Delaware Statutory Trusts (DSTs) are investment vehicles that can own a wide range of underlying assets, and as such, investors find themselves paralyzed by the choices, wondering which one will offer the best opportunities and minimal risks. Two areas that are commonly debated are suburban and urban DST investments. Which one is better? Which one is more suitable for your current needs and long-term goals?
There’s no straightforward answer, but Realized 1031 has shared the facts to help you gain a more in-depth understanding of what each option has to offer. Let’s take a closer look.
Recap of Delaware Statutory Trusts
DSTs are legal entities that own and manage income-generating assets. Through a DST 1031 transaction, investors can become a part of the pool and own fractional interests. By reinvesting all their proceeds from the sale of their relinquished property, they defer capital gains taxes and preserve their wealth for longer.
Apart from the deferral, the DST’s structure allows additional benefits. Only the sponsor has control over the underlying assets. As such, DSTs become a truly passive investment that offers hands-off involvement for investors.
DSTs can own a wide variety of properties across many sectors. However, some focus on specific types as part of the sponsor’s specialty. Knowing which to pick, whether a DST holding suburban or urban properties, becomes a major choice for investors. What does each option offer?
The Case for Urban DST Investments
DSTs focusing on urban investments usually own assets like retail stores, multifamily homes, or office buildings. Being in an urban location makes these assets prime real estate, with access to good infrastructure, public transportation, and higher population densities. Thanks to these characteristics, urban DST investments have the following advantages.
- High Demand: Real estate in urban locations often sees strong demand, especially mixed-housing and multifamily homes. This results in high occupancy rates and the possibility of higher rental rates.
- Diverse Tenants: Businesses and residents alike gravitate toward the conveniences of urban life.
- Potential for Appreciation: The limited supply of land, combined with the increasing demand in central locations, increases the value of properties and supports long-term growth.
What About a Suburban DST Investment?
Suburban investment strategies have gained significant traction in response to shifting lifestyle preferences. This trend became more apparent post-2020 as more people prioritized space, affordability, and work-from-home flexibility.
DSTs focusing on suburban real estate enjoy the following benefits.
- Lower Acquisition Costs: Thanks to the lower acquisition costs, there’s potential for higher yields.
- Tenant Stability: Suburban multifamily and net lease retail properties often attract long-term tenants seeking affordability and convenience.
- Demographic Shifts: As more and more people move to suburbs thanks to lower cost of living and job growth, occupancy and rental rates may go higher.
Delaware Statutory Trust 1031: Which Sector Is Best for You?
Given the varying benefits of either option, the best investment is one that meets your financial objectives, risk tolerance, and timeline. For example, those who are looking for rapid growth will find urban DSTs the better option. Investors who seek steady income and stability will find suburban properties more predictable.
The good thing with DSTs is that you can invest in both urban and suburban assets at the same time. DST portfolios are often diverse, and even if not, you can invest in two or more DSTs that hold urban and suburban properties.
Final Thoughts on Urban and Suburban Delaware Statutory Trust Investments
Choosing between urban and suburban DST offerings must be done with research and an understanding of your investment goals. Both have their unique advantages, so the ideal choice depends on your individual risk tolerance, desired income stream, and long-term investment horizon. If you have enough capital, you can enjoy the best of both worlds by investing in several DSTs.
Sources:
https://www.delawareinc.com/blog/what-is-a-delaware-statutory-trust/
https://www.census.gov/library/stories/2024/05/exurbs-city-population.html
