A Delaware Statutory Trust or a DST is given mainly as real estate securities. It is extremely popular with 1031 Exchange investors. DST investments are passive real estate investments. They allow investors to get fractional possession in real estate properties. Investors do not need to bear the burden of property management. The structure for a DST investment was first created in Delaware in 1947. However, a DST doesn’t need to be located within the State of Delaware. DSTs are generally responsible for purchasing, managing, administering, and selling real estate properties. Investors within a DST enjoy their pro-rata share of income, appreciation, and tax benefits. 1031 DST Property offers similar benefits and risks as any other real estate investment.
✔ Low investment - A DST investment may start from as low as $100K.
✔ Large structure - There is no limitation on the number of investors a DST can possess. DSTs can have up to 499 investors or fewer. This opens the DST option for small investors also. Investors with low capital also prefer it. DST allows investors to acquire ownership in institutional-grade properties by making the least investment.
✔ Relief from property management- 1031 DST property is handled by property managers. Therefore investors do not have to bear the burden of property management.
✔ No title to a property - Investors within a DST don’t receive property title.
✔ Can’t form single-member LLCs - DST investors aren’t allowed to form single-member LLCs.
✔ No voting rights- DST investors don’t have voting rights over the operation of properties held by the DST.
For consultation and assistance regarding DST 1031 exchange property, you can call –888-993-2835 or email us at info@1031xchange.com.
DST investors don’t need to bear the burden of property management as DST properties often come with pre-arranged property or asset managers.
Generally, DST investors enjoy a cash flow ranging from 5%-7% annually. However, after adding capital appreciation and the amount invested in amortizing the asset, the projected annual return increases to 14%-18%.
DST investors don’t need to step out in the market for locating properties as real estate firms are usually responsible for this. A good real estate firm will find properties for you, provide all due diligence, arrange for financing, and do everything that is required.
DSTs allow investors to invest in larger and institutional-grade properties. Such properties are likely to attract high-credited tenants. Therefore DST investors aren’t normally exposed to greater financial risks.
DST investors can split their net proceeds and invest it in different properties or assets. This provides much needed diversification to investors and also strengthens their investment portfolios.
Another advantage of a DST investment is that DST properties are 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.
Accredited investors often look for institutional grade, pre-arrange, and non-recourse financing with easy approval. As a DST investor, you could invest in properties ranging from all-cash debt free acquisitions to properties with up to 85% leverage.
Due to its large structure, DST investments may sometimes start from as low as $100K. This makes DSTs more popular among small to medium-sized investors.
Deferring capital gains taxes using a 1031 Exchange isn’t the only tax advantage DST investors receive. In addition to this, they may also benefit from depreciation and other deductions which shelter some of their investment income from taxes.
A DST not only allows investors to invest their 1031 Exchange proceeds directly into it, but they can also withdraw their proceeds and invest it on another property (or another DST).
• No contribution can be made upon closing -A DST can’t accept any contribution from its new or current beneficiaries once the offering is closed.
• No renegotiation on existing loans –The trustee can’t renegotiate the terms of the existing loans. Neither can it borrow new funds from any lender.
• Limitation on capital investment – Any cash held during distribution dates can only be invested for paying short-term debts.
• Can’t reinvest real estate proceeds –The trustee isn’t allowed to reinvest the proceeds obtained from the sale of its real estate.
• Limitation on capital expenditure –The trustee is allowed to make limited capital expenditures on the property pertaining to (a) normal repair and maintenance, (b) minor non-structural capital improvements, and (c) those required by the law.
• No extra reserves –It’s mandatory that all cash, other than necessary reserves, is distributed among the beneficiaries on a current basis.
• No new leases –The trustee can't enter into new leases, neither can it renegotiate the current leases.
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IRC Section 1031, IRC Section 1033, and IRC Section 721 are complex tax codes; therefore, all the investors/clients/consumers are advised to consult their tax and legal professional for details regarding their situation on any kind of investment. There are material risks every investor should know, associated with investing in 1031 Exchange properties, Delaware Statutory Trust (DST) and any other kind of Real Estate Properties. The risks include tenant vacancies; declining market values; potential loss of entire investment principal; that past performance is not a guarantee of future results; that potential cash flow, potential returns, and potential appreciation are not guaranteed in any way; adverse tax consequences and that real estate is typically an illiquid investment. This material does not constitute an offer to sell nor a solicitation of an offer to buy any security. Such offers can be made only by the Confidential Private Placement Memorandum. Please be aware that this material does not replace the PPM.