Delaware Statutory Trusts (DSTs)

DSTs Provide a Turn-Key Solution For Investors Seeking Professionally Managed, Income-Producing Real Estate To Complete Their 1031 Exchange.

DSTs are a management-free or passive real estate investment option for 1031 exchange investors. With property management, financing, and due diligence already in place, DSTs can make it easier to identify and close within the required 1031 Exchange timeframes and easier to own throughout the life of the investment. 

  The turnkey nature of DSTs, combined with low minimums & flexible investment amounts, allows us to create custom, diversified portfolios designed to provide income and alleviate the burdens of active property management.

Types of Properties Available as DST Investments

Multifamily

Industrial

Retail

Office

Self-Storage

Medical

What is a DST?

A Delaware Statutory Trust (DST) is a separate legal entity formed as a trust under Delaware law. When properly structured, DSTs qualify as valid replacement property for purposes of a 1031 exchange per the IRS Revenue Ruling 2004-86. Investors in a DST are not direct owners of the real estate; the trust holds title to the property for the benefit of investors, each of whom has a “beneficial interest.” A beneficial interest in a DST is treated in the same manner as a direct investment in real estate for economic and tax purposes. Each investor in a DST receives their pro-rata share of potential cash flow and tax benefits (depreciation and interest deductions) during the life of the investment as well as potential appreciation when the property is eventually sold.

Delaware Statutory Trusts Offer the Following  Potential Benefits

Property Management Relief

DSTs are offered with professional property and asset management in place, thus offering investors relief from the burden of management.

Tax Deferral

Capital Gains, Depreciation Recapture, and Net Investment Income Tax, as well as state taxes, are deferred through a successful exchange into DSTs.

Potential Income

Net cash flow generated by the property is distributed on a monthly basis. Income may be sheltered from tax via depreciation depending on an investor's basis.

Diversification

DSTs can make it easier for investors to diversify 1031 exchange proceeds by real estate type, tenants, and geographic markets, DST Sponsor companies, and more.

Low Minimums and Flexible Investment Amounts

Any amount over the $100,000 minimum investment may be invested which can make it easier to diversify and meet 1031 exchange equity and debt requirements.

Due Diligence Available for Review

Due diligence performed by the DST Sponsor Company is contained within the offering documents. Additional due diligence is performed by 1031 Investment Services, DFPG, and third party analysts before going to our investment committee for review. IF approved by the investment committee, we will then present it to our clients for consideration.

Potential For Capital Appreciation

When the DST property is eventually sold, all proceeds from the sale of the property are distributed to investors. Each investor receives their pro-rata share of such proceeds including potential appreciation. Investors may then elect to do another 1031 exchange.

Estate Planning Benefits

Heirs receive a step up in Basis. Ownership is easily divided among heirs and they may cash out or reinvest when the property is sold.

Ready Inventory of Properties Available

A ready inventory of DST properties allows individuals to easily identify properties within the 45 day identification period of a 1031 exchange. DSTs may also be useful as a “backup” property in case a preferred property fails to close.

DSTs Also Carry the Following Potential Risks

General Real Estate Risk

As with any real estate investment, DST properties may lose value. Various economic cycles can affect the performance and value of any property. Real estate investing is speculative and involves a high degree of risk; as such, investors should be able to bear the loss of their investment.

Lack of Control

The trust will be operated and managed solely by the Trustee and Beneficial Owners have no right to participate in the management of the trust.

Lack of Liquidity

Beneficial Owners do not have legal title and do not have the right to sell the property.

Seven Deadly Sins of DSTs

Once the offering is closed, there can be no future contribution to the DST by either current or new Beneficial Owners
The Trustee cannot renegotiate the terms of the existing loans, nor can it borrow any new funds from any party.
The Trustee cannot reinvest the proceeds from the sale of its real estate.
The Trustee is limited to making capital expenditures with respect to the property to those for (a) normal repair and maintenance, (b) minor non-structural capital improvements, and (c) those required by law.
The Trustee cannot enter into new leases or renegotiate the current leases.
Any cash held between distribution dates can only be invested in short-term debt obligations.
All cash, other than necessary reserves, must be distributed on a current basis.

Exchanging into a DST can be an effective way to defer taxes and retire from property management but working with an experienced advisor who understands the real estate and knows the sponsor companies can have a tremendous effect on your ability to reach your investment goals.