Delaware Statutory Trusts (DSTs) began in 2004 with the IRS Revenue Ruling 2004-86. Each DST is a separate legal entity and each investor receives “beneficial interests” in the DST or trust for IRS 1031 purposes.
DSTs are undivided fractional interest ownership in property. Delaware Statutory Trusts have a low minimum investment amounts and therefore create an ability to diversify your current rental property into multiple investments in different cities, states, and asset classes such as apartments and net lease retail.
Potential Benefits of DST investments include:
- Diversification
Investors can select multiple Delaware Statutory Trust (DST) properties as part of their 1031 exchange allowing diversification of asset classes, cities and level of needed non-recourse debt.
- Lower Minimum Investments
DSTs have lower minimum investments – often as low as $100,000 of equity. If you require a lower investment amount than the stated minimum, let your Corcapa 1031 representative know and we may be able to negotiate a reduction in certain circumstances.
- Potentially Lower Fees Than TIC Investments
Because a DST investment does not require a special purpose LLC entity that needed to be annually maintained and paid for they can potentially have lower fees in than TIC investments.
- Potentially Greater Cash Flow
The most common reason that investors select DSTs is for a potentially greater cash flow than they are currently receiving. Most DSTs have between a 4.00% – 5.50% projected cash flow based on the anticipated rental income less expenses. For example, if you invest $1,000,000 of equity into a DST with a 4.5% projected cash flow, this would provide a projected net annual income of $45,000. This could have a higher net cash flow than your current rental property. Note: with all real estate the income cannot be guaranteed because the rental income and expenses can increase or decrease unexpectedly.
- Non-Recourse Loans
Virtually all the loans within the DSTs that are approved by DAI Securities, LLC are non-recourse which means the investor does not personally guarantee them.
- Financing Access
Easier access to financing for investors needing debt on their replacement property and potentially quicker closings.
- Lower Risk
Investors like the pre-arranged DST programs so that some of their 1031 risk is removed.
- Larger Property Access
Access to Institutional Grade properties which are typically larger commercial properties that previously required significant capital to purchase.
For more information about Delaware Statutory Trust (DST) investments and 1031 tax-deferred exchanges contact Corcapa 1031 Advisors (949) 722-1031 or complete the contact form below.
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