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What is a Delaware Statutory Trust (DST)?
A Delaware Statutory Trust (DST) is an entity type which provides certain benefits when used for real estate assets. In a DST interest, multiple owners can join to purchase a large institutional-grade property or properties as individual owners (not as limited partners). Each owner has an undivided fractional interest in the entire property and has all the same rights as a single owner. As a participant in a DST interest, you own a piece of a large professionally managed building (or portfolio of buildings), receive a pro rata share of the rents, can take depreciation (based on your cost basis), and deduct mortgage interest and other applicable expenses. Most importantly however, interest in a DST can be bought with either cash or 1031 exchange equity.
Benefits of DST 1031 Exchange
1. Free yourself from day-to-day management responsibilities
2. Professionals manage the property
3. Increased monthly cash flow
4. No legwork to locate properties
5. Investments in larger, safer properties
6. Benefits from multiple tax advantages
7. Gain non-recourse debt
8. Opportunities begin as low as $25,000
9. Diversification of your assets
10. 1031 Exchange in and 1031 Exchange out
Without property to manage, you may enjoy more leisure time to relax or pursue other interests. You may even relocate and reside many miles from the location of your building. You can relax and trust professionals to maintain the buildings, do the leasing, collect rent, service the mortgage, and handle all of the other day-to-day management responsibilities.
Professionals manage the property
Buildings owned by DST’s are typically professionally managed by national real estate companies who have strong audited track records and extensive experience in their respective sectors, types, and locations of real estate. In addition, because these are the same companies that acquire the properties and arrange the DST programs, they have a vested interest in the performance of the properties.
Increased monthly cash flow is likely
Your investment in a DST interest provides you with a check every month based on the net cash-flow generated from your pro-rata ownership in the real estate. The cash flow that owners typically receive is in the 5-7% range annually (cash on cash). When capital appreciation and principal pay-down on an amortizing loan is included, the total annual projected returns generally range from 14%-18%.
No legwork to locate properties
A highly qualified national real estate company will locate the building(s) for you, provide all due diligence, arrange for the financing, and do everything necessary to acquire the real estate and set up the DST program. A wide range of DST properties exist in many different asset classes and geographical locations, so DST advisors will help you easily identify properties within the requisite 45 days, acquire within 180 days, and have “back-ups” in case your preferred purchase becomes unavailable unexpectedly.
Investments in larger, safer properties
You purchase larger and higher-quality buildings that tend to attract tenants with greater financial strength and stability.
Benefits from multiple tax advantages
Not only can you defer capital gains taxes until death (at which point they are forgiven), you may also be able to benefit from depreciation and other deductions which shelter some of your investment income from taxes.
Gain non-recourse debt
Accredited investors assume institutional grade, pre-arranged, non-recourse (i.e., no personal guarantee) financing with easy approval. You can invest in properties which range from all-cash debt free acquisitions to properties with up to ~85% leverage (zero coupon).
Opportunities begin as low as $25,000
The DST structure allows for multiple owners and minimum cash investments are usually only $25,000 and minimum 1031 exchange investments as low as $100,000. The lower minimums make DST investments very flexible. Investment sizes can be structured to match an owner’s equity and debt requirements for their 1031 or cash investing needs.
Diversification of your assets
Large net proceeds may be split among several properties and invested in several different markets and asset types.
1031 Exchange in and 1031 Exchange out
Not only do DST’s allow an owner to 1031 exchange equity into them, but they allow an investor to 1031 exchange their proceeds back out into other properties (or another DST) upon a sale.