DST Education Series A Part 3: What are the Risks Associated with a Delaware Statutory Trust?

Welcome DST News! Our goal is to provide non-biased education and market information for Accredited Investors on DSTs. We hope to provide a Depth & Breath of knowledge for Investors About Delaware Statutory Trusts (DSTs)

Any investment with Real estate as the underlying asset has risk. Delaware Statutory Trusts utilized real estate so have the same inherent risks. The real estate drives the investment’s performance. Terms like illiquidity, economic risks, vacancy, rising interest rates and COVID related cause and effects, all add to the risk. These factors often increase the risk profile of real estate investments.

There are regulations surrounding DSTs that are not present in direct investment in real estate.  DST creations and offering include risk in acquisition, execution, and sale to eventual investors. There is also a fee structure that are different from traditional direct real estate or even REIT investments.  There are additional regulatory requirements of DSTs because of the execution risk. DST are not offered by Real Estate Brokers unless they have the necessary securities licenses. There are fees associated with DST offerings that may affect the overall performance. At first glance some point to the commission schedule that are disclosed in the Private Placement Memorandum (PPM). For example, there may be a 5% to 6% commission paid to broker / dealers. This may be compared to a seller of traditional real estate listing but the seller notifying a real estate agent that they will see their property but to get the real estate commission from the buyer. There is a noticeable difference in the DST structure.  Commissions are paid only on the equity that an investor pays for the property and not any financing that may be arranged. Think about that for a moment. When you purchase traditional real estate commissions are paid on borrowed funds.  That adds to the cost upon exit.  Typically, the rationale on taking on debt is to utilize leverage. Taking a deeper dive into other risk with DSTs are worth spending time, especially with regards to the impact on your investment. We will cover additional risks in future installments (such as the load, seven deadly sins, and other risks). For more information, please visit DSTNews.org.

Look for Part 4: The Economic Focus… Coming Soon

DST’s (Delaware Statutory Trusts) are for accredited investors only.  Contact your investment adviser for additional details on how a DST may be a solution to your 1031 Exchange and compliment your financial objectives. For more information on how to properly set up an IRC 1031Tax Deferred Exchange or if you are an accredited investor and would like additional information on a DST contact Al DiNicola at 239-691-8098 or email adinicola@namcoa.com. This is not an offer to purchase or solicitation to purchase any security, as such be made only through an offering memorandum or prospectus.  Investing in securities, real estate, or any investment, in any form, involves risk, including but not limited to the potential of losing some or all of your investment dollars when you invest in securities. You should review any planned financial transactions that may have tax or legal implications with your personal tax or legal advisor.   NAMCOA, LLC is a Registered Investment Advisor, regulated by SEC (Securities and Exchange Commission). Our corporate office is located at 999 Vanderbilt Beach Road, Suite 200, Naples Florida 34108. Securities Offered through MSC-BD, LLC, Member of FINRA/SIPC. 410 Peachtree Parkway Suite 4245, Cumming, GA 30041. MSC-BD, LLC and NAMCOA are independently owned and are not affiliated. 

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