Investors looking to grow their real estate portfolio may consider purchasing ownership in a Delaware Statutory Trust (DST). A DST strives to provide access to high-dollar commercial property for investors with minimal capital.
Explore the benefits of investing in a DST as a wealth-building strategy and the minimum investment needed to purchase a DST security.
What Is a Delaware Statutory Trust?
A Delaware Statutory Trust (DST) is a real estate investment strategy that gives accredited investors access to commercial properties that they may have difficulty buying on their own. DST properties include:
- Industrial facilities
- Commercial real estate, such as medical offices
- Large-scale apartment complexes
- Self-storage buildings
Typically, only institutional investors own these buildings, but a DST allows individual investors to purchase a fractional interest in the properties. Additionally, a DST helps investors pursue the potential benefits of tax-advantaged rental income without the hassle of managing the property themselves.
To invest in a DST, you must be an accredited investor as defined by the Security and Exchange Commission (SEC). You must meet one of the following criteria to qualify:
- Make an earned income of over $200,000 (or $300,000 combined with your spouse) for the past two tax years
- Report a net worth of more than $1 million
- Hold a valid Series 7, 65, or 82 securities license
Potential Benefits of Investing in a DST
A DST seeks to provide multiple benefits for accredited investors. These include:
Timely investment
If you buy into a DST with a 1031 exchange, the IRS requires you to act quickly. You must identify your like-kind property options within 45 days and close on the transaction within 180 days. Because a DST is a pre-packaged investment, you can meet these IRS deadlines and close on your DST interest in a short amount of time.
Access to high-dollar commercial properties
If you only have $100,000 to invest, you can’t obtain a high-value commercial property on your own. A DST lets you gain ownership over a portion of the property along with multiple other investors so you can pursue passive income and build your investment portfolio.
Passive income investment
A DST sponsor buys the properties, structures them into a DST, and handles day-to-day property management duties. As a DST investor, you may receive passive income from your interest. You don’t have to worry about managing the property; instead, you invest and let the passive investment pay off without further action on your part.
Minimum Investment Needed for a DST
Typically, you need at least $100,000 to invest in a DST gained through a 1031 exchange. This threshold is relatively minimal for real estate investing, particularly for high-value property interest owned in a DST.
In some instances, the DST sponsor may lower the investment threshold to $25,000 for cash investors. The DST sponsor is ultimately responsible for buying and managing the property and putting it together under a DST. This allows them to set the minimum investment amount based on the property’s market value, location, and other economic factors.
You may also find a lower investment threshold through DST resales. A DST resale occurs when the owner of a DST interest chooses to sell on a secondary market. They may sell their DST interest for less than the standard $100,000. Work with a broker-dealer to find and vet potential DST resale opportunities.
