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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 firm (who also serves as the master tenant) first acquiring property and then opening up the DST to potential investors to purchase a beneficial interest. Investors may buy into the DST with either 1031 exchange proceeds or other financial resources. The DST then hires a professional manager to run and manage the property, freeing up the individual investors from this responsibility.