Though Delaware Statutory Trusts are not new, in 2004 the IRS came out with an official Revenue Ruling detailing how a DST could be structured in such a way that it would qualify as a property replacement vehicle for 1031 Exchanges. Well known to real estate investors, a 1031 like-kind exchange allows you to defer the capital gains tax on the sale of investment property by reinvesting the proceeds into a similar qualifying property.

THE 4 STEPS TO A 1031 EXCHANGE

1031 EXCHANGES AND DSTs

A Delaware Statutory Trust (DST) is an investment trust established to hold one or more properties in which investors can purchase an ownership interest in the property. Owners hold a passive, fractional interest in the property held by that trust. If structured properly, in addition to tax deferral treatment, this investment product can provide long-term income and asset preservation to accredited 1031 and 1033 Exchange investors.

DSTs include pre-arranged non-recourse financing, with low minimum investment requirements. A nonrecourse debt (loan) does not allow the lender to pursue anything other than the collateral, leaving limited liability only to the equity invested in the fund. This makes it possible to purchase larger, institutional quality real estate across nearly every real estate sector, including:

Multifamily

Industrial Space

Self-Storage

Student Housing

Medical Facilities

WHAT YOU SHOULD KNOW ABOUT DSTs

IS A DST RIGHT FOR ME?

A DST may be right for you if:

  • You seek tax deferral.

  • You do not want property management responsibilities.
  • You seek institutional-quality property.

  • It fits into your estate planning.

    Find out why?

  • You prefer limited personal liability.

    Find out why?

  • You are an accredited investor.

A DST may NOT be right for you if:

  • You are an investor who enjoys managing the day-to-day operations of your properties.
  • You want control over important decisions such as when to sell, how to remodel or what rent to charge.
  • You seek liquidity as DST investments are typically designed for a holding period of two years or more. (Typically, DSTs hold for 5-7 years.)

Investment real estate, including securitized real estate, comes with substantial risks, including but not limited to: the absence of guaranteed income; lack of liquidity; the risks of owning, managing, operating and leasing properties; possible conflicts of interest with managers and affiliated persons or entities; the risks associated with leverage, tax risks, including possible changes in tax law; declining markets and challenging economic conditions; on-going fees; and known or unknown regulatory challenges. Finally, it should be understood that the ultimate risk of investing in real estate could include the total loss of principal investment.

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