DST.EDU Series A- Part 10: Why Invest Cash in DSTs?

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.