When Delaware Statutory Trusts aka DSTs began (around 2004) the popularity grew as a replacement for Tenants in Common (TICs) investing. In future articles we can cover the many differences.
Updated Post: February 16, 2024
Original Post Feb 21, 2022
Welcome to DST News! Our goal is to provide non-biased education and market information for Accredited Investors. We hope to provide to provide a Depth & Breath of knowledge about Delaware Statutory Trusts (DSTs).
By Al DiNicola, AIF®, CEPA™
DST 1031 Specialist
NAMCOA® – Naples Asset Management Company®, LLC
Securities offered through MSC-BD, LLC Member of FINRA/SIPC
One of the major differences is the number of investors who could participate (TICs limited to 35 investors). Having a larger number of investors (potentially 499) provides for the acquisition of larger investment grade property. The potential benefits of a DST program are not restricted to §1031 exchange funds.
Direct cash investors may also choose to invest in a DST, which may provide the following potential benefits:
- Tax-deferral strategy: Once invested in a DST there are many opportunities that become available upon exit. Investors may utilize a §1031 tax deferred exchange or potentially a §721 UPREIT that may be part of the sponsors exit strategy. Both strategies will defer capital gains from the DST capital gains until a future date.
- Rental income paid monthly: most sponsors of DST will distribute proceeds monthly directly via ACH to the investor designated account.
- Ownership in institutional-quality real estate: Many smaller investors cannot purchase institutional quality real estate because of the barriers to entry, meaning the substantial down payment as well as qualifying for any loan or leverage to purchase the property.
- No management responsibilities/passive ownership: Many baby boomers may be responsible for the popularity of DST investment. The baby boomers would rather spend less time managing their real estate and more time engaged in other interests. However, even first-time investors are seeking a simpler real estate experience without property management.
- Build your own diversified real estate portfolio: The relatively small investment amount (some have a minimum of $50,000 for cash investors) required provides an easy way to diversify both geographically as well as asset class.
- An example of a $400,000 diversified portfolio may be four to six properties located in a variety of locations. Two multifamily properties in Texas, a self-storage facility in Florida, an industrial warehouse in Tennessee, and a multifamily property in Nevada. You may even throw in a senior living and student housing property.
- Depreciation of real estate can help to offset taxable income: Investing in any real estate provides potential writes off with a depreciation schedule (27.5 years for residential and 39 years for commercial). This also applies to DST. The depreciation recapture is currently at a rate of 25% upon the sale of the property unless the investor utilizes a §1031 tax deferred strategy.
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. 8215 SW Tualatin -Sherwood Rd, Suite 200 Tualatin, OR 97062. MSC-BD, LLC and NAMCOA are independently owned and are not affiliated.
