Investors who purchase interests in Delaware Statutory Trusts receive fractional shares of pre-packaged investments they likely wouldn’t be able to access as solo investors.
DSTs can offer many potential benefits, such as access to quality real estate assets, third-party management, non-recourse loans, and the potential for capital appreciation and property depreciation. Investors can pursue portfolio diversification with hands-off investments tailored to the exact proportions needed to satisfy 1031 exchange like-kind requirements, or any other investment strategy.
Investors have asked if there are ongoing annual fees associated with Delaware Statutory Trusts. We tackle that question below in an overview of common DST fees.
Delaware Statutory Trust Fees
One small piece of good news is that the State of Delaware does not charge any ongoing fees once a Delaware Statutory Trust is formed. However, like most real estate transactions, there are numerous fees associated with Delaware Statutory Trusts, and each trust can have a different fee and commission structure because those costs are calculated by the Sponsor and are affected by the value and nature of the underlying investment properties within the trust.
While there are many different fees associated with a DST, the majority are baked into the offering. Initial legwork, such as identifying and acquiring the properties within the trust, as well as sponsor commissions and any other costs associated with putting the trust offering together and distributing it to investors, are commonly built into DST investments.
Additionally, common real estate transaction fees such as financing, legal, title, escrow, appraisal, and loan origination, are included in the load on equity for DST investments so investors won’t have to come out of pocket for additional expenses once the offering closes. There aren’t any additional capital calls with DSTs, either, since the capital required to service the trust throughout its lifetime is raised upfront.
These costs are comparable to fees incurred when buying or selling real estate in a traditional sale. However, investors do not have to secure financing or service ongoing debt like traditional real estate investments.
Any other ongoing DST fees, such as an annual maintenance fee, are at the discretion of the different online platforms that act as registered representatives to connect investors to DST sponsors. Some platforms charge a one-time, flat fee for their services, while others connect investors to DST offerings on a commission basis. There are no licensing, maintenance, or other annual filings required by the State of Delaware.
The Bottom Line
Like other types of real estate investments, there are many different fees associated with Delaware Statutory Trusts. These include common sale expenses such as legal, title, and escrow, as well as DST sponsor commissions, marketing, and other costs. Unlike other common real estate ownership structures, though, there are no annual fees required to maintain a DST once it’s established in the State of Delaware.
While some of these sales costs may be tax deductible, investors still should carefully evaluate the net costs of all DST expenses against expected capital gains and tax advantages to determine the potential advantages and benefits of investing in a Delaware Statutory Trust.
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. It should also not be construed as advice meeting the particular investment needs of any investor. Consult with your tax advisor regarding your individual circumstances. No public market currently exists and one may never exist. DST programs are speculative and suitable only for Accredited Investors who do not anticipate a need for liquidity or can afford to lose their entire investment. Costs associated with the transaction may impact investor's returns and may outweigh the tax benefits. The actual amount and timing of distributions paid by programs is not guaranteed and may vary. There is no guarantee that investors will receive distributions or a return of their capital. Diversification does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk. All real estate investments have the potential to lose value during the life of the investment. The income stream and depreciation schedule for any investment property may affect the property owner's income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities. TIC properties employ professional asset and property management, so while TIC co-owners vote on major issues, they do not have direct say over day-to-day property management situations.