Everything You Need to Know About Discovering the Potential Benefits of DST Ownership

Delaware Statutory Trusts (DST)

In the ever-evolving landscape of real estate investment, Delaware Statutory Trusts (DSTs) have emerged as a popular vehicle for savvy investors seeking passive cash flow and efficient portfolio diversification. For those engaged in a 1031 Exchange, DSTs offer a strategic way to defer taxes while accessing professionally managed real estate investments.

DST ownership not only reduces the burdens of property management but also opens the door to a broader range of opportunities across various property portfolios. Whether you're an established investor planning for the long term or someone transitioning from direct property ownership, DSTs provide a flexible, streamlined solution.

But what exactly is a DST, and how can it work for you? In this blog, we’ll delve into the unique benefits of DST ownership, answer common FAQs, and help you determine whether pursuing this route aligns with your financial and real estate goals.

What Is DST Ownership?

A Delaware Statutory Trust (DST) is a legally recognized trust established for the purpose of owning and managing real estate. It allows individual investors to hold a fractional ownership interest in a portfolio of income-generating properties, such as multi-family apartments, industrial warehouses, retail centers, and more.

As an investor, you purchase shares in the trust, enabling you to generate passive income from the properties without assuming daily management responsibilities. A professional sponsor or management team oversees the trust and its assets, handling all operational aspects from maintenance to tenant relations.

DSTs are particularly appealing for those participating in a 1031 Exchange, as they qualify as "like-kind" properties under IRS guidelines. This means investors can defer capital gains taxes by reinvesting proceeds from the sale of real estate properties into a DST.

In essence, DSTs offer a hands-off approach to real estate investment while retaining the potential for consistent cash flow and long-term appreciation.

Benefits of DST Ownership

DST ownership comes with compelling benefits that cater to a wide range of investors, particularly those looking for passive income or engaging in a 1031 Exchange.

1. Diversification Across Portfolios:
   Rather than putting all your eggs in one basket, a DST enables you to spread your investments across multiple properties in various geographical locations and asset classes, which can help mitigate risk.

2. Passive Cash Flow:
   Enjoy steady income distributions from rental properties without being bogged down by the typical burdens of property management, such as tenant issues, maintenance, or repair responsibilities.

3. Tailored Investment Amounts:
   With customizable investment sizes, DSTs allow you to fit your investment amount to your specific financial strategy, whether you're investing proceeds from a 1031 Exchange or other sources.

4. Efficient Escrow Closing:
   Investors can close escrow in as few as 1 to 3 days when transitioning into a DST investment, offering a seamless and timely reinvestment experience.

5. Strategic Long-Term Planning:
   DSTs provide flexible exit options, allowing you to hold investments for the long term or sell at a time that aligns with your overall financial strategy.

For many investors, these features make DSTs a uniquely convenient solution when compared to directly owning and managing individual properties.

Is a 1031 Exchange Into a DST Right for You?

Deciding whether a 1031 Exchange into a DST is the right move involves evaluating both your financial goals and your willingness to transition into a more passive investment structure. Here are some critical questions to consider:

• Are You Ready to Relinquish Management Control?
  DST investments are professionally managed, which means you won’t have direct control over property decisions. For some, this is a benefit, while others may prefer more hands-on involvement.

• What Property Are You Selling or Exchanging?
  Evaluate whether your current property qualifies for a 1031 Exchange. Residential, commercial, and investment properties typically qualify as long as they're "like-kind" to DST assets.

• Is Your Property Listed for Sale or Under Contract?
  Timing is critical when planning a 1031 Exchange into a DST. Ensure your property is listed, under contract, or close to finalizing escrow.

• Have You Identified a Qualified Intermediary?
  To comply with IRS guidelines, you'll need a qualified intermediary (QI) to facilitate your 1031 Exchange. Their role is essential in transferring sale proceeds and completing your transaction.

• Is There Debt Remaining on the Property You're Selling?
  DSTs can include debt structures, but matching debt in a 1031 Exchange requires careful planning. Consult with a financial advisor to assess obligations.

Evaluating these considerations will give you a clearer sense of whether a DST aligns with your financial and investment goals.

Key Considerations Before DST Ownership

Before committing to DST ownership, it’s important to assess a few key considerations:

• Tax Implications:
  DSTs qualify as "like-kind" properties under IRS Section 1031, but you’ll need to ensure compliance with specific timelines and reinvestment requirements.

• Professional Guidance:
  Employing a tax advisor, attorney, or financial consultant is critical to structuring your transaction properly and aligning your investments with your long-term strategy.

• Investment Objectives:
  Clearly define your goals—whether they include steady income, diversification, or tax deferral—before investing.

By addressing these considerations upfront, you’ll be better equipped to maximize the benefits of DST ownership.

Frequently Asked Questions Around DSTs

1. What kind of properties are included in a DST portfolio?
DST portfolios typically include income-generating properties like multi-family apartments, office buildings, industrial warehouses, retail centers, and even healthcare facilities.

2. What is the average return on investment for DSTs?
While returns vary by sponsor and market performance, investors typically see annual cash flow distributions ranging from 5% to 10%.

3. Is it safe to invest in DSTs?
DST investments are generally considered stable, but as with all investments, they come with risks. Proper due diligence and working with a reputable sponsor can mitigate potential risks.

4. Can you sell a DST investment anytime?
DSTs are not typically liquid investments. However, many offer flexible exit strategies after a certain holding period or allow investors to roll proceeds into another like-kind investment.

5. What are the typical fees involved?
Fees can include sponsor fees, acquisition fees, and operating expenses, which should be clearly outlined in offering documents.

Conclusion

Delaware Statutory Trust ownership provides an innovative opportunity for investors to diversify their portfolios, enjoy passive cash flow, and leverage the benefits of professional management. Whether you’re engaged in a 1031 Exchange or simply seeking a more hands-off investment approach, DSTs offer a flexible and efficient way to achieve your goals.

Ready to explore if a DST is right for you? Whether you're starting your journey or finalizing details, consult with a seasoned advisor to fully understand the opportunities and considerations.

Connect with our experts today for personalized guidance to learn more about leveraging the advantages of DST ownership.

This is for informational purposes only and does not serve as personal advice. Please speak to a qualified representative regarding your unique circumstances. Links within this blog are not associated to Cornerstone Wealth and are subject to change. Hyperlinks will take you to a third-party website whose content Cornerstone Wealth does not control. Investment advisory services offered through Cornerstone Wealth Group, LLC dba Cornerstone Wealth, an SEC registered investment adviser.