Investing in real estate can seem complicated, but one option that's gaining attention is the Delaware Statutory Trust (DST). If you're curious about what a DST is and whether it aligns with your investment goals, you're in the right place. Continue reading to understand the basics of Delaware Statutory Trusts.
What Is a Delaware Statutory Trust
A Delaware Statutory Trust is a legal structure that allows multiple investors to pool their funds to own or invest in real estate. DSTs are for institutional-grade properties, including multifamily apartments, office buildings, and industrial spaces. Investors purchase a fractional ownership interest, allowing them to benefit from the income generated by the property.
Key Benefits of Investing in DSTs
DSTs provide an excellent option for investors looking to diversify their portfolios. With fractional ownership, you gain access to high-value properties that might otherwise be out of reach. Additionally, DSTs offer passive income, as professional management handles day-to-day operations. They also simplify property ownership by eliminating responsibilities such as maintenance and leasing.
Understanding DST Investment Risks
Every investment carries some level of risk, and DSTs are no different. Liquidity is limited since you cannot sell your fractional share on the open market. Additionally, while professional management is a benefit, it also means investors have no control over property decisions. Market fluctuations can also affect the income you receive, so evaluating potential risks is essential before investing.
How DSTs Work
When you invest in a DST, you're purchasing an interest in a trust that owns real estate. This structure enables multiple investors to participate in a single property, each receiving a share of the income. The trust collects rent, pays expenses, and distributes the remaining profits to investors. If circumstances align, you may also have the option to convert a DST to an UPREIT, unlocking further investment flexibility.
Who Should Consider DST Investments
DSTs cater to investors with specific goals. If you're nearing retirement and looking for passive income, DSTs can be an excellent fit. They also attract real estate enthusiasts planning to defer taxes through a 1031 exchange. However, they might not appeal to those who want hands-on control over their real estate ventures.
The Role of Due Diligence in DSTs
Research plays a crucial role in making smart investment choices. When considering a DST, evaluate the property type, location, market trends, and sponsor track record. Sponsors manage the trust, so their experience often influences the success of your investment. Always rely on thorough investigations to make confident decisions.
DSTs and 1031 Exchanges A Powerful Combination
DSTs are a preferred option for investors completing a 1031 exchange because they allow you to defer capital gains taxes while reinvesting in similar property types. Their fractional ownership nature makes it easier to meet the time-sensitive requirements of a 1031 exchange, streamlining a traditionally complex process.
Understanding the basics of a DST will help you decide how one might fit into your investment strategy. Begin by researching opportunities and consulting with a financial advisor to receive personalized recommendations. Now is a great time to take the next step in achieving your real estate investment goals.
