DST or NNN? Where should you invest?
On the one hand, you get a giant investment structure without day-to-day management responsibilities. While on the other, you get relief from all the operating costs of your property. Both DST and NNN investments offer different benefits to investors, though both save a part of an investor’s income, which otherwise, they would pay as property’s operating expense.
Small Investors should focus on DSTs…
A Delaware Statutory Trust or DST is a legal entity that is responsible for buying, managing, administering, and selling real estate properties. What DST really brings to the table is the opportunity for small investors co-own large institutional-grade properties along with other investors. Because of its large structure, a DST could accommodate a hundred or even more investors. Therefore, even if you have as little as $500K, you can get on board.
What actually you buy when you invest in DSTs?
Being a trust, DSTs sell shares that are equivalent to fractional ownership in real estate properties. Therefore, when you invest in a DST or buy its interests, you actually buy fractional ownership in one of the DST’s properties that has other owners as well. As DST properties always come with pre-arranged property or asset managers, you don’t need to put your feet into property management. Hence, no expense either.
Benefits that come with DST investment really are really a booster for an investor’s investment career. Relief from property management, diversification, increased cash flow, with an added advantage of tax deferment (thanks to 1031 exchange) make DST a good investment option for real estate investors.
What does NNN Investment offer?
A triple-net or NNN lease is a single-tenant arrangement that requires the tenant to pay all operating expenses associated with the property instead of the landlord or property owner. Operating expenses that a tenant covers under a NNN lease include insurance fee, property taxes, and maintenance cost. Generally, in a gross lease, the tenant is only required to pay the base rent, a part of which is then used by the property owner for paying operating expenses. However, a NNN lease requires the tenant to pay all these expenses along with the base rent. As the tenant is also responsible for paying the operating expenses, the base rent under a NNN lease is slightly less than that under a gross lease.
1031 Investors are more benefitted…
Using a NNN investment to close a 1031 exchange isn’t something new. Investors have been doing this for so long. After all, its benefits are many. First, on account of acquiring a NNN property as your 1031 exchange replacement property, you immediately get rid of the burden of property management. Second, you can acquire a NNN property anywhere throughout the United States. Therefore if you’re looking for geographical diversification, consider it achieved. Third, you won’t have to pay capital gains tax as it can be deferred for an indefinite time.
Talk to an advisor before going with one…
Though both DST and NNN Investments provide innumerable benefits to investors, you must reach a conclusion after consulting an advisor. Every investor is different from the other, so is their investment career. The condition that suits one, may not suit the other. An experienced advisor can help in predicting the future risks that may come along with both investments.
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