If you’re a real estate investor or new to it, you might want to consider a Delaware Statutory Trust (DST) investment. The DST is a legal entity that is often used in real estate investing.
DST allows several investors to invest together and hold fractional interests in the holdings and assets of the trust. It is similar to a limited partnership where a number of owners get all their money together to invest, and a master partner will be responsible for managing the assets owned by the trust.
How It Works
A sponsor will set up the DST and name a trustee who will manage the business and assets of the trust. The trustees will have a financial responsibility to the fractional owners. The trust will collect the money, arrange the financing on behalf of the trust, and manage or hire property managers. In short, the trust will have direct ownership of the assets, along with the individual owners who have a share in the trust.
Now, what are the advantages of DST?
1. Opens Up Investment Possibilities
One of the biggest advantages of a DST is that it allows fractional interest in real estate interests to qualify, and it opens up investment possibilities that may not have been available to the investor. For example, an investor who owned a single-family home may use the proceeds from the property sale into a new investment class.
2. Allows for Passive Income Potential
Another advantage of DST for investors is that it allows for the potential for a passive income stream. DST will let an investor use a 1031 exchange to gain professionally managed assets that may provide them with a stream of income without the need to worry about property and asset management. That said, DST is popular among investors who want to transition from active real estate management through a 1031 tax-deferred exchange.
3. Access to Triple Net Leased (NNN) Properties
DST can provide investors with NNN properties ranging from 5–20 years on the primary lease term. It is relevant for investors who plan to move to a DST from a multifamily or single-family rental investment. This way, they no longer have to deal with multiple tenants who are either renewing or not their lease once a year, because, with DST, they can get 5–20 years of pre-arranged income already.
A DST can be an efficient form of fractional ownership when it comes to real estate. If you are a real estate investor who seeks to exit a holding, yet you don’t want to take on capital gains exposure or another active investment management role, then a DST structure will be perfect for you.
With the benefits of a DST, it’s also an excellent choice for a person new in real estate investing and who is looking for exposure to alternative investment classes but is not an expert or doesn’t have the time to take on an active management role.
A DST is a popular asset class that real estate investors should consider using. Keep in mind that the details and execution can get tricky, which is why it’s vital to have professionals involved.
Our team of experts can help you with the Delaware Statutory Trust. We help clients ensure their investments are aligned to create a constructed wealth management plan!