If you’re considering trading in your landlord duties for hands-off investments, our team at Diversified Investment Strategies would like to fill you in one of your options, a Delaware Statutory Trust, or DST. We hear common questions about DSTs and the 1031 exchange process, so here we’ve answered a few of these most common questions.
How does a DST work?
When you use a 1031 exchange to invest in a Delaware Statutory Trust, the DST owns the property or properties, and you own an interest of the DST, along with other investors. The size of the DST you own is in direct proportion to the amount you invest into it. For tax purposes, each owner of a DST receives depreciation expense deductions in proportion to the interest they own in the DST.
What are the benefits of a DST?
By investing in a DST, you will no longer have any hands-on landlord duties on a property. A DST is completely hands-off, allowing you more time to enjoy what you’d like in life. It also allows for diversification, as you can invest in numerous properties. It also allows for more revenue, as you can invest in properties that you would likely not be able to afford on your own. Purchasing a DST through a 1031 exchange may be a simpler and quicker process than a sole ownership purchase. Owners of a DST are shielded from liabilities, so the maximum pre-tax loss is equal to the amount you invested in the DST. A mortgage borrower does not require individual guarantees with a DST. There are many others! Read more about the benefits of a DST on our website.
What is the benefit of a 1031 exchange?
By exchanging your investment property in for a DST through a 1031 exchange, you can defer paying capital gains and depreciation recapture taxes. The owners of a DST may also complete a 1031 exchange when the property is sold.
What are the downsides to a DST?
As an investor in a DST, you must be completely passive in the ongoing operations of the property and any investment decisions. There is no secondary market for DST beneficiary interests, and substantial restrictions may apply to the transfer of DST beneficial interests. Contact our team for more information about DSTs.
Are there minimums or maximums to invest into a DST?
These vary for each offering, but typically, the minimum is $100,000 for 1031 exchange investors and $25,000 for non-1031 investors. Maximums depend on the size of the investment.
If you have questions about DSTs or 1031 exchanges that weren’t answered here, give our team at DIS a call! We can help answer your questions and guide you through the 1031 exchange process. Give yourself the fourth quarter you deserve. Give up toilets, trash and questionable tenants and trade them in for more time to travel, play golf and relax! You’ve earned it. Give us a call to discuss your investment trade-in options!