Real estate investing, especially rental properties, can be very lucrative, even when only done as a side business. Those willing to invest a healthy amount into their rental properties can stand to build a strong, steady income for themselves. This can be advantageous during retirement when individuals are surrendering most of their income by giving up their day-to-day jobs.
Not every rental property is a cakewalk, however. Many can be very hands-on, management-wise, and keeping a demanding property up and running can feel like its own full-time job. So what’s a retiree or part-time real estate investor to do?
The answer: invest in a Delaware Statutory Trust property.
What Is a Delaware Statutory Trust Property?
Delaware Statutory Trust (DST) is a term that refers to a specific kind of investment property. A DST is a trust that allows fractional ownership of a property (or a collection of properties), particularly one with reliable cash flow.
It works like this: a property (or properties) that meets DST standards is acquired by a real estate sponsor. The sponsor then offers the DST property as an investment option to clients, who either purchase an interest in the trust itself or deposit their 1031 proceeds to become fractional owners in the trust. The trustee handles the management of the property, so all the investors need to do is collect their portion of the operating income.
What Are the Advantages of a DST?
There are several advantages to DST properties. First and foremost, DST properties provide a generally stable source of income without the need for hands-on involvement from investors. DSTs also limit the commitment of each investor to each other (unlike Tenants-in-Common) and protects the identity of each investor. Relative to owning conventional rental properties, a DST can provide also protects both the members of the trust with added protection and the managers from liability.
There’s also a lot less work involved with DST properties—the loans, due diligence, and negotiations have all been taken care of. A DST investment lacks complicated or stringent application requirements, and there’s no annual fee. Lastly, a DST isn’t taxed at the organization level, so there is no added tax liability due to the ownership structurestyr4cuture. es to t they’re a great alternative to corporations.
Who Benefits from a DST?
There are a few different investor demographics that benefit from a DST. First and foremost, as we’ve already mentioned, are the retirees that want steady cash flow without all the hassle. Reinvesting their proceeds from the sale of a previous property into a DST as a 1031 Exchange relieves them of the burden of management, while still allowing the investor to benefit financially.
Part-time investors also stand to benefit, as they already have a primary source of income (and a job to go with it). Adding a significant amount of workload to their schedule is not ideal, so the low-maintenance quality of DSTs provide an opportunity for them to invest without overburdening themselves with responsibilities.
Additionally, a DST benefits a small-scale investor that wants an opportunity to invest in a larger scale commercial investment but can’t afford it. Because a DST shares ownership among the members, no single member pays for the whole of the investment. So, it’s an excellent choice for those who like to dream big with a small budget. DSTs, like all real estate, has risks, and you should carefully consider all the risks prior to considering an investment.
Why You Should Use It as Your Backup
When you’re identifying properties for your 1031 Exchange, it’s important to keep DST investments in mind. They’re a safe, reliable option that works great as a backup, which often proves useful when you find out something undesirable about your first choice at the end of your 45 days.
So when the restaurant property or healthcare office you’re looking at shows signs of needing a roof replacement (which the previous owners failed to mention), you have an option that doesn’t involve paying capital gain taxes.
When you’re ready to start looking for a new property for your 1031 Exchange (perhaps even a DST property), contact First Guardian Group. First Guardian Group can help you with the whole 1031 Exchange process from start to finish, taking much of that time limit-induced pressure off your decision. And with a selection of DST investment properties to choose from, we can make finding your next investment much easier. Use FGG Services for your 1031 Exchange today.
BIO : Paul Getty
Paul Getty is a licensed real estate broker in the state of California and Texas and has been directly involved in commercial transactions totaling over $2 billion on assets throughout the United States. His experience spans all major asset classes including retail, office, multifamily, and student and senior housing.Paul Getty’s transaction experience includes buy and sell side representation, sourcing and structuring of debt and equity, work-outs, and asset and property management. He has worked closely with nationally prominent real estate brokerage and investment organizations including Marcus Millichap, CB Richard Ellis, JP Morgan, and Morgan Stanley among others on the firm’s numerous transactions.Paul Getty also maintains a broad network of active buyers and sellers of commercial real estate including lenders, institutions, family office managers, and high net worth individuals.
Prior to founding First Guardian Group/FGG1031,Paul Getty was a founder and CEO of Venture Navigation, a boutique investment banking firm specializing in structuring equity investments made by institutions and high net worth individuals. He possesses over 25 years of comprehensive worldwide business management experience in environments ranging from early phase start-ups to multi-billion dollar corporations. His track record includes participation in IPOs and successful M&A activity that has resulted in investor returns of over $700M.
Paul Getty holds an MBA in Finance from the University of Michigan, graduating with honors, and a Bachelor’s Degree in Chemistry from Wayne State University. He is a member of Institute of Real Estate Management (IREM), a Certified Property Manager Candidate (CPM), and a member of the US Green Building Council.Paul Getty holds Series 22, 62, and 63 securities licenses and is a registered representative with LightPath Capital Inc, member FINRA /SIPC .
Paul Getty is a noted speaker, author, and actively lectures on investments and sales and management related topics. He is author of The 12 Magic Slides ,Regulation A+: How the JOBS Act Creates Opportunities for Entrepreneurs and Investors , and Tax Deferral Strategies Utilizing the Delaware Statutory Trust (DST), available on Amazon and other retail outlets.
This material is not intended as tax or legal advice so please do speak with your attorney and CPA prior to considering an investment. This material contains information that has been obtained from sources believed to be reliable. However, FGG1031, First Guardian Group, LightPath Capital, Inc., and their representatives do not guarantee the accuracy and validity of the information herein. Investors should perform their own investigations before considering any investment. There are material risks associated with investing in real estate, Delaware Statutory Trust (DST) and 1031 Exchange properties. These include, but are not limited to, tenant vacancies, declining market values, potential loss of entire investment principal.
Past performance is not a guarantee of future results: potential cash flow, potential returns, and potential appreciation are not guaranteed in any way and adverse tax consequences can take effect. 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. All financed real estate investments have a potential for foreclosure. Delaware Statutory Trust (DST) investments are commonly offered through private placement offerings and are illiquid securities. There is no secondary market for these investments. Like any investment in real estate, if a property unexpectedly loses tenants or sustains substantial damage, there is potential for suspension of cash flow distributions. Costs associated with the transaction may impact investors’ returns and may outweigh the tax benefits.
IRC Section 1031, IRC Section 1033, and IRC Section 721 are complex tax codes; therefore, you should consult your tax and legal professional for details regarding your situation. Securities offered through registered representatives of LightPath Capital, Inc. Member FINRA / SIPC. FGG1031, First Guardian Group, and LightPath Capital, Inc. are separate entities.
DST 1031 properties are only available to accredited investors (generally described as having a net worth of over one million dollars exclusive of primary residence) and accredited entities only (generally described as an entity owned entirely by accredited individuals and/or an entity with gross assets of greater than five million dollars). If you are unsure if you are an accredited investor and/or an accredited entity, please verify with your CPA and Attorney prior to considering an investment. You may be required to verify your status as an accredited investor.