Delaware Statutory Trust 1031
What is a DST?
A Delaware Statutory Trust, or DST, is a legal structure to hold title to investment real estate. It resembles a limited liability company (LLC). However, unlike an LLC, a properly structured DST property may qualify as a like-kind exchange property for a 1031 exchange.
DST properties have become a popular vehicle for 1031 exchange investors. As a separate legal entity, a DST permits a flexible approach to the design and operation of the entity. Investors in a DST own an interest in the trust along with others—sometimes 100 or more. As an owner, they may receive distributions from the DST, from either the rental income or sale of the property.
Advantages and Disadvantages of a DST
DSTs offer investors a number of benefits:
- The option to invest in one or multiple properties that, as an individual investor, may not have been otherwise feasible with your financial investment.
- Accordingly, a DST property will suit almost any 1031 exchange investment amount. You can choose the proportion of ownership that makes sense for your unique situation and take on only that share of the debt of the property.
- A simplified, low maintenance investment process that contributes to a diversified real estate portfolio.
- Potential for recurring, long-term income without management responsibility or landlord duties. DST properties are typically larger, professionally-managed properties where one trustee makes the decisions.
As with any investment, there are also disadvantages and limitations to consider. A DST may not be the right fit for all investors.
- Management responsibility is in the hands of one trustee and investors have no operational control or decision making power.
- Once a DST offering is closed, the DST cannot raise or accept new capital.
- DST investments are not liquid and may have declining market values and tenant vacancies. They are long-term (typically between 5 and 10 years) and generally cannot be sold on a secondary market.
- The trustee cannot renegotiate existing leases nor enter into any new leases.
Tenants-in-Common (TIC)
The tenants-in-common (TIC) structure is similar to a DST in many ways. However, the main difference is each investor owns a separate interest in the property (as opposed to owning an interest in a DST).
We have seen the vast majority of sponsors move away from TIC structures and instead structure their offerings as DSTs. This is because the DST structure allows for more owners, which means lower investment minimums. Additionally, with the DST structure, the sponsor maintains control of the investment—allowing for decisive decision-making on behalf of all inventors.
What’s next?
There is much more to learn about Delaware Statutory Trusts, and we hope this offers you a detailed introduction. To help you better understand your 1031 exchange options and investment choices, please schedule a time to talk with us today.
Are you ready to talk?
Whether you're thinking about selling a property and want to better understand the 1031 exchange process and investment choices, or if you already sold your property and the proceeds are currently held at a Qualified Intermediary, we can help.
Please call us at (224) 245-5281 or schedule an introduction today.
Chicagoland 1031 Exchange proudly serves clients nationwide, including California, Illinois, Florida, Colorado, Massachusetts, and more.
The information herein has been prepared for educational purposes only and does not constitute an offer to purchase or sell securitized real estate investments. Such offers are only made through the sponsors Private Placement Memorandum (PPM) which is solely available to accredited investors and accredited entities. DST 1031 properties are only available to accredited investors (typically have a $1 million net worth excluding primary residence or $200,000 income individually/$300,000 jointly of the last two years, and reasonably expects the same for the current year) and accredited entities only. If you are unsure if you are an accredited investor and/or an accredited entity please verify with your CPA and Attorney. There are risks associated with investing in real estate and Delaware Statutory Trust (DST) properties including, but not limited to, loss of entire investment principal, declining market values, tenant vacancies and illiquidity. Potential cash flows/returns/appreciation are not guaranteed and could be lower than anticipated. Because investor’s situations and objectives vary this information is not intended to indicate suitability for any particular investor. This material is not to be interpreted as tax or legal advice. Please speak with your own tax and legal advisors for advice/guidance regarding your particular situation.
This site is published for residents of the United States only. Representatives may only conduct business with residents of the states and jurisdictions in which they are properly registered. Therefore, a response to a request for information may be delayed until appropriate registration is obtained or exemption from registration is determined. Not all services referenced on this site are available in every state and through every advisor listed. For additional information, please contact Nathan Kuhn at 224-245-5281.
Chicagoland 1031 Exchange does not offer legal or tax advice. Please consult the appropriate professional regarding your individual circumstances.
Securities offered through DAI Securities, LLC, member FINRA / SIPC. Advisory services offered through Kuhn Wealth Management, Inc. (KWM), a state registered investment advisor. Insurance offered through DAI Securities, LLC. KWM dba Chicagoland 1031 Exchange is independent of DAI Securities, LLC.
