A Delaware Statutory Trust (DST) may provide an alternative investment if you buy real estate properties to pursue passive income. Purchasing ownership in a DST can offer you income and the potential to bolster your investment portfolio.
Learn about ways to invest in a Delaware Statutory Trust (DST) and whether you can transfer public stock into a DST ownership.
What Is a DST?
A Delaware Statutory Trust (DST) is a pre-packaged trust that allows you to invest in commercial property that you may not have the means to acquire without partner investors. Typically, you must invest at least $100,000 in a DST.
You gain access to commercial properties through a DST that insurance companies or pension funds often own. This investment approach allows you to pursue a passive monthly income that properties like industrial buildings, commercial real estate, and large apartment complexes have the potential to offer.
Ways to Invest in a DST
If you are considering an investment in a DST, you have three options. Buy-in methods include purchasing interests from a DST sponsor or acquiring the DST interest through a 1031 exchange or a DST resale.
A DST Sponsor or their affiliate acts as the Trustee of a DST. They buy commercial real estate and structure it into a DST to offer interests to accredited investors. You can work with a broker-dealer to find a DST Sponsor and buy fractional interests in the DST.
If you own an investment property, you can perform a 1031 exchange, also called a like-exchange. Although you must follow specific IRS guidelines, you can invest in a DST property as a replacement in this type of exchange. Guidelines include the 200% rule, 95% rule, and three property rule.
- Three-property rule - you must identify three properties that can replace your existing investment.
- 95% rule - you can choose more than three properties for the exchange, but you must obtain a minimum of 95% of the value of those properties.
- 200% rule - the fair market value of the identified properties cannot exceed 200% of the value of your sold property.
- 45-day identification - you must formally identify the DST or DSTs within 45 days.
- 180-day exchange - you must close on the DST purchase within 180-days.
Can You Transfer Public Stock to a DST?
Unfortunately, there is no way to transfer public stock to a DST. You must sell your public stock to gather funds to purchase ownership in a DST. Selling your publicly traded stock positions can get you the liquid capital you need to purchase interests in a DST, but you’ll generally have to pay taxes on the sale of these assets.
However, a financial or tax advisor may be able to provide strategies that can help manage the taxes on the sale of these assets.