DST - debt vs debt free

[Jessica Singh]

Assuming I no debt on my incoming gains from selling a rental property, what are the advantages of opting for DSTs with almost 50% LTV vs debt free DST?

A. If we take say 50% LTV, what happens after 10 years when DST comes to term? Won't I now have a debt that will need to be carried forward into the next exchange?

B. If we take a debt-free DST. After 10 years, I won't have any debt to carry forward.

Can anyone help by giving an example with what happens to 100K cash (debt-free) available for 1031, to be invested in a DST with COC 5%. in DST-A vs DST-B

As I understand, for 10 years, both DSTs will give $5000/year.  Also, will this interest income be tax-free in both DSTs. Is that a simple answer, if not, ignore this question. 

What happens if both DSTs get sold for 200k. Does debt play any role in how much money I get to reinvest?

I am asking this due to my preconceived notion that debt is always bad. Please educate me if my understanding is wrong. Ready to learn. Thank you!

[Frank Jiang]

Originally posted by @Jessica Singh:

@Frank Jiang: for this example, we are considering that there is no debt on the property being sold. No debt requirement to carry forward. 

Would one invest in debt free DSTs or into DSTs with about 49-50% LTV. Which is a better idea and why?

I think your question has been answered in this thread, but I'll submit a direct and succinct answer to your question:

- Debt Free DST PRO: you will not have a debt fulfillment requirement when doing your next 1031 out of the DST.

- 50% LTV DST PRO: the returns on this DST will likely be better. Just like with any other income producing asset, debt accelerates the rate of return and increases your equity share in the DST.

If your rate of return on both DSTs is expected to be equal even after this debt, I would choose the Debt Free DST for additional flexibility on your next 1031.