1031 EXCHANGE PROCESS EDUCATION

How Does A Delaware Statutory Trust (DST) Work?

First, an investor must acquire a "like-kind" property. Like-kind properties can include office buildings, multi-family complexes, hotels, retail centers, industrial warehouses, tenant-in-common (TIC) interests, and Delaware Statuary trust (DST) interests, just to name a few. Generally, any property that is held for an investment can qualify, but it is important to remember that the new asset value and debt on the replacement property, along with the cash invested in it, most be greater than or equal to that of the relinquished property.

The potential benefits of a 1031 DST Exchange

If exchangers can meet the requirements for a 1031, they potentially benefit from tax deferral, build wealth, potential growth in the underlying value of exchange properties, as well as the monthly income generated from operational cash flow.

Taking it one step further with Delaware Statuary trusts

Exchangers can utilize properties held within a DST as a like-kind replacement property. DSTs are established under Delaware state law, set up as separate legal entities, and created as trusts, qualifying them under Section 1031. Unlike other exchange options, DSTs have the potential to offer additional advantages.

Greater access

DSTs may include up to 1,999 investors, which may lower investment minimums

Regular distributions

DST earnings and proceeds above reserve amounts must be distributed on a regular basis

Opportunities for diversification

Similar to other private real estate offerings, including tenant-in-common (TIC) interests, DSTs allow exchangers to split their investments among multiple DST properties, potentially mitigating risk

Lower potential default risk

DSTs have one real estate borrower and owner, which may lower an investment's default risk

No management responsibilities

DSTs leave the management and decision-making responsibilities to a team of professional and experienced managers

No stress over exchange deadlines

DSTs can close very quickly, lowering concern of missing transaction deadlines

However, like all investments, DSTs carry risks that exchangers must understand. DSTs require a lengthy time commitment and are designed for investors who can commit to a long-term investment of seven to ten years and do not require liquidity from the 1031 investment. Additionally, as with any real estate investment, exchangers are subject to the potential for high vacancy rates and loan default

DSts may not be suitable for investors who want to continue managing their properties.

Dsts may not be suitable for investors who want short-term investment. DSTs are design for a holding of 2 years or more