What does DST stand for in Real Estate?
A Delaware Statutory Trust (DST) is a structure commonly used in Real Estate investing, particularly for those looking to defer capital gains taxes through a 1031 exchange under U.S. tax law. It’s formed under Delaware law, which is known for its flexible and investor-friendly regulations, and operates as a separate legal entity. In a DST, investors can purchase fractional ownership interests in high-quality, institutional-grade properties—think apartment complexes, office buildings, or industrial facilities—that might otherwise be out of reach for an individual buyer.
Here’s how it works: instead of owning and managing a property directly, investors buy into the trust, which holds title to the Real Estate. The DST is managed by a trustee, relieving investors of the day-to-day responsibilities like maintenance, tenant issues, or operational decisions. This makes it a passive investment, appealing to those who want steady income without the headaches of being a landlord.
A DST investment has some benefits over the original TIC property structure:
- Reduced Stress: DST property investors can receive guaranteed passive income for up to 25 years or longer without worrying about vacancy, property management, leaky roofs, clogged toilets, taxes or insurance.
- Decreased Risk: Many tenants of DST properties are multi-billion dollar companies that pay their rent like clock-work.
- Higher Returns: Enjoy longer lease terms, lower vacancy rates, appreciation, and higher return on investment.
- More diversification options are available during the 45-day identification period: The minimum investment per DST is only $100,000. Thus, a $1,000,000 exchange can invest in as many as 10 different DSTs, providing excellent diversification.
- The DST automatically shields the investors from liability: There is no need for the creation or maintenance of limited liability companies.
The big draw is the 1031 exchange perk. Normally, when you sell an investment property, you’d owe capital gains tax on the profit. With a 1031 exchange, you can reinvest those proceeds into a “like-kind” property and defer the tax. DSTs qualify as like-kind investments, so investors can sell a property they own, roll the proceeds into a DST, and keep their money working without an immediate tax hit. Plus, since DSTs often involve diversified or stable assets, they can offer predictable cash flow through rental income, paid out as distributions.
We love helping investors take the next step. Please don’t hesitate to call us – we have 1031 Specialists ready to answer your questions just one phone call away at (949) 328-6744.