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Investing in a DST: Benefits and Risks You Need to Know

Published on: August 13, 2021

Are you interested in exploring new types of real estate investments? The Delaware Statutory Trust (DST) may be the perfect option for you. DSTs offer an array of benefits, including diversification and passive income opportunities – plus some investors are even able to defer taxes through 1031 exchange options. But with any kind of investment come risks, so it’s important to understand what a DST is as well as its advantages and potential drawbacks before investing your money. In this blog post, we dive into the nitty gritty details about DSTs: their use in past successes, how they can benefit retirees, the process of setting them up—and more.

Overview of DSTs and How They Work

Looking to diversify your investment portfolio? Consider a Delaware Statutory Trust (DST). These trusts offer investors the opportunity to invest in high-quality, income-producing commercial properties, such as apartment complexes, shopping centers, and office buildings, without the hassle and cost of managing the property themselves. With a DST, you own a percentage of the property and receive a proportional share of the rental income and any potential appreciation of the property value. Additionally, DSTs offer tax benefits, including the ability to defer capital gains taxes and depreciation recapture. Overall, DSTs are a flexible and convenient investment option that can help meet your financial goals. Whether you’re a seasoned investor or just starting out, consider adding a DST to your portfolio.

Benefits of Investing in a DST

If you’re looking for a way to diversify your investment portfolio, a Delaware Statutory Trust (DST) should be at the top of your list. By investing in a DST, you can enjoy a multitude of benefits including passive income, tax advantages, and the ability to invest in high-quality, institutional-grade real estate assets. Additionally, DSTs offer a hands-off investment approach, making it an appealing option for busy individuals who want to enjoy the financial rewards of real estate ownership without all the hassle. Overall, investing in a DST can be a smart move for those looking to generate long-term wealth and financial stability.

Tax Deferral & Asset Protection

When it comes to finances, two crucial strategies to consider are tax deferral and asset protection. By deferring taxes, you can postpone paying them until a future date, potentially allowing your investment gains to compound and grow even further. And protecting your assets ensures that your hard-earned wealth is shielded from potential lawsuits or creditors. These two tactics work hand in hand, as tax-deferred retirement accounts are often some of the most effective ways to safeguard your future. It’s never too early (or too late) to start thinking about these important financial tools, and working with a trusted financial advisor can help you develop a plan that fits your unique needs and goals.

No Management or Maintenance Responsibilities

Are you tired of dealing with the stress of management and maintenance responsibilities? Whether it’s fixing broken equipment or managing a team of employees, these tasks can often take away from valuable time and resources that could be spent on growing your business. That’s why opting for a no management or maintenance responsibility option might be the right choice for you. By outsourcing these tasks to a third-party provider, you can focus on what you do best – running your business. Not only will this save you time and money, but it will also allow you to invest your resources into other areas of your business that require attention. Say goodbye to the hassle of management and maintenance and hello to a more efficient and profitable business.

Risks of Investing in a DST

Investing in a DST (Delaware Statutory Trust) can seem like a tempting opportunity, but it’s important to consider the risks involved. One major risk is the potential for loss of principal investment. DSTs typically invest in real estate, which can be affected by market fluctuations and unforeseen events, such as natural disasters. Additionally, DSTs can carry high fees and expenses, which eat into potential returns. It’s crucial to thoroughly research and understand the specific DST before investing, including the sponsor’s track record, the property being invested in, and the potential for liquidity. While investing in a DST can offer passive income and diversification benefits, it’s important to approach it with caution and make an informed decision.

Higher Upfront Costs

Investing in something new can be a daunting experience, especially when it comes with high upfront costs. However, it’s important to consider the long-term benefits to your personal or professional goals. Think of it as an investment in yourself or your business; by making this initial financial commitment, you are laying the foundation for success in the future. You may also find that the high upfront cost is simply a reflection of the quality and value of the product or service you’re purchasing. Ultimately, it’s up to you to weigh the costs and benefits and make the best decision for your needs. Don’t let high upfront costs scare you away from something that could ultimately bring great gains.

Risk of Non-Payment by Tenants

As a landlord, it’s important to be aware of the risk of non-payment by tenants. Unfortunately, it’s not uncommon for tenants to fall behind on rent payments, leaving landlords in a difficult position. It’s essential to carefully screen potential tenants before signing a lease to ensure that they have a stable income and a good rental history. Additionally, landlords should have a solid rental agreement in place that clearly outlines the consequences of missed payments. In the unfortunate event of non-payment, landlords may need to consider legal action to collect unpaid rent or even eviction proceedings. While it can be tough to confront a tenant about non-payment, being proactive and taking the necessary steps to protect your rental income is crucial for any landlord.

