and timing of distributions paid by programs is not guaranteed and may vary.
There is no guarantee that inventors will receive distributions or a return of their capital. These programs can give no assurance that it will be able to pay or maintain distributions, or that distributions will increase over time.