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.