When you’re looking at your investment options, it’s important to be able to identify the right strategies to make use of your money. Beyond the various markets that you can invest in, there are specific vehicles and investment options that can offer specific advantages. When it comes to real estate, there are several worth looking into, and one that has been getting more attention as of late is that of the Delaware Statutory Trust. Here, we’re going to look at what it is, how you can use it, and what potential benefits it can offer to your investment portfolio.
What Is A Delaware Statutory Trust?
Also shortened as DST, a Delaware Statutory Trust is a legal entity used mostly for investing in real estate, allowing multiple investors to put their resources into a professionally managed property. This allows the DST investors to hold a fractional interest in the property while also benefitting from the protections offered by a limited liability company. Investors then have the right to receive money from the trust, be it from rental income or a portion of the eventual sale of the property. It allows investors to benefit from property investment gains without having to manage the properties themselves and is often used in conjunction with 1031 exchanges, which let investors defer capital gains taxes when selling a property, by investing the proceeds into a similar investment.
Types of DST Properties
DSTs can own and operate a wide range of properties, offering key potential for diversification in an investor’s real estate portfolio. However, given the nature of how they work, allowing investors to benefit from passive income gain, they are typically used to purchase property that offers rental potential. This includes multifamily apartment complexes, office buildings, industrial properties, retail spaces, and healthcare facilities, as well as hotels and self-storage units. Basically, if it has the potential for long-term recurring earnings, it’s usually a good potential purchase for a Delaware Statutory Trust. The variety of DST property types allows investors to tailor their portfolios to match their risk tolerance and financial goals.
How to Find DST Properties
There are several advantages to investing in DSTs, but finding the right opportunities is where you stand to make your money. Most investors find DSTs by working with the right experienced investors, such as registered investment advisors, real estate brokers, as well as firms that specialize in DST offerings. Most professionals who deal in DSTs have a portfolio of available properties for investors to put their money into, so you can decide which type of property investment you think best fits your own needs. As such, when choosing a DST to invest in, it’s a good idea to combine both the experience and track record of the sponsor offering the opportunity, as well as the potential earnings of the property itself.
Benefits: Tax Savings
Now that you hopefully understand what DSTs are, it’s worth a closer look at the benefits. Chief among them is the potential for tax savings, particularly through the use of a 1031 exchange. This is a method of reducing the tax that you might otherwise pay when selling a piece of property that could result in significant profit. It uses the profits of a business or investment property to buy a similar or “like-kind” property. They typically don’t apply for property for personal use but offer an efficient way for investors to transition in and out of passive income real estate investments. DSTs also have depreciation benefits that can offset taxable income by accounting for money lost to wear and tear over time.
Benefits: Income Potential
One of the investment options that best resembles a Delaware Statutory Trust is a real estate investment trust (or REIT) that similarly allows investors to pool their resources together in a central company that owns, runs, and finance income-producing companies. Much like REITs, DSTs have excellent passive income-producing potential. However, while REITs are actively managed by companies, DSTs are purely passive investments, requiring no decision-making from investors. Typically, you only need to decide what kind of property you want to buy into, as well as when to sell. Unlike stocks and bonds, which can be volatile, DSTs are backed by tangible real estate assets that generate rental income. Many DST properties have long-term leases with creditworthy tenants, ensuring steady income over the life of the investment.
Benefits: Access To Institutional-Grade Properties
While DSTs are not lower in cost than similar investments like REITs, they do still offer a very accessible means of getting a share of ownership in institutional-grade real estate that might normally be out of the reach of the average investor. Institutional properties, like large commercial buildings, healthcare facilities, and industrial warehouses, usually require you to raise significant amounts of capital to buy and the expertise to manage. Because you’re not buying them yourself and you’re not involved in their management, DSTs allow you to access these types of properties, which can often offer significantly more stable investments because of their high-quality tenants. The types of properties popular in DST investments often attract Fortune 500 companies, government agencies, and major healthcare providers.
Benefits: Low-Cost Investments
Although they are not the cheapest investments on the market, Delaware Statutory Trusts certainly do offer a cost-effective means of getting into the real estate market. By purchasing fractional ownership in a high-value property, you can drastically reduce the amount of capital you need to invest. Additionally, DSTs eliminate the costs associated with property management, as all operations are handled by professional managers. As such, you don’t have to spend as much on maintenance, repairs, and day-to-day management. They are passive investments, allowing you many of the benefits of having real estate on your portfolio without the work and financial burdens that are often associated with it.
If you’re looking for a relatively accessible way of getting on the real estate market, to generate passive income, and to add some diversity to your portfolio, a Delaware Statutory Trust is an option worth a closer look.
