Have you ever wondered how an expert real estate investor can quickly identify the risks he or she faces and find ways to attempt to mitigate them? Well, let us tell you that it is not “easy.” It is just because they know what to look out for.
That said, risks can come in many shapes and forms, from credit risks to interest rate risks. However, one of the risks that many seem to forget to consider is regulatory risks or the risks caused by changes in laws and regulations.
How do you strive to mitigate these risks? The answer lies with Delaware Statutory Trusts. Before we talk about that, however, let us define more clearly what a regulatory risk is.
What is a regulatory risk?
As mentioned earlier, regulatory risk is the risk of facing a loss of profitability because of changes in laws and regulations that govern real estate. These laws can range from local to state levels and even national levels—all of which can affect you.
For example, you might have purchased a property under favorable regulatory conditions. However, upon investing in that property, you now stand the risk of losing money or finding things harder to manage because regulation is no longer in your favor due to a change.
What are Delaware Statutory Trusts?
One of the best ways to seek to mitigate this type of risk is by investing in multiple properties. By building a significant enough portfolio, you can have enough assets to potentially compensate for losses in one or more parts of the portfolio. This is where Delaware Statutory Trusts come in.
A Delaware Statutory Trust, also known as DST, is an entity that is made for business purposes. It is made under the agreement that property is managed for the sole purpose of making money.
How does a DST work?
Remember, regulations can cover local areas, states, and even the entire nation. While a national-level change will affect all your properties, a local regulation change will only affect the ones in the respective area.
A DST helps you mitigate regulatory risks by allowing you to invest in multiple properties throughout different locations. This means that even if one regulation might affect one of your properties, the others will continue operating under different laws and regulations and continue to be profitable.
DST may also be quite beneficial to you because the portfolio can be managed by real estate firms. This means that you get to enjoy their years of experience managing multiple properties. It also allows you to potentially make the most of your properties by letting you strive to turn a profit despite any changes that might happen.
While you are not forced to use a DST when creating your portfolio, it may be an effective way to mitigate regulatory risks. After all, having multiple properties in different geographical markets means that changes in local laws and regulations will not affect every single one of them. Note that this would not necessarily protect you from a change in federal regulations.
In worst case scenarios where you completely lose profitability in certain markets, you may still be able to earn elsewhere—all under the watchful eyes of expert DST managers working hard in your favor.
Are you looking to make a real estate investment using DSTs? PJL Investments can help you work to achieve your financial goals through strategic planning while utilizing DSTs to provide you with a unique solution. Reach out to us today!