A Delaware Statutory Trust or DST is a separate legal entity created as a trust under Delaware Statutory Law. A DST allows you to co-invest with other investors in one or numerous properties. Although DSTs aren’t new, current tax laws have made them popular among 1031 exchange investors.
Purchasing into a Delaware Statutory Trust is treated as a direct interest in real estate, you are assigned fractional ownership of equity and debt, fulfilling your exchange requirements. Minimum investments are typically between $25,000 and $100,000; therefore, a single investor may own a fractional interest in an entire property or portfolio and receive distributions from the operation of the trust, from rental income and the eventual sale of the assets.
Over the next two weeks we are going to share 10 reasons why we keep talking about DSTs. Here are the first five:
1. No management responsibilities for you.
If you’ve owned rental real estate in the past, you know that property management is time-consuming and stressful. Some investors find that it can be a major relief to hand over the management and the decision-making responsibilities to a professional team of experienced managers.
2. Acquire investment-grade, high-value properties.
Most real estate investors cannot afford to invest in multi-million-dollar properties on their own. Delaware Statutory Trusts provide a unique opportunity for investors to acquire partial ownership and experience the benefits only found with these types of properties.
3. Opportunities for diversification.
Because you can choose the amount you invest in a Delaware Statutory Trust, you can split your investment among multiple DST properties, giving you an opportunity to diversify your real estate portfolio.
4. Regular distributions.
DSTs are permitted to keep a reasonable amount of cash reserves to be prepared in the event the property requires repairs or faces unexpected expenses. However, all earnings and proceeds above the reserve amounts must be distributed to the beneficiaries on a regular basis and within the expected timeframe.
5. Investors do not have to qualify for the debt.
Investors do not have to qualify for the property’s mortgage loan. The Delaware Statutory Trust is the only entity liable for the mortgage loan and it is nonrecourse to the investor. Investors do not have to provide personal documentation for loan approval and do not have to worry about other personal assets or liabilities affecting the status of the loan.
While the information provided above has been researched and is thought to be reasonable and accurate, it’s important to understand that all investments, including real estate, are speculative in nature and involve substantial risk of loss. Additionally, private placements of securities are not publicly traded, are subject to holding period requirements, and are intended only for accredited investors who do not require a liquid investment.