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Delaware Statutory Trust (DST)

In A Delaware Statutory Trust Who Owns The Property?

Daniel Goodwin on Apr 8, 2022
In A Delaware Statutory Trust Who Owns The Property? - by Daniel Goodwin - Provident 1031 The Woodlands - Houston
Table of Contents
  1. What Is A Delaware Statutory Trust?
  2. Why Should You Invest In A Delaware Statutory Trust (DST)
    • DST Sponsors
  3. In A Delaware Statutory Trust Who Owns The Property?
  4. Should I Invest in a DST?

What Is A Delaware Statutory Trust?

A Delaware Statutory Trust (DST) is an ownership structure achieved through a separate legal entity (usually an LLC) that allows real estate investors to co-invest in a single asset. Besides their numerous benefits, DSTs are eligible for a property exchange under the Internal Revenue Code IRC Section 1031, granted by the IRS Revenue Ruling 2004-86.

This type of transaction allows individual investors to sell their existing investment property and use the proceeds to purchase a replacement property and defer capital gains tax — provided that both transactions are executed within a specified time period, generally 180 days with a 45-day identification rule.

Why Should You Invest In A Delaware Statutory Trust (DST)

Imagine you want to sell your rental property and invest in something that could provide you with reliable income while at the same time eliminating the hassles of negotiating new leases or dealing with unexpected expenses like a new roof or HVAC unit. Selling your real property and placing the proceeds in the bank may sound like a good plan. Still, you may be subject to income tax of up to 20%, net investment income tax of 3.8%, depreciation recapture of 25%, and state income taxes if applicable. You could give away a massive portion of your gains to the IRS without a tax plan or strategy.

In contrast, you may defer tax gains if you invest your sale proceeds in a DST, which allows you to co-invest with other beneficiaries in one or more institutional-quality DST investment properties. The formation of the Trust is done by DST sponsors (usually LLCs — limited-liability companies), who pool the money from smaller investors and invest it in a single, sizable real estate investment.

DST Sponsors

JLL - DST Sponsor
Cantor Fitzgerald - DST Sponsor - Provident 1031
Inland - DST Sponsor - Provident 1031
Carter Exchange - Sponsor - Provident 1031
Exchange Right - Sponsor - Provident 1031
Four Springs Capital Trust - Sponsor - Provident 1031
PASSCO - DST Sponsor - Provident 1031
Black Creek Group - DST Sponsor - Provident 1031
Capital Square - DST Sponsor - Provident 1031
NexPoint - DST Sponsor - Provident 1031
Blue Rock Value Exchange - DST Sponsor - Provident 1031

This structure offers numerous benefits, such as acquiring passive ownership in institutional-quality assets, minimum investments, and no renting/asset management responsibilities. It also helps diversify your investment portfolio and removes managerial hassles associated with property management since a DST sponsor is managing the property. Moreover, in today’s tight real estate market, a DST can provide a more reliable closing as DSTs can be more readily available.

Keep in mind DSTs are offered only to “accredited investors,” which generally means an individual or entity with a net worth apart from one’s primary residence in excess of $1,000,000, or an income of $200,000 if single or $300,000 for a married couple. In addition, certain exclusions apply to the IRS rules. Your DST firm associate will make sure you meet the IRS qualifications.

In A Delaware Statutory Trust Who Owns The Property?

Zero Coupon MI Office DST - Provident 1031- Houston - The Woodlands

DSTs are structured as a passive investment in which several DST investors hold an undivided, fractional beneficial interest in the holdings of the Delaware Statutory Trust. This means that you do not actually own a specific property, such as one apartment in an apartment building, but rather a fractional ownership in the property, which corresponds to your share of the Trust. These sometimes are referred to as “beneficial interests.”

For example, if you have a 13% fractional interest, you own 13% of the apartment building and, by extension, 13% of each individual apartment unit. Therefore, you are also entitled to 13% of the net profit generated by the rental property.

Should I Invest in a DST?

There’s a reason why accredited investors are moving in droves towards investing in Delaware Statutory Trusts. These include tax benefits, passive income, elimination of personal liability, and the ability to manage cash flow and transfer of wealth. In addition, DST offerings are an optimal investment vehicle for obtaining access to rentable multifamily and commercial real estate at a fraction of the price.

If you are interested in investing in Delaware Statutory Trusts or learning more, contact Provident 1031, where you can view Master The 1031 Exchange Masterclass video learning series on DSTs, 1031 Exchanges, and other investment properties. 

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There are material risks associated with investing in DST and QOZ ( Qualified Opportunity Zones) properties and alternative real estate securities including liquidity, tenant vacancies, general market conditions and competition, lack of operating history, interest rate risks, the risk of new supply coming to market and softening rental rates, general risks of owning/operating commercial and multifamily properties, short term leases associated with multi-family properties, financing risks, potential adverse tax consequences, general economic risks, development risks, long hold periods, and potential loss of the entire investment principal. Past performance is not a guarantee of future results. Potential cash flow, returns and appreciation are not guaranteed. IRC Section 1031 is a complex tax concept; consult your legal or tax professional regarding the specifics of your situation. This is not a solicitation or an offer to sell any securities. THIS IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES DESCRIBED HEREIN. AN OFFERING IS MADE ONLY THROUGH DELIVERY OF THE PPM and to accredited investors only. THIS MATERIAL MUST BE PRECEDED OR ACCOMPANIED BY A CURRENT PPM WHICH SHOULD BE READ IN ITS ENTIRETY IN ORDER TO UNDERSTAND FULLY ALL OF THE IMPLICATIONS AND RISKS OF THE OFFERING OF SECURITIES TO WHICH IT RELATES. Please consult the appropriate professional regarding your individual circumstance. Alternative investments are often sold by prospectus that discloses all risks, fees, and expenses. For additional information, please contact 281.466.4843 or www.Provident1031.com. Fee-based financial planning and investment advisory services are offered by Provident Wealth Advisors, a Registered Investment Advisor in the State of Texas, and the State of Louisiana. Insurance products and services are offered through Goodwin Financial Group. Provident Wealth Advisors, and Goodwin Financial Group are affiliated companies. Provident Wealth Advisors, LLC does not offer legal or tax advice. Consult the appropriate professional regarding your individual circumstance. Securities Offered through AAG Capital, Inc. Member FINRA/SIPC. The presence of this website shall in no way be construed or interpreted as a solicitation to sell or offer to sell investment advisory services to any residents of any State other than the State of Texas or where otherwise legally permitted. Important Notice - If you are investing in Alternatives your tax advisor may require you to file a tax return in the state where the subject property is located which could result in additional cost associated with your investment. Any additional expenses associated with any required tax filing are the sole responsibility of the investor/client.

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