Steps to Take Before Placing Money into a DST

Before placing your hard-earned money into a DST, it is crucial to take certain steps to ensure that you are making a smart and informed investment. First and foremost, do your research on the DST sponsor and the properties they are offering. Look for a sponsor with a solid track record and a portfolio of properties that align with your investment goals. Secondly, consider the tax implications of investing in a DST and consult with a financial advisor or tax professional to determine how your investment will affect your overall tax situation. Finally, don’t overlook the importance of due diligence. Thoroughly review the private placement memorandum and other legal documents provided by the sponsor, and actively seek out any red flags or potential risks. By taking these steps before investing in a DST, you can make a more confident and informed decision that aligns with your financial goals.

Research the Sponsor & Their Reputation

If you’re considering partnering with a sponsor, it’s essential to research their reputation. You want to align your brand with a sponsor that shares your values and has a positive image in the industry. A well-respected sponsor can not only provide financial support but also bring credibility and recognition to your project. Digging into a sponsor’s history can help you assess their track record of supporting causes or events similar to yours. You can also evaluate their behavior when things don’t go as planned. Don’t underestimate the impact a sponsor’s reputation can have on your own image. Do your due diligence and choose wisely.

Understand the Fees Associated with the Investment

One of the most important things to understand when delving into the world of investments is the fees involved. While fees may seem like a small concern in the grand scheme of things, they can add up and have a significant impact on your overall returns. As a savvy investor, it is imperative to do your research and understand the fees associated with any investment opportunity you are considering. This can involve digging into the fine print and asking questions of your investment advisor. By being aware of the fees, you can make better-informed decisions and maximize your investment returns. Remember, knowledge is power, and understanding the fees will help you become a more successful investor.

Strategies to Make Your Investment In a DST More Successful

If you’re considering investing in a DST (Delaware Statutory Trust), it’s important to have a solid strategy in place to increase your chances of success. One key strategy is to do your homework and thoroughly research the DST you’re considering investing in. This includes looking at the location, type of property, and the track record of the sponsor. It’s also crucial to have a clear understanding of the risks involved with investing in a DST, including the potential for fluctuation in property value and changes in tax laws. Building a diverse portfolio of DSTs can also help spread out risk and increase the likelihood of success. Don’t forget to consult with a financial advisor who has experience with DST investments to ensure you’re making informed decisions. With the right strategies in place, investing in a DST can be a smart move for your financial future.

Consider Adding Value-Add Components

Are you tired of constantly competing on price? It’s time to start considering adding value-add components to your business model. These components can be anything from providing exceptional customer service to offering free educational resources. By implementing value-added components, you can differentiate yourself from competitors and create loyal customers who appreciate the extra attention and effort you put into your business. In addition, value-added components can increase profitability by allowing you to charge a premium for your unique offerings. Don’t miss out on the opportunity to add value to your business and stand out in a crowded market.

Have an Exit Strategy Planned Ahead of Time

When it comes to business or any major decision in life, it’s always important to have a plan in place. That’s why having an exit strategy prepared ahead of time is crucial. While it may not be something you want to think about, having a plan for when things don’t go as expected can help save you time, money, and stress in the long run. By having an exit strategy in place, you’ll be better prepared to make swift and effective decisions in times of turmoil. Whether it’s a business venture or a personal investment, taking the time to develop an exit strategy is a smart move that will pay off in the end. Don’t wait until it’s too late- start planning your exit strategy today.

Investing in a Delaware Statutory Trust is an attractive option for those who want to diversify their portfolio while having access to the benefits of owning commercial real estate. It offers tax deferral, asset protection, and no maintenance or management responsibilities. While there are risks associated with any investment, taking time to research the sponsor and their reputation and understanding all of the fees associated with the investment can help set you up for success. Additionally, looking into potential value-add components and having an exit strategy planned ahead of time can increase your chances at financial success with a DST investment. With these tips, you have the resources and steps necessary to start building your wealth through a DST investment today!


Authored By:

1031 Investment Advisor

Nate oversees the daily operations, business development, and strategy for 1031 Exchange Place. He became interested in real estate from a young age due to his father's influence. After earning his real estate license at 18, Nate worked in the 1031 industry, focusing on business development through a unique white-labeling model. Following a religious mission in Taiwan, he continued in the industry until the 2008/2009 real estate crash. During the downturn, Nate pursued entrepreneurship and marketing, working with startups and outdoor companies. As the 1031 market recovered, he returned to work with his father, aiming to provide a more personalized experience for clients. Nate is passionate about outdoor activities and spends his free time with his wife and four sons, enjoying fly fishing, skiing, backpacking, rock climbing, and riding dirt bikes.