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How Does A DST Investment Work?

DST stands for Delaware Statutory Trust, which is a legal entity that can be used as an investment vehicle in real estate. Here’s how a DST investment typically works:

  1. A sponsor (typically a real estate investment firm) identifies a property to be acquired and sets up a DST to hold title to the property.
  2. The sponsor then sells beneficial interests in the DST to investors, who become fractional owners of the property.
  3. The investors contribute funds to the DST in exchange for their beneficial interests. These funds are used to acquire and manage the property.
  4. The DST owns the property, and the investors receive a share of the income generated by the property, usually in proportion to their ownership percentage.
  5. The investors typically do not have any direct control over the property or its management, as that responsibility lies with the sponsor or a designated property manager.
  6. When the property is eventually sold, the proceeds are distributed to the investors based on their ownership percentage.

DST investments are often used in 1031 exchanges, which allow investors to defer capital gains taxes on the sale of investment property by reinvesting the proceeds in a similar property. DSTs can be a convenient way for investors to diversify their real estate holdings and potentially achieve greater returns than they might with other types of investments. However, like any investment, DSTs come with risks, and investors should carefully review the offering documents and consult with a financial advisor before investing.