As a real estate investor seeking to maximize return and manage tax obligations, you may be interested in Delaware Statutory Trust offerings if you examine options for fractional participation. Like Tenant in Common investments, Delaware Statutory Trust participations are accepted by the IRS to reinvest the proceeds from the sale of a property and defer the realization of capital gains taxes. This status means that you can use a 1031 exchange to enter into or exit from a DST. Unlike a TIC structure, in a DST, the ownership of the properties is held by the trust, and the investors are beneficiaries of the trust. TICs are limited to 35 investors, while DST organizations do not restrict the number of participants.
The DST is organized by a sponsor, usually a real estate firm that creates the investment opportunity for funding. The sponsor identifies, acquires, funds, and manages the DST property or properties on behalf of the investors. The DST sponsor often arranges for a master tenant to lease and maintain the assets the trust holds. This arrangement provides an advantage for the individual investor entering into a pre-packaged deal with due diligence and financing already completed.
There are advantages to the investor:
Investors should also be cognizant of the limitations inherent in the DST structure:
Prospective investors should be aware of the risks, and participation is limited to accredited investors (generally those with a net worth of over one million dollars, not including the primary residence or individual income over $200,000.) Always consult your tax advisor.
This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions.