Who Should Consider a DST Investment?

Carl E. Sera, CMT
Carl E. Sera, CMT
Managing Principal, Sera Capital
Carl Sera is a Chartered Market Technician and the Managing Principal at Sera Capital Management, LLC. He has over 14 years of experience in the financial services industry with a focus on investment management.

If you have succeeded in your prior real estate investment activities, you may be faced with a new challenge; how do you sell your property without paying income taxes, continue to receive monthly rental income and eventually any appreciation, yet not have to continue taking on the responsibility of property management? The solution may be a Delaware Statutory Trust (DST).

What is Delaware Statutory Trust?

A Delaware Statutory Trust or DST is a separate legal entity created as a trust under Delaware Statutory Law. A DST allows you to co-invest with other investors in one or numerous properties. Although DSTs aren’t new, current tax laws have made them popular among 1031 exchange investors.

Purchasing into a Delaware Statutory Trust is treated as a direct interest in real estate, you are assigned fractional ownership of equity and debt, fulfilling your exchange requirements. Minimum investments are typically between $25,000 and $100,000; therefore, a single investor may own a fractional interest in an entire property or portfolio and receive distributions from the operation of the trust, from rental income and the eventual sale of the assets.

Who Should Invest in a DST?

  • Individuals looking to Diversify their Portfolio

DSTs provide the opportunity to invest in multimillion-dollar properties that otherwise would be outside an investor’s price range. Investors can invest in multiple DSTs across different states to increase diversification and protect against natural disasters and other risks damaging their entire portfolio.

  • Individuals Close to Retirement

Most investment property is currently owned by baby-boomers, or older people. Many of these investors need an exit strategy to fully retire and trade the Terrible T’s (tenants, toilets, trash, turmoil) for the Terrific T’s (travel, time, tax savings).

DSTs provide a solution that enables the investor to list their investment properties for sale where previously they thought they were stuck due to income tax consequences. Not only can the Capital Gains be deferred, under current tax law, the gains could be potentially eliminated permanently for heirs.

  • Individuals Doing a 1031 Exchange

1031 exchange investors can include a DST property among their three candidate properties identified during their identification period. If they cannot acquire their first two choices of identified candidate properties in time to meet their deadlines, the DST property remains an option that can close very quickly to meet the exchange deadline.

  • Individuals Looking for the Perfect Estate Planning Tool

Investing in a DST can be a valuable estate planning tool and eliminate confusion if the investor passes away. In this situation, the heirs would continue to receive distributions from the DST investment, if any, and each of the heirs choose what to do with their inherited portion upon the sale of the property owned by the DST. Properties can also be exchanged over and over again until the investor passes away and their heirs receive a step up in basis.

  • Individuals Looking to Generate Passive Income

DSTs are assembled by professional operators called DST sponsors, meaning the investor puts their funds into the trust and allows the operator to make the decisions around what happens to the properties in the trust. This offers the investor a “hands-off” approach, meaning they can benefit from potential monthly income but will not be involved in the day-to-day operations of the properties within the DST.

  • Individuals Looking to Acquire High-Value Properties

Most real estate investors cannot afford to invest in multi-million-dollar properties on their own. Delaware Statutory Trusts provide a unique opportunity for investors to acquire partial ownership and experience the benefits only found with these types of properties.

Final Thoughts

For more information about DST ownership, and other investment options, schedule your 30 minute call today. If you have questions concerning DSTs or 1031 exchanges, or DST Fees and Commission, please don’t hesitate to contact our team! We are here to answer questions and to guide you through this process.

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