Tenants-in-Common (TIC) and Delaware Statutory Trusts (DST) are both ownership structures that allow multiple investors to collectively own real estate. However, they differ significantly in management structure, investor participation, and flexibility, making them suitable for different investor needs and strategies.
Key Differences Between TICs and DSTs
Management and Control
Tenants-in-Common (TICs): TIC investors co-own a property, each holding a direct ownership interest, which allows for active participation in management decisions. This setup may require unanimous consent among co-owners for major decisions, potentially complicating operations due to differing opinions.
Delaware Statutory Trusts (DSTs): DST investors hold beneficial interests in a trust that owns the property, effectively making the investment passive. The trust sponsor manages all operations, reducing investor involvement but also minimizing decision-making burdens.
Number of Investors
Tenants-in-Common (TICs): The IRS limits TIC arrangements to a maximum of 35 investors, which can limit the scope and scale of investments if large capital is required.
Delaware Statutory Trusts (DSTs): DSTs do not have specific IRS-imposed limits on the number of investors, providing greater flexibility for raising larger amounts of capital from a pool of investors.
Financial Liability and Flexibility
Tenants-in-Common (TIC): Each co-owner is responsible for their proportionate share of the property’s liabilities and debts, and co-owners may need to be involved in loan processes.
Delaware Statutory Trusts (DST): DSTs are structured to mitigate direct liability for individual investors, as all financial obligations are handled through the trust structure. This setup allows investors to focus on potential income without the complexities of personal liabilities.
Frequently Asked Questions
What are the main advantages of DSTs compared to TICs?
DSTs provide a hands-off investment experience, relieving investors of daily management responsibilities. The structure allows a larger number of investors, making it easier to raise substantial capital while providing liability protection through the trust.
Can I exchange a TIC interest for a DST in a 1031 exchange?
Yes, both TIC interests and DST properties are eligible for 1031 exchanges. This facilitates property swaps while deferring capital gains taxes, enabling investors to transition between the two structures as their investment goals evolve.
How involved are investors in the daily management of these properties?
In a TIC setup, investors are directly involved in management decisions and often must reach consensus on major property-related decisions. In contrast, DST investors have no active role in property management, as the DST sponsor handles all operational tasks.
