3 Advantages of Using a Delaware Statutory Trust

When used properly, a Delaware Statutory Trust or DST can be an effective tool for building and preserving wealth. Like any real estate investment, there are risks in investing in DSTs. However, when properly underwritten and diversified, DSTs can offer several advantages to investors seeking passive real estate income.

1. Eliminating the headache of active management

The most important advantage for most clients is eliminating the burden of actively managing properties. As a landlord, you are very familiar with the three Ts: tenants, trash, and toilets. After years of actively managing numerous properties, many investors find it tiring, time-consuming, and cash-flow-draining.

Many investors are attracted to the passive investment strategy of a DST. Rather than cashing out of a property and incurring capital gains, the DST structure allows you to achieve tax deferral while generating projected monthly income. The DST sponsor takes on all property management responsibilities. Investors receive monthly distributions and annual tax reporting without any day-to-day involvement.

This passive ownership strategy eliminates the headache of the three Ts while keeping your capital working in income-producing real estate.

2. Access to higher-quality properties and true diversification

The second advantage many investors find appealing in a Delaware Statutory Trust is access to higher-quality properties and portfolio diversification. Diversification is typically the number one factor in determining investment outcomes.

Because DST investment minimums typically start at $100,000, investors can allocate their 1031 exchange proceeds to a number of different DST offerings. This broad diversification allows investors to build personalized or customized DST portfolios designed to generate monthly cash flow through passive ownership.

Because DSTs are pooled-equity structures, they provide access to institutional-grade real estate that individual investors could not typically purchase outright. A $1 million exchange can become fractional ownership in multiple properties across different asset classes, geographies, and sponsors instead of a single, concentrated bet.

3. Solving the 45-day identification timing problem

The third and often most underappreciated advantage is timing. You have often heard the phrase being in the right place at the right time. Investors using a traditional 1031 exchange strategy must identify and close on a replacement property within the IRS-imposed 45-day and 180-day windows. In competitive markets, that window is extremely short.

Using a DST eliminates much of that timing risk by having institutional-grade, pre-structured replacement properties available immediately. Because the DST is already formed and operating, investors can identify it within hours, and closing can take as few as three business days. This dramatically reduces the risk of missing the IRS exchange deadlines.

If your goal is to preserve wealth while generating passive income, a properly evaluated Delaware Statutory Trust may be the right structure for your 1031 exchange.