Many of the real estate investors around the world don't have much information about the 1031 exchange. Although this concept has been around for almost a century, it has been continuously updated over the years.
This 1031 exchange allows an owner or an investor to sell a property and then reinvest in another property, deferring capital gains on the sale. There are specific guidelines that you need to follow to make it happen. Firstly, you must set up 1031 before closing on the deal, and the sale proceeds need to be transferred to a third party, which is called an accommodator or a qualified intermediary. From closing, you are given 45 days to identify the property you will exchange. Once all this is done, you get six months to close on the property you have placed. If you have done all that, you will get a successful 1031 exchange safely and securely.
Recently, Revenue Ruling decided that the Delaware Statutory Trust 1031 is a qualified and reliable real estate and could serve as an excellent and effective replacement property solution for all 1031 exchange transactions that occur. Those who don't want to manage the property by themselves can use a fractional or percentage in a DST and become a partial owner in the more considerable real estate investment.
The larger companies are known to curate effective deals for customers to exchange into, professionally managed.
The drawback associated with this is in terms of liquidity. The holding period might range from five to ten years. It is always recommended to work with a reputable company called a sponsor when you structure the deal.
How this works is that the sponsor will set up the DST and name the trustee, who will have the complete authority of managing the business and assets of the entire trust. The trustees will then be given the financial responsibility of the beneficial owners. The belief is then supposed to collect the real money invested and arrange the necessary finances on behalf of the trust. In this case, the trust holds the direct ownership of the individual owners' assets that have an interest in the faith.
The trust in this Delaware Statutory Trust 1031 exchange scenario comes holding limited liability to the trustees, managers, and beneficial owners of the faith. The partnership is relatively inexpensive and straightforward for the sponsor to create as well as operate.