Tommie Carter

DSTs in Perspective

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by

Tommie
in ,

Guide

Delaware Statutory Trusts (DSTs): A Gateway to Commercial Real Estate

DSTs offer individual investors a unique opportunity to participate in large-scale commercial real estate projects that would otherwise be inaccessible. By pooling funds with other investors, DST participants gain fractional ownership in properties managed by experienced real estate sponsors. Unlike direct property ownership, investors hold shares in a trust that legally owns the underlying assets, providing crucial liability protection.

In a Nutshell
  • DSTs offer individual investors access to commercial real estate through fractional ownership.
  • DSTs provide limited liability, diversification benefits, and can streamline 1031 exchanges.
  • Investors should carefully consider factors like illiquidity, passive role, and sponsor selection before investing in a DST.

Why Consider a DST Now?

This article delves into the mechanics of DSTs, their appeal to 1031 exchange investors, and the critical role of timing in successful DST participation. We’ll also explore the importance of thorough due diligence when selecting a DST sponsor.

Understanding Delaware Statutory Trusts

Created under Delaware law, DSTs provide a legally distinct structure separating investors from the trust’s assets. This separation safeguards investors from personal liability. DSTs are IRS-recognized as direct property ownership, making them eligible for 1031 exchanges.

Real estate companies, known as sponsors, form DSTs by acquiring properties and selling fractional ownership interests to investors. While providing capital, investors maintain a passive role in property management.

Benefits of DST Investing

  • Accessibility: DSTs democratize commercial real estate, allowing investors to participate in high-quality assets.
  • Limited Liability: Investors are shielded from personal liability for trust-owned properties.
  • Diversification: DSTs enable investors to spread risk across multiple properties and geographic locations.
  • 1031 Exchange Efficiency: DSTs streamline the 1031 exchange process by offering pre-underwritten investment options.

Key Considerations for DST Investors

  • Illiquidity: DST investments typically have a hold period of 5-10 years.
  • Passive Role: Investors have limited involvement in property management.
  • Return Expectations: DST returns vary based on property type, location, and market conditions.
  • Sponsor Selection: Thoroughly research DST sponsors to assess their experience, track record, and management capabilities.

Conclusion

DSTs can be a compelling investment option for individuals seeking exposure to commercial real estate without the complexities of direct ownership. However, careful consideration of investment goals, risk tolerance, and time horizon is essential. Working with experienced financial advisors and conducting in-depth due diligence can help investors make informed decisions.

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Disclaimer

  • We do not give tax or legal advice.
  • Please consult an attorney, CPA, or licensed professional for your needs.
  • All examples and case studies are for educational purposes only.