Delaware Statutory Trusts (DSTs) have become an increasingly popular option for investors in search of new real estate investment opportunities. Many sellers are utilizing this unique real estate strategy to allow for proportionate ownership in various asset types. DSTs offer independent investors a way to tap into the benefits of institutional-grade commercial real estate, providing an opportunity to acquire passive ownership with comparatively low minimum investment costs. Miser Wealth Partners are accomplished in helping investors in East Tennessee utilize this specialized strategy.
What is a Delaware Statutory Trust?
A Delaware Statutory Trust is a real estate ownership structure in which multiple investors own an undivided fractional interest in the holdings of a trust established by a professional real estate company (referred to as DST sponsor). The sponsor identifies and acquires the real estate assets. As people invest in a DST, their investments displace the sponsor’s capital that was used to acquire the property until it is fully owned by the investors. Investors own a beneficial interest in the trust, meaning they hold a percentage of the ownership while no single investor can claim exclusive ownership. DSTs typically require a minimum investment of $100,000, and the real estate is generally held for 3 to 10 years. Upon sale of the property, investors receive the proceeds, which include gains from potential appreciation.
How are DSTs structured?
DSTs are structured as passive investments. Although the investors own a fractional interest in the real estate, it’s the DST sponsor who handles the leg work, including management of the trust, securing investors to fulfill any outstanding equity requirements, and overseeing the performance of the trust assets. DST sponsors use their own balance sheet to identify and acquire the property(s) to be structured within the trust. The passive nature of these types of investments can make them an attractive option for those seeking a more hands-off approach.
What type of real estate is considered DST properties?
Nearly all commercial real estate properties are held as DST properties, including the four major types – office, multifamily, retail, and industrial. Other property types can include senior housing, medical offices, and self-storage facilities. Due to a typically large purchase price (generally over $30 million), these properties would otherwise be unattainable for an individual investor.
What are the benefits of a Delaware Statutory Trust?
DSTs can provide a host of advantages for real estate investors, including but not limited to the following:
- Tax benefits
- Greater income potential
- Opportunity to buy ownership in an institutional-quality asset
- Risk diversification
- Passive property management
- Eligibility for 1031 exchanges
- Low Risk of Exchange Failure
Among all these great benefits, perhaps the most compelling reason to invest in a DST is the ability to defer, reduce, or even eliminate taxes related to the sale of investment property utilizing a 1031 Exchange.
How are DSTs eligible for 1031 Exchanges?
A 1031 Exchange is an IRS-approved transaction that allows real estate investors to defer the tax liability or capital gains taxes on the sale of investment property. As DSTs are considered direct property ownership for tax purposes, they are eligible for tax-deferred 1031 Exchanges. A 1031 Exchange works basically the same way for every property type, including DSTs, but DSTs typically close within 3 to 5 business days following the sale of the property.
Are there any disadvantages of investing in a DST?
DSTs can involve many of the same risks as any real estate investment. These including potential lack of return, loss of principal, rate changes, and lack of management control, among other things. Also, DST performance is largely dependent upon the tenants’ ability to pay rent, presenting risks such as lack of liquidity, interest rate risk, and changing market conditions.
Why choose Miser Wealth Partners to manage your DST?
The biggest challenge of investing in a DST may be finding one in the first place, as not all DSTs can be marketed directly to the public due to SEC regulations. Furthermore, DSTs are sophisticated investments, so you’ll want an experienced partner to help guide you through all the nuances of this option. Our team has the capability to diligently analyze all DST sponsors and available offerings to ensure the investment options align with our client’s financial goals.
What’s my next step to investing in Delaware Statutory Trust?
If you’d like to learn more about this potentially lucrative real estate investment option, we invite you to start a conversation by calling us at (865) 281-1616 or clicking here to schedule online. Our advisors are standing by ready to help.