The Delaware Statutory Trust (DST) is a legal entity established under the laws of Delaware to enable investors in real estate to pool their resources together for fractional gains. Dsts can also be described as vehicles that real estate investors use to manage small properties more efficiently. Investing in a DST, however, has its pros and cons, as discussed below. Scroll down below to find out more.
Promotes Remote Management
DST has a well-organized management system that transfers the leadership roles and duties from the investors to experienced affiliate staff and sponsors to achieve the best real estate investment returns. Additionally, this gives the investors peace of mind since they do not have to be involved with the risks of managing a real estate investment.
1031 Eligibility
The IRS demands that for an investor to become eligible for the 1031 exchange, they must have direct property ownership. Under section 1031 of the Internal Revenue Service tax code, Delaware statutory trust investment is recognized and treated as direct ownership of the real estate, making you qualify for a 1031 exchange.
Meet The 1031 Exchange Deadlines
Meeting the 45 day identification period and the 180-day exchange timeframe is a big challenge to many investors. However, DST investors will always meet these tight deadlines because the DST closes very quickly and allows the investors to exchange their relinquished assets for DST assets even after the identification deadline has been met.
Liability Protection
As a DST investor, you do not have any personal liability; thus, you have no liability to repay any loan that the trustee of the real estate may have taken concerning the property. It’s essential to keep in mind that the DST investment is managed by a trustee accountable for decisions made and borrowings related to the investment.
Promotes Diversification
The DST investment has numerous DST properties that allow diversification of asset classes, locations, and levels of debts. This also helps you minimize the investment risk that would arise from investing in a single investment portfolio.
Low Investment Costs
The diversification of DST investments also allows you to choose a category of real estate investment that will suit your pocket. However, it’s important to note that exclusive investments will require you to dig deeper in your pockets, such as the $ 100,000 minimum investment for the 1031 exchange investors and the $25,000 minimum for non-1031 exchange investors.
Timely Cash Distribution
The DST proceeds from investments will always be credited to your bank account on a timely basis. DSTs do not hold your money for any reason except the regular general maintenance and servicing fee that will cater to any repairs and expenses.
Loss Of Control
DST investors will lose their management power and control of their assets to the DST trustee. This means that as an investor, you are not involved in the decision-making process nor other critical matters regarding your Assets’ operations. This poses a unique problem since your opinion may be unwelcomed even when you have the answer to a problem.
Therefore, being a passive investor strips you the power and privilege of being the sole manager of your assets. Real estate owners who value their property very much may find being a passive investor rough as they see the new trustee make changes to their real estate.
Higher Risks
Like every other investment, there are various risks that Delaware statutory trust investments will bring along. Firstly the taxation laws are subject to change and will impact the shareholders’ dividends and incomes. Secondly, the DST investments lack liquidity, making them unsuitable for some investors since the DSTs could hold up to ten years.
Hinders Refinancing
The DSTs have a closing period after which investors cannot raise any new money from new or existing investors to make further investments. This will have a significant impact on your profits in the future as it can be used to cater for maintenance costs before the DST offering ups again in the future.
There is much to discuss regarding DST investments, and the sections above provide a brief description of what DSTs investments are and the pros and cons associated with DSTs. Hopefully, it has helped you figure out whether you want to invest in an DST or not.