We’ve written about 1031 exchanges before. What if you want the tax deferral of a 1031 exchange without the headache of a replacement property you must manage? After call, wouldn’t it be great if you could get the tax deferral of a 1031 and a passive investment? A 1031 exchange utilizing a Delaware Statutory Trust (DST) might be your answer.
What is a DST?
A DST is a legal entity created under the statutes of Delaware to hold the title to a single or multiple income producing commercial properties. DSTs can own office buildings, apartments, retail spaces, industrial parks, as well as other types of property.
Like a Real Estate Investment Trust (REIT), a DST normally holds title to several properties. The goal is for the properties to appreciate and produce income that is shared among the DST sponsor and the owners of the DST. The investor’s interest in the DST is called a “beneficial interest,” and this interest entitles the investor to his or her pro-rata share of appreciation and income of the DST’s assets.
Why would I invest in a DST?
Perhaps the most attractive thing about a DST is the owner’s passive participation in the trust. Contrasted with the active management that normally comes with investment property, DSTs allow an investor to own income producing investment property without having to actively manage it. DSTs also have other benefits, some of which are:
Liability protection: DSTs provide liability protection to the investors. In other words, personal assets of the investors held outside the DST are shielded from the DST’s liabilities.
Low minimum investment: DSTs usually have relatively low minimum investment requirements, making DSTs an option for even “mom and pop” property investors.
Diversification: DSTs can own property in many different regions and across various asset types.
Non-recourse loans: DST investors are not normally required to execute indemnities or loan guarantees.
The attorneys at Skeeters, Bennett, Wilson & Humphrey can decades of experience handling real estate transactions. We will make sure your transaction is structured properly, from the drafting of your purchase contract through closing of your exchange and replacement properties. If you would are considering a §1031 exchange, schedule an appointment with one of our real estate attorneys today.