Many 1031 Exchange investors believe that taking on debt is a good strategy in order to move up in asset size or help achieve greater depreciation and tax efficiencies. However, Kay Properties has always believed in being conservative and emphasized capital preservation above all else, including avoiding taking on unnecessary debt. We remember investors who, despite our advice against it, took on extreme levels of leverage (sometimes 80% - 90%) in highly risky assets like senior care facilities and hospitality. When the recession came in 2008, many of these same investors lost their properties. While many 1031-eligible assets have debt associated with them, and not all debt is bad, many investors want to remain debt-free and take a conservative position on their 1031 investments. Personally, many of my clients remember vividly when they paid off their loan on an investment property and felt incredibly proud that they now owned their asset free and clear.
These people don’t want to go back into debt for an exchange. This is the time of their lives when they want to reduce their exposure to potential risk and not increase it. Debt-free DSTs offer the perfect opportunity to invest in multiple asset classes and in different geographical regions without incurring debt. Plus, there are a number of practical reasons for considering all-cash/debt-free DST investments, especially in today’s turbulent times.
MANY INVESTORS WANT TO REMAIN DEBT-FREE AND TAKE A CONSERVATIVE POSITION ON THEIR 1031 INVESTMENTS.
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