Delaware Statutory Trust: Utilizing DSTs in a 1031 Exchange - Video Mini Course

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Enjoy real estate investing but looking for a less time-intensive way to invest? A DST is a great way to save time and energy for an investor.

In this new video mini course series, David Moore of Equity Advantage welcomes guest and DST expert Robert Smith of Paragon Private Capital to talk through the ins and outs of this type of investment! “You’re not going to live forever, so you might as well start enjoying it now. Let someone else change the light bulbs and collect the rent.” – Robert Smith.

New to DSTs and not quite sure what they are? Click the toggle to find out.

What Is a Delaware Statutory Trust?

A Delaware Statutory Trust is simply a separate legal entity created under the laws of Delaware to hold title to one or more income producing commercial properties. This can be any type of commercial property; apartments, retail space, office buildings, industrial parks, etc. And much like a REIT (Real Estate Investment Trust), an individual DST may hold title to multiple properties at one time. However, to use a DST in a Section 1031 syndication program, it must comply with the requirements of IRS Revenue Ruling 2004-86 and must also (if the DST’s property is debt financed) meet lender requirements. To satisfy these requirements, each of our DSTs must:

Be a Special Purpose Entity (SPE);
Be bankruptcy remote; and
Be a very passive holder of real estate, with minimal trustee powers over the operation of the DST’s real estate, and no powers over the DST or its real estate at all in the hands of the DST’s beneficiaries.

Unlike a TIC transaction, there is no need to set up individual single member limited liability companies (SMLLC) for each investor. Each investor owns a beneficial interest (BI) in the DST, which shields the investor from any liabilities with respect to the property. This ownership arrangement is much simpler than a TIC arrangement for investors to understand, and saves the investors substantial money with respect to the formation costs and annual fees.

There are also substantial governance differences between a TIC transaction and a DST transaction. Unlike a TIC transaction, which requires the investors vote unanimously for all major decisions, a BI holder in a DST is not permitted to vote. This eliminates the concern over the “rogue investor.” Because there is a single borrower — the DST — and not 25 or 30 separate SMLLC borrowers as in a typical TIC transaction, there should be no need for the sponsor to have to collect, or for the lender to have to review, investor tax returns, financial statements, and credit authorizations.

In addition, because the investors have no role whatsoever in the management of the DST or its real estate, the investors should not be required to execute any nonrecourse carve out indemnifications or guaranties. Basically, a DST is just a way to invest that takes away the need of daily work required in property upkeep. It is appealing to many investors looking to retire or just enjoy more of their lives for themselves.

To learn even more about the different investment directions that you can take, check out the Equity Advantage Video Library and subscribe to the Equity Advantage YouTube channel for more 1031 Exchange educational videos.

Utilizing the DST in an Exchange

Okay landlords, we have given you lots of compelling reasons for exchanging out of your left coast properties for a more user-friendly environment in the sunbelt/red states. However, you may be asking yourself: How does this all work? Get the latest DST discussion from Bob Smith of Peregrine Private Capital.

DSTs, Inflation, & the Gotcha Moment

In this video we are talking about the elephant in the room that people are denying right now: Inflation. We have been telling investors for over a year now that inflation is coming and they had best prepare for it. But that “Gotcha” moment just hasn’t happened yet. In an environment like this, it is nearly impossible to overestimate the importance of operating assets in an income property portfolio.

Is the Sky Falling? 2021 & the DST

With volatile political climates and record breaking real estate transaction numbers, it is clear that investors have taken the Biden tax proposals to heart and are making their moves to secure Exchanges while they can. Tune in as Bob Smith of Peregrine Private Capital and David Moore talk the current DST market and what is to come.

What Is a DST & Why Invest in One?

To use a DST in a Section 1031 syndication program, it must comply with the requirements of IRS Revenue Ruling 2004-86 and must also (if the DST’s property is debt financed) meet lender requirements. Get these requirements and more from the expert: Robert Smith of Peregrine Private Capital.

Check out Peregrine Private Capital’s YouTube channel to keep up with more real estate investment knowledge and advice, and if you’re looking to secure your investments for the future, give the experts at Equity Advantage a call today! 503-635-1031.