DST (Delaware Statutory Trust) investments are a type of real estate investment that allows investors to pool their money to purchase a fractional interest in a property. The DST structure is often used in 1031 exchanges, which allow investors to defer capital gains taxes when selling one investment property and purchasing another.
Compared to other types of real estate investments, DST investments offer several advantages:
- Passive Investment: DST investments are passive investments, which means investors don’t have to actively manage the property. Instead, the DST sponsor manages the property and handles all the day-to-day responsibilities, including leasing, maintenance, and repairs.
- Diversification: With DST investments, investors can diversify their portfolios by investing in different types of properties, such as apartments, office buildings, or retail spaces.
- Access to Larger Properties: DST investments allow investors to access larger, institutional-grade properties that may be too expensive for individual investors to purchase on their own.
- Tax Benefits: DST investments can provide tax benefits, such as depreciation deductions, which can help offset rental income and reduce tax liability.
However, there are also some potential downsides to DST investments:
- Illiquidity: DST investments are illiquid, which means investors cannot easily sell their ownership interest in the property. The investment typically has a hold period of 5-10 years, and investors may only sell their interest if there is a secondary market available, which may have limited liquidity.
- Limited Control: As a passive investment, investors have limited control over the management of the property. The DST sponsor makes all the decisions, including leasing and tenant selection, which may not align with the investor’s preferences.
- Fees: DST investments typically come with higher fees than other types of real estate investments, such as REITs or direct ownership. Investors may be charged fees for the initial investment, ongoing management fees, and other expenses, which can reduce overall returns.
Overall, DST investments can be a good option for investors who want to diversify their real estate portfolios and access larger, institutional-grade properties without the hassle of active management. However, investors should carefully consider the potential downsides, including illiquidity, limited control, and fees, before investing.