A Delaware Statutory Trust – DST– is an option for a 1031 exchange. They are fit for investors who are seeking out replacement properties, and they have the potential for monthly income without the day-to-day of landlord responsibilities. A DST allows a number of investors to hold fractional interest in a trust. Like all investments, they have their pros and cons. Here are a few:
PROS
- A DST allows you to invest in a rental property without having to maintain it.
- With a DST investment, you are still provided the potential diversify and invest into a number of properties.
- By exchanging through a 1031 exchange, you can potentially defer the capital gains taxes – if done correctly.
- Once your DST property is sold, you can reinvest in another DST – once again deferring taxes.
- A DST investment can convert an active investment into a passive one.
CONS
- You cannot be involved in either the operations or investment decisions on the property. Instead, you have accept the decisions the trustee makes.
- DSTs are illiquid investments. Investors should plan on holding the investment for the entire term.
- You can’t inject additional capital into the existing DST nor raise additional financing. And any money needed for repairs, maintenance, etc., will have to come from reserves, which can impact the return on investment. For other restrictions see our article Seven Deadly Sins of DSTs.
We’re here at Diversified Investment Strategies to help you decide if this is an investment strategy you’d like to take on. We maintain an inventory of DST offerings that we can share with you. Contact us for advice.
Diversified Investment Strategies represents a team of experienced and trusted professionals specializing in real estate investment and services – including buying, selling, leasing, retirement planning and wealth growth and management through strategic, informed investment choices and a meticulous real estate investment analysis. As knowledgeable replacement property professionals, they help clients build a customized strategy that identifies suitable investments pursuing successful completion of a 1031 Tax-Deferred Exchange. Visit them at www.diversified1031 or call 866-261-0104.
There are material risks associated with investing in DST properties and real estate securities including liquidity, tenant vacancies, general market conditions and competition, lack of operating history, interest rate risks, the risk of new supply coming to market and softening rental rates, general risks of owning/operating commercial and multifamily properties, short term leases associated with multi-family properties, financing risks, potential adverse tax consequences, general economic risks, development risks, long hold periods, and potential loss of the entire investment principal. Past performance is not a guarantee of future results. Potential cash flow, returns and appreciation are not guaranteed. IRC Section 1031 is a complex tax concept; consult your legal or tax professional regarding the specifics of your particular situation. This is not a solicitation or an offer to sell any securities. 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 three years) 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.
Diversified 1031 does not offer legal or tax advice. Please consult the appropriate professional regarding your individual circumstance.
Securities offered through Concorde Investment Services, LLC (CIS), member FINRA/SIPC. Diversified 1031 is independent of CIS.