A Delaware Statutory Trust (DST) is a legally recognized trust that is used for investment, especially in real estate. The DST is a unique entity established under the laws of the state of Delaware, USA. In the real estate investment industry, DSTs are often used in a 1031 exchange, which is a method for deferring capital gains tax on real estate sales by reinvesting sale proceeds into a “like-kind” property.
The structure of a DST allows for investors, also known as beneficial owners or trust beneficiaries, to have fractional ownership in a property. Each investor owns an undivided interest in the entire trust and its underlying assets. This can be beneficial for investors because it can provide access to institutional-grade properties that they may not have been able to invest in individually.
The DST is managed by a trustee, which is typically a company that specializes in managing DSTs. This trustee makes all decisions regarding the property, including when to sell the property, and also takes care of all the obligations related to the property, such as maintenance, insurance, and taxes.
From the perspective of an investor, DSTs can offer several advantages. First, they provide a way to diversify one’s real estate portfolio. Second, they offer potential cash flow from rents or potential gains from property sales. Finally, through a DST, an investor can indirectly own real estate without the need to manage it, as these responsibilities are handled by the trustee.
However, it’s important to note that investing in a DST also carries risk, including illiquidity (as the secondary market for DST interests can be limited), reliance on the trustee to manage the property effectively, and the potential for loss of capital if the property decreases in value.