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Category Archives: DST Basics

Intro to Delaware Statutory Trusts

A Delaware Statutory Trust (commonly referred to as a DST) is, as the name suggests, a legal entity created as a trust under Delaware state law. A DST is created for real estate investment purposes, and is especially useful in a 1031 exchange. Under a DST, investors each own a pro rata share of the DST itself. The DST in turn holds title to various real estate interests, and distributes any income received from the properties (either through rental income or the sale of the property) to the investors in proportion to their ownership share in the DST. The DST, via its signatory trustee, makes all decisions related to any […]

The Basics of Delaware Statutory Trusts

A Delaware Statutory Trust (commonly referred to as a DST) is, as the name suggests, a legal entity created as a trust under Delaware state law. A DST is created for real estate investment purposes, and is especially useful in a 1031 exchange. Under a DST, investors each own a pro rata share of the DST itself. The DST in turn holds title to various real estate interests, and distributes any income received from the properties (either through rental income or the sale of the property) to the investors in proportion to their ownership share in the DST. The DST, via its signatory trustee, makes all decisions related to any […]

Comparing DSTs to TICs In A 1031 Exchange

When it comes to investing in real estate, many savvy investors understand the benefits of fractional or co-ownership arrangements. Less day-to-day management responsibilities, bigger and better investment properties become available to them, and they can diversify their investment portfolios beyond traditional single-owner properties. But when an investor is ready to make the leap from single-ownership property to either a Tenancy In Common (TIC) or Delaware Statutory Trust (DST), the investor may be confused with the differences between the two. Here is a quick side-by-side comparison to clear things up. DST Structure TIC Structure IRS Reference Rev. Ruling 2004-86 Rev. Procedure 2002-22 # of Investors 499 max. 35 max. Ownership interest […]

Why Consider Fractional Or Co-Ownership For Your Next Real Estate Investment?

When it comes to investing in real estate, there are many ways to do it. Most non-professional investors are familiar and comfortable with the single owner method. The investor finds and purchases a parcel of real estate with the intention to capitalize on the property’s appreciation in value. It is a very simple and direct way to enter into the real estate investment arena. However, fractional or co-ownership investments are also a popular option that many non-professional investors never consider. They should. Fractional and co-ownership interests in real estate allow you to acquire, together with other investors, larger, more secure, more profitable and potentially more stable real estate than an […]

Formation Of A Delaware Statutory Trust

Formation Of A Delaware Statutory Trust

Savvy investors understand that real estate ownership through a Delaware Statutory Trust brings unique benefits not found in other forms of investing that involves real estate. While many investors will simply participate in already-formed DSTs, some will choose to create their own. In either case, it is helpful to understand how such trusts are formed. Four key elements are required for a valid Delaware Statutory Trust. The Governing Instrument – This is the written documentation that specify the creation and internal affairs of the trust, as well as govern the conduct of trust activities. This must be in writing and executed on or before filing the Certificate of Trust. Certificate […]

Restrictions on Delaware Statutory Trusts

Although Delaware Statutory Trusts (DSTs) are a powerful way for investors to capitalize on securitized real estate, DSTs are not without limitations. IRS Revenue Ruling 2004-86 imposed some prohibitions on the power of the DST trustee. These prohibitions must be followed in order for the investors to be treated as acquiring a direct interest in real estate for tax purposes and thus qualify for 1031 exchange benefits. There are seven prohibited trustee activities. Once the trust offering is closed, no future contributions by existing or new investors is allowed. The trustee is prohibited from renegotiating any existing loan terms and can’t borrow new funds from anyone unless there is a […]

Financing Basics Of A Delaware Statutory Trust

With the advent of the Delaware Statutory Trust (DST), access to and participation in securitized real estate has been greatly simplified for many investors. In a DST, the trust owns 100% of the fee interest in the real estate and is the sole borrower. This usually results in very competitive interest rates, far more favorable than a single investor (or group of individual investors) may be able to obtain. There are several reasons why lenders find well-structured DSTs appealing. First, the DST sponsor usually has a solid property management reputation, which greatly enhances the likelihood that investment-grade real estate will be properly dealt with. Second, since the DST is bankruptcy […]

What is Securitized Real Estate?

For the non-professional investor, a phrase like “securitized real estate” may not be a familiar concept. However, it pays to learn about this type of investment, as it offers a unique set of benefits not found elsewhere. Securitized real estate is simply real estate that is packaged and sold as a security. As such, it is regulated by federal securities legislation which promotes fuller disclosure and provides more suitable investments. Traditional real estate investments have proven popular with investors because these type of investments provide straightforward tax advantages, regular monthly income, potential equity appreciation and portfolio diversification. Yet, these benefits are often offset by concerns that with real estate comes […]

Real Estate Options With A Delaware Statutory Trust

Real estate has always been an attractive option for investors for many reasons. Tax advantages, a steady stream of monthly income, potential equity appreciation and portfolio diversification are just a few of the reasons investors at all levels seek out attractive investment real estate. Yet these same investors also understand that the field of real estate is not as well-regulated and is far less transparent than the securities market. They also understand that investor-owned real estate requires much more day-to-day management than stocks or other investment options. So when securitized real estate investments became available, most commonly in the form of Delaware Statutory Trusts, it created an excellent opportunity for […]

How Does A Delaware Statutory Trust Work?

As the baby-boomer generation gets older, many older investors are seeking out more passive investment opportunities. They no longer wish to concern themselves with the day-to-day responsibilities of dealing with tenants and the issues that come from direct ownership of rental properties. This desire for passive investing is fueling greater interest in investment vehicles like Delaware Statutory Trusts (DST). With a DST, a trust is created as a separate legal entity under the laws of Delaware for the purpose of owning a 100% fee simple interest in real estate. The DST then invites investors to participate as beneficial owners of the property. A DST works by a real estate sponsor […]