A Delaware Statutory Trust or DST is an entity that holds the title to a real estate investment. Investors in a DST pool their money to purchase an interest in the trust. DST trusts qualify as a replacement property per IRS Rev. Ruling 2004-86.
Not only does the DST provide investors with the opportunity to invest in a larger property or portfolio, it also gives them an established framework for having that purchase qualify as an eligible replacement property. That’s why DST’s are commonly used in 1031 Exchanges. The DST holds the title and management responsibilities for the property.
Benefits of a DST
- Fractional ownership allows investors to diversify their investments
- Opportunity to invest in institutional-quality assets
- No management responsibilities
- Low minimum investment starting at $100,000
- Greater income potential from rental as well as appreciation
- 1031 Exchanges capital gains tax benefits
- Reduce risk of missing exchange time windows
- Trust acquires the property prior to fundraising
- All due diligence is complete and available
- Minimal paperwork and a quick closing
Cons of a DST
- Lack of management control
- Lack of liquidity – no active secondary market
- Real estate risk
- Fees and expenses
Why consider a DST
This is a popular tax deferral investment strategy for estate planning or investors who wants to transition from active to passive ownership.