The world of 1031 exchanges can be intimidating, but when you add Delaware Statutory Trusts (DSTs) into the mix, it can feel overwhelming. However, these trusts can be a great option for investors looking to defer taxes and diversify their portfolios. In this post, we will cover the basics of delaware statutory trust 1031 so you can decide if they are right for you.
First off, what is a DST? A DST is a legal entity that allows multiple investors to own an undivided interest in a property. The trustee manages the property and distributes the income to the investors. DSTs are often used as a passive investment in commercial real estate, but they can also include other types of assets.
So, how do DSTs relate to 1031 exchanges? When you sell a property as part of a 1031 exchange, the proceeds from the sale must be reinvested into a like-kind property to defer taxes. DSTs are considered like-kind properties, so investors can use the proceeds from their sale to invest in one or multiple DSTs to defer their taxes.
One of the advantages of DSTs is their flexibility. They allow for fractional ownership, which means you can invest in a portion of a property rather than the entire property. This allows investors to diversify their portfolios and spread their finances across multiple properties to mitigate risks.
Additionally, DSTs offer passive ownership, which means the trustee handles most of the management and paperwork. As an investor, you simply collect your income distributions and receive periodic updates on the property.
However, it’s important to note that DSTs do come with some limitations. First off, investors cannot make any decisions regarding the property. The trustee makes all decisions on behalf of the investors. Additionally, the investment is illiquid, meaning it cannot be sold until the property is sold. Lastly, DSTs often come with high fees and commissions, so it’s important to thoroughly research and understand the costs before investing.
Conclusion:
In conclusion, DSTs are a unique option for investors looking to diversify their portfolios and defer their taxes through a 1031 exchange. While they offer passive ownership and fractional ownership, they also come with limitations such as illiquidity and high fees. As with any investment, it’s crucial to do your research and consult with a professional before making any decisions. Understanding DSTs can be daunting, but with enough knowledge, they can be a valuable addition to your investment strategy.
