When used properly, a Delaware Statutory Trust or DST can be an effective tool for building and preserving wealth. Like any real estate investment there are risks in investing in DST’s. However, when properly underwritten and diversified, DST’s can offer several advantages to investors seeking passive real estate income.
The most exciting advantage for most clients is eliminating the headache of actively managing properties. As a landlord, you are very familiar with the three T’s: tenants, trash, and toilets. After years of actively managing numerous properties, you find it tiring, time consuming, and cash flow draining.
Many investors are attracted to the passive investment strategy of a DST. Rather than cashing out of a property and incurring capital gains, the DST structure allows you to achieve tax deferral while generating projected monthly income. This strategic move eliminates the headache of the three T’s.
The second advantage many investors find appealing in a Delaware Statutory Trust is access to higher quality properties and property diversification. Diversification is usually the number one factor in determining investment outcomes. Based upon the low investment minimums of $100,000, DST investors can allocate their 1031 exchange proceeds to a number of different DST offerings. This broad diversification allows investors to essentially build personalized or customized DST portfolios designed to generate monthly cash flow through passive ownership.
The third advantage to a real estate investor is timing. You’ve often heard the phrase “being in the right place at the right time”. Oftentimes an investor intends to preserve his wealth in a 1031 exchange transaction. However, meeting the IRS-imposed timeframe of exchanging into a “like-kind, suitable property” within 45 days can be stressful. Depending on how tight the market is, investors often have difficulty finding a property that meets their investment objectives, particularly when faced with the required 45-day identification period.
Using a DST eliminates the worry of that by having institutional grade, pre-structured properties at your disposal, thus allowing you to maximize your 1031 exchange.
DSTs have numerous advantages and have been used for decades by astute investors. If your goal is to build and preserve your wealth while generating passive income, a Delaware Statutory Trust could be the right move for you.