Only about 33% of Americans consider real estate to be the best long-term investment. This is down sharply from a record 45% last year.
You can still find excellent opportunities for real estate investment if you know where to look. One option you may consider is a Delaware statutory trust. The structure of these trusts offers advantages you may not find in other real estate opportunities.
Learn more about Delaware statutory trusts and how they can align with your investment goals.
What Is a Delaware Statutory Trust?
Delaware is one of the few states to have a statutory trust law instead of relying on common law trusts. A Delaware statutory trust (DST) is a type of real estate ownership structure for investors.
First, a professional real estate company identifies and acquires the real estate. This company is the DST sponsor that will also establish the trust. Then, investors purchase an undivided fractional interest in the holdings of the trust.
A DST is a longer-term investment. You must typically hold your share for five to seven years. Depending on the property, it could be sold in as little as three or as many as ten years.
Trustees vs Beneficial Owners
Trustees and beneficial owners are the typical parties in a Delaware statutory trust. A trustee holds the legal title but must follow the terms of the trust agreement. A beneficial owner holds equitable ownership and is bound to follow the terms of the trust agreement.
At least one trustee must be a resident of Delaware. Common methods for fulfilling this requirement are:
- Naming a Delaware trust company as a trustee
- Forming a Delaware corporation to act as trustee
The trust document doesn’t need to be submitted to any authority in Delaware for approval.
Investor Criteria
You must be an accredited investor to buy into a DST. The Securities and Exchange Commission (SEC) defines an accredited investor as an individual with at least $1 million in net investable assets or who earned at least $200,000 in each of the two previous years.
The minimum investment in a DST is typically $100,000.
Advantages of a Delaware Statutory Trust
A Delaware statutory trust can be a smart addition to your financial plan for many reasons. Delaware trust benefits range from favorable tax treatment to short real estate closings. You could enjoy regular monthly distributions from a fully passive investment opportunity.
Tax Benefits
A Delaware statutory trust can have tax benefits depending on your situation. One of the main DST advantages is that it can be eligible for a 1031 exchange. A 1031 exchange can help you defer taxes from the sale of an investment property.
In a conventional sale of an investment property, you would need to pay a significant amount of capital gains tax. However, you can defer these taxes if you purchase a similar property with the proceeds of the sale. A DST qualifies for a tax-deferred 1031 exchange because it is considered direct property ownership for tax purposes.
The DST property you purchase must be of like-kind to what you sold. The rules are broad, though. You can exchange almost any kind of investment property for another investment property.
Short Closing Time
The time to close a Delaware statutory trust transaction is usually three to five days. The DST sponsor has already purchased the property in the trust, so buying a beneficial interest goes more quickly.
A short closing time is important if you’re doing a 1031 exchange. You must close on a new property within 180 days after selling the old one.
Fully Passive Investment
A Delaware statutory trust is a fully passive real estate investment. The DST sponsor handles the daily responsibilities for the property. You don’t need to deal with tenant issues, property maintenance, or other operational tasks.
Investor Privacy
The structure of a Delaware statutory trust protects your privacy as an investor. The certificate of trust for a DST lists only the name of the trust and the Delaware-based trustee. The beneficial owners can remain private.
The terms of the trust agreement don’t need to be disclosed either.
Portfolio Diversification
A Delaware statutory trust gives you fractional ownership. You can access larger, higher-value properties that might otherwise be out of reach for an individual investor.
Almost all types of commercial properties can be held in a DST, such as:
- Office
- Retail
- Multifamily
- Industrial
- Senior housing
- Medical offices
- Self-storage facilities
Fractional ownership makes portfolio diversification easier. A single DST may own several properties, or you can invest in more than one DST. You can invest in properties in different economic sectors and geographical areas.
How to Find DST Properties
A Delaware statutory trust is like a prepackaged real estate investment opportunity. The DST sponsor finds and analyzes the property. They complete the necessary reports and inspections, like the appraisal and property condition report.
The sponsor closes on the property. All the relevant documents are ready for your review before you make an investment decision.
The DST sponsor offers the property to investors through independent brokers. Real estate brokers must have the right securities licenses to help you invest in a Delaware statutory trust. SEC regulations prevent some DSTs from being marketed directly to the public.
You need a specialized agent to help you find DST properties.
Evaluating a DST within Your Investment Strategies
A Delaware statutory trust has many benefits as part of your investment strategies. You can use a DST to defer taxes through a 1031 exchange. Other DST advantages include short closings and a passive investment model.
The structure of a Delaware statutory trust allows you to maintain your privacy as an investor. Portfolio diversification is easier as well.
You need the right partner to help you find DST opportunities and decide if they’re a good fit for your goals. Miser Wealth Partners specializes in the needs of high-net-worth investors. Our unique approach combines legal, tax, and investment experts on your team.
We have the capability to diligently analyze DST sponsors and offerings to find the best options for your unique situation. Schedule a discovery meeting with Miser Wealth Partners today to learn how our planning and insights can deliver a premium outcome.
