Delaware Statutory Trusts
A Delaware Statutory Trust (DST) can provide a great alternative for those who own rental properties and are looking to diversify their portfolio while maintaining rental income. A DST is a trust that holds investment real estate and qualifies for tax-free treatment in a 1031 exchange. Each owner is considered as a fractional of the property held by the DST and receives a monthly check for their share of the net income from the rental properties managed by the trust. DST’s combine many investors to pool funds together and allow owners to access higher quality institutional grade properties and tenants than they could otherwise afford on their own. DST’s contain all types of real estate holdings across the country, allowing investors to easily diversify their portfolios to mitigate risk. DST’s are a great option for real estate investors who are looking to retire and want the benefit of collecting their monthly rental check without the hassle of managing the property and dealing with tenants. DST’s can also be an essential tool when utilized in conjunction with a 1031 exchange as they make great back up properties when identifying replacement properties, ultimately ensuring that the exchange is executed if the other identified properties fall through.
8 Reasons to Consider a DST:
- DST’s contribute to the diversification of a real estate portfolio by using institutional grade properties located across the country.
- DST’s can target growth areas and better capitalization rates that may not be available to single investors.
- There are no property management headaches with a DST, just a check in the mail each month.
- DST’s can be utilized as backup replacement property options in a 1031 exchange.
- In a 1031 exchange, an exact dollar amount can be used when purchasing a DST as a replacement property.
- DST’s offer properties with a variety of leverage options that can help investors avoid mortgage boot in a 1031 exchange.
- An investor can continue to exchange DST properties repeatedly until the investor’s death, at which time the properties will receive a step-up in basis.
- DST’s offer a better alternative to TIC (tenant-in-common) interests, as TIC’s are limited to 35 investors and mid-size properties, whereas DST’s can have up to 2,000 investors and can own properties with a much higher aggregate value than a TIC.