How Does a DST Work?

A Delaware Statutory Trust allows investment of $100,000 minimum from a 1031 exchange and $25,000 for cash investors. Investors must be accredited, demonstrating a high net worth.

The Trustee manages the investment, as well as the properties, removing the burden of property management from its investors.

DSTs also allow investors to diversify their investment across multiple properties, rather than putting all their eggs in one proverbial basket of real estate. 

The icing on this cake, to mix idioms, may be liability protection, as well. The DST shields the investor from any liabilities with respect of the property.

For every property involved in the DST, each state that the property resides in will have its own tax laws to consider. But as property investment goes, a DST has many desirable advantages – including the ability to take a long vacation without fielding calls for clogged toilets.

When should you not invest in a DST?

Do you need more liquidity?

DSTs are not a liquid investment, and there is no credible secondary market for the resale of DSTs. Ensure you have sufficient liquidity before investing here. If not, a better investment may be a Qualified Opportunity Zone, which allows for the basis and capital gains to be separated. The basis may be kept in a safe liquid account, rather than investing it in the DST.

Are you looking for a quick return?

DSTs are considered suitable for conservative investors, and are not “get rich quick” schemes.  However, there is some risk here and they are not recommended for younger investors still working to amass their wealth. 

Are you not an accredited investor?

Investors in DSTs must be accredited investors, holding at least $1 million in net worth excluding their primary residence, or an income stream of at least $200,000 per year for singles, or $300,000 for couples filing jointly, for at least the prior two years, with exceptions.

Would your business benefit or lose?

Developers and construction company owners may benefit more greatly from a 1031 exchange. They can use their own company to build their new replacement property, benefiting their company and their investment. 

These tax deferral tools are complicated and require significant expertise to realize the benefits and avoid the pitfalls. Planning Network Partners is dedicated to examining this and other opportunities as part of a larger picture of your whole financial health. 

Contact Us for expert assistance.