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Delaware Statutory Trust

December 5, 2023
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Key Takeaways

Introduction:

A Delaware Statutory Trust (DST) is a real estate ownership structure where multiple investors each hold an undivided fractional interest in the holdings of the trust. 

Created by a professional real estate company known as a “DST sponsor,” a DST allows individuals to invest in institutional-quality assets while benefiting from tax advantages and passive income potential.

Key Takeaways:

  • A DST enables investors to own a fraction of an institutional-grade property, enjoying the advantages of tax benefits, income potential, and eligibility for 1031 exchanges.
  • A DST is eligible for 1031 exchanges, providing investors the opportunity to defer tax liability on the sale of an investment property by reinvesting in a “like-kind” replacement property.
  • DST investing offers the ability to diversify risk and access properties that would be otherwise unattainable for individual investors.

How it Works:

A DST is established by a DST sponsor who identifies and acquires real estate assets on behalf of the investors. 

As individuals invest, their capital replaces that of the DST sponsor until the property is wholly owned by the investors. 

Investors hold a beneficial interest in the trust, entitling them to a percentage of ownership without exclusive control over specific aspects of the real estate.

Key Components:

  • 1031 Exchanges: DSTs are eligible for 1031 exchanges, allowing investors to defer tax liability on the sale of an investment property by reinvesting in a “like-kind” replacement property within the specified timeframe.
  • Investment Opportunities: DSTs offer ownership in institutional-grade properties across various property types, such as multifamily, office, industrial, and retail. Investors can diversify their portfolios by investing in multiple DSTs.
  • Due Diligence: Investors should conduct thorough due diligence, considering factors such as the DST sponsor’s track record, property type and tenant dynamics, market conditions, and regulatory environment.

Benefits:

  • Tax Advantages: DSTs qualify for 1031 exchanges, allowing investors to defer, reduce, or eliminate taxes related to the sale of investment property. Investors can preserve their equity and continue deferring tax.
  • Income Potential: DSTs offer ownership in institutional-grade properties with competitive income potential, providing investors with passive rental income.
  • Access to Institutional-Quality Properties: DSTs allow individual investors to access and own a fractional interest in properties that would typically be unattainable due to their high purchase price.
  • Risk Diversification: By investing in multiple DSTs across various property types, investors can diversify their real estate portfolios and reduce risk.

Takeaway:

A Delaware Statutory Trust offers individuals the opportunity to invest in institutional-grade real estate while benefiting from tax advantages and passive income potential. 

By participating in a DST, investors can access properties that would otherwise be out of reach and diversify their investment portfolios. 

However, thorough due diligence is essential, and working with experienced professionals is advised to navigate the complexities of DST investing and ensure compliance with regulations.

Disclaimer: The information on this website, including glossary definitions, is for educational and informational purposes only and not intended as professional advice. While we strive for accuracy, we make no guarantees regarding the completeness, reliability, or timeliness of the information provided. We are not liable for any loss or damage arising from your use of the site. Investment decisions in commercial real estate should be made based on individual due diligence and professional advice. Laws and regulations are subject to change; always consult legal and financial experts before making decisions.

Sources:

https://www.re-transition.com/investing-delaware-statutory-trust/

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