Delaware Statutory Trusts (DSTs) are a popular form of investment vehicle for real estate investors looking for a passive, low-risk way to diversify their portfolio. DSTs are used in 1031 exchanges, which allow investors to defer capital gains taxes by reinvesting the proceeds from the sale of a property into another like-kind property. In this guide, we’ll discuss the pros and cons of investing in a Delaware Statutory Trust.
Passive Investment: One of the main advantages of investing in a DST is that it is a passive investment. The trustee manages the trust, so investors do not have to worry about day-to-day operations or decision-making. This makes DSTs a great option for busy investors who do not have the time or expertise to manage properties themselves.
Diversification: DSTs allow investors to diversify their portfolio by investing in multiple properties without having to purchase them outright. This spreads the risk across multiple properties and reduces the impact of any single property’s underperformance on the overall investment.
Tax Benefits: DSTs are often used in 1031 exchanges, which allow investors to defer capital gains taxes on the sale of a property by reinvesting the proceeds into another like-kind property. This can result in significant tax savings for investors.
Professional Management: DSTs are manage by professional trustees who have the expertise and experience to manage the trust effectively. This can lead to better returns and less risk than if investors were to manage the properties themselves.
Limited Control: One of the main disadvantages of investing in a DST is that investors have limited control over the investment. The trustee makes all the decisions, including property management, leasing, and financing. Investors have no say in these decisions and must trust the trustee to act in their best interest.
Illiquidity: DSTs are illiquid investments, meaning that they cannot be easily sold or exchange for cash. Investors must hold the investment for the entire life of the trust, which is typically between 5 and 10 years.
High Fees: DSTs typically come with high fees, including management fees, trustee fees, and other expenses. These fees can significantly reduce the overall return on investment, and investors should carefully consider the fees before investing.
Limited Availability: DSTs are only available to accredited investors, meaning investors must meet certain income and net worth requirements. This limits the availability of DSTs to a small subset of investors.
DSTs can be a great investment vehicle for real estate investors looking for a passive, low-risk way to diversify their portfolio. However, investors should carefully consider the pros and cons before investing in a DST and should consult with a financial advisor to determine whether a DST is the right investment for their individual needs and goals.
The Impact of the Delaware Statutory Trust on the State
The Delaware Statutory Trust (DST) has had a significant impact on the state of Delaware in several ways. Here are some of the key impacts of the DST on the state:
Economic Growth: The DST has been a major driver of economic growth in Delaware. According to a report by the Delaware Division of Corporations, over 2,000 DSTs have been formed in the state, with a total asset value of over $90 billion. This has created a significant number of jobs and generated significant tax revenue for the state.
Reputation as a Business-Friendly State: The DST has helped to cement Delaware’s reputation as a business-friendly state. Delaware is already known for its favorable business laws and tax policies. And the DST has further enhanced the state’s attractiveness to businesses and investors.
Increased Investment in Real Estate: The DST has also had a significant impact on the real estate market in Delaware. Investors are attracted to DSTs because of their tax benefits and passive investment structure. Which has led to increased investment in real estate in the state.
Increased Demand for Professional Services: The formation and management of DSTs require a range of professional services, including legal and financial services. This has led to increased demand for these services in the state, further contributing to the state’s economic growth.
In conclusion, the Delaware Statutory Trust has had a significant impact on the state of Delaware, driving economic growth. Enhancing the state’s reputation as a business-friendly state, increasing investment in real estate, and creating demand for professional services.