Real estate investment has always been a popular method of investing, offering a stable source of passive income and long-term appreciation. However, traditional real estate investments are often costly and require considerable time and effort to manage. This is where Delaware Statutory Trusts (DSTs) come in, providing investors with an alternative way to invest in real estate without the hassles of traditional investments.
What is a Delaware Statutory Trust (DST)?
A Delaware Statutory Trust (DST) is a legal entity that allows investors to pool their money together to invest in real estate. DSTs are created under Delaware law and managed by a trustee responsible for making investment decisions on behalf of the investors. DSTs are typically used for larger real estate investments, such as apartment complexes, office buildings, and shopping centers.
DST performance and market trends
DSTs have grown in popularity in recent years, with more sponsors offering DST investments to investors. According to a report by Real Capital Analytics, DST sales in 2020 reached $4.5 billion, up from $3.3 billion in 2019. Additionally, DSTs have performed well in the current real estate market, with a focus on stable, income-producing properties such as multifamily and industrial properties.
What is a DST, and how does it work
DSTs are created by a sponsor who identifies a property to purchase and sets up the DST. The sponsor then sells fractional shares of the DST to investors, who become beneficial owners of the property. The trustee is responsible for managing the property and making all investment decisions, such as leasing, maintenance, and sale of the property. Investors receive a portion of the income generated by the property based on their percentage ownership.
Benefits of investing in DSTs
One of the main benefits of investing in DSTs is the ability to participate in larger real estate investments that would otherwise be out of reach for individual investors. DSTs offer a more passive investment approach, as the trustee is responsible for managing the property, freeing up time and effort for investors. Additionally, DSTs offer tax benefits, such as depreciation and the ability to defer taxes through a 1031 exchange where real estate is being exchanged in a tax-efficient manner. DSTs also offer a way to diversify investment portfolios beyond traditional stocks and bonds.
Comparison between DSTs and traditional real estate investments
Traditional real estate investments require significant upfront capital, time, and effort to manage the investment. Investors are responsible for finding and acquiring the property, managing tenants, and handling maintenance and repairs. DSTs, on the other hand, offer a more passive approach to real estate investment, as the trustee is responsible for managing the property. Additionally, DSTs offer a way to participate in larger real estate investments that would be out of reach for individual investors.
Risks associated with DST investments
Like any investment, there are risks associated with investing in DSTs. The income generated by the property may not be as expected, and there is always the risk of losing money if the property does not perform as well as anticipated. Additionally, DSTs are illiquid investments, meaning that investors cannot easily sell their shares. Investors should also be aware of the fees associated with DST investments, which can be higher than traditional investments.
How to invest in a DST
Investing in a DST typically requires a minimum investment of $100,000. Investors should work with a financial advisor and carefully consider their investment goals and risk tolerance before investing. Investors should also carefully review the offering documents, which provide information about the property, the sponsor, and the fees associated with the investment.
DST regulations and compliance
DSTs are regulated by the Securities and Exchange Commission (SEC) and must comply with securities laws. Investors should be aware of the risks associated with investing in securities and should work with a financial advisor to ensure compliance with securities laws.
DST vs. 1031 exchange
DSTs offer many of the same tax benefits as a 1031 exchange, such as the ability to defer taxes on the sale of a property by reinvesting in a similar property. However, DSTs offer a more passive approach to real estate investment, as the trustee is responsible for managing the property.
DST investing for different types of investors
DSTs offer a way for different types of investors to participate in real estate investments. Accredited investors, who meet certain income and net worth requirements, can invest in DSTs without limitation. Non-accredited investors can also invest in DSTs but are subject to certain limitations.
Delaware Statutory Trusts offer investors a way to participate in real estate investments without the hassles of traditional investments. DSTs offer a more passive investment approach, as the trustee is responsible for managing the property, freeing up time and effort for investors. Additionally, DSTs offer tax benefits, a way to diversify investment portfolios, and the ability to participate in larger real estate investments. As with any investment, investors should carefully consider their investment goals and risk tolerance before investing in DSTs.