If you’re in the realm of real estate investment or are considering diversifying your portfolio, you might have come across the term “DST” or Delaware Statutory Trust. In this article, we’ll break down what DSTs are and why they matter in the world of property investment.
What is a DST?
A DST allows investors to purchase fractional ownership interests in various types of real estate, all while retaining eligibility for 1031 tax deferral treatment. At its core, a DST is a legal trust primarily incorporated in Delaware, established for business purposes, particularly in the realm of real estate. It acts as a vessel that holds real property and offers property-related securities for investment. Here are some key characteristics:
- Fractional Ownership: DSTs allow accredited investors to own fractional interests in high-quality, institutional-grade properties. Importantly, investors are not limited partners; they are individual owners within the trust.
- Capital Gains Tax Deferral: DSTs offer the advantage of deferring capital gains taxes indefinitely, with the potential for heirs to receive a stepped-up basis upon inheritance, avoiding capital gains taxes on the original exchange and subsequent property exchanges.
- 1031 Exchange: DST investments can serve as replacement properties for investors engaged in a 1031 exchange, a tax-deferral strategy for real estate transactions. It’s also a way to diversify real estate holdings.
- Income and Tax Benefits: Each DST owner receives a proportionate share of the property’s cash flow and enjoys tax advantages through depreciation.
- Professional Management: DST properties are typically managed by third-party property and asset management firms. This means you don’t have to worry about day-to-day management tasks, giving you more freedom for leisure and travel.
- Debt Replacement: Financing for DST properties is secured in advance by the sponsor, eliminating the need for individual investors to secure their own financing. This provides stability and predictable fixed rates and terms.
- No Personal Liability: DST investors are not personally liable for the property’s debt. The sponsor guarantees any recourse obligations under the loan agreement, safeguarding your personal assets.
- Low Minimum Investments: DSTs are designed to accommodate multiple investors, allowing for lower minimum investment amounts compared to purchasing a property individually, often as low as $100,000.
- Pre-vetted Properties: DST investments provide extensive information upfront, including leases, appraisals, property condition reports, and financial projections, simplifying the investment decision-making process.
- Great for Estate Planning: DST investments facilitate smooth transitions to heirs, eliminating potential conflicts over managing inherited properties. Heirs can choose to continue exchanging property interests or receive cash proceeds upon the sale of the DST investment
Conclusion
Delaware Statutory Trusts (DSTs) have emerged as a powerful tool in the arsenal of real estate investors. With their ability to provide fractional ownership in diversified, professionally managed properties, they offer an attractive proposition for those seeking passive income, tax benefits, and estate planning advantages.
By allowing investors to defer capital gains taxes indefinitely and minimizing the burdens of management and financing, DSTs have simplified the path to real estate investment. Moreover, the ease of entry with lower minimum investments and the transparency of pre-vetted properties makes them accessible and appealing to a wide range of investors.
At Johnston Pacific, we’re your conduit to dedicated DST experts. Our tailored solutions align with your financial goals, backed by comprehensive expertise in DSTs, streamlining the investment process. We prioritize asset protection, ensuring your peace of mind. Moreover, our proficiency extends to referring you to estate planning professionals, facilitating seamless transitions for your heirs. With Johnston Pacific, you’re on the path to maximizing your DST investments confidently. Contact us today to get started.
