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March 17th, 2017 by Paul

WHAT IS A DST AND WHAT BENEFITS DOES IT PROVIDE?

The Delaware Statutory Trust or DST is an ownership structure that allows investors to acquire fractional interests in larger properties with full 1031 Exchange tax benefits including flow through of depreciation and expense write-offs to increase after-tax income. The DST is managed by a Trustee who is responsible for all major decision making and who also typically is the sole borrower on the property. The DST ownership structure offers the following benefits for owning real estate including:

  • Most DST programs offer attractive monthly income, often starting at 4-6% per year, and income can often be sheltered from taxes through using depreciation and interest deductions
  • Lenders offer attractive non-recourse financing
  • Lenders do not require financial disclosures or loan carve-outs from the individual investors and instead look solely to the financial strength of the Sponsor/Trustee of the DST and the underlying quality of the real estate
  • Since DSTs allow for a larger number of investors (up to 499) investment minimums can be as low as $25K for cash investors
  • Ongoing costs to investors are less since individual investors are not required to establish and maintain Special Purpose Entity (SPE) LLCs
  • Since the DST Sponsor/Trustee assumes all loan liability through the holding cycle, their interests are better aligned with the investors as compared to Sponsors of a TIC investment
  • With rare exceptions, investors are not subject to future capital calls
  • A significant advantage of a DST structure is that the unanimous approval of the individual owners is not required to reach decisions on critical matters – so decision making is much more efficient
  • Under Delaware law, DST investors do not have personal liability. Thus, DST investors have no liability for repayment of the loan or for any actions or liabilities associated with the property
  • A wide range of loan-to-value (LTV) options are generally available and offerings can be mixed and matched to meet equity and debt requirements of the 1031 Exchange

Paul Getty

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