5 Types of Investors Who Should NOT Do a Delaware Statutory Trust – Kiplinger’s Personal Finance

If you have found this article, you likely understand the many benefits that exist for real estate investors who exchange their property for DST, Delaware Statutory Trust fractionalized replacement interests.

Since 2004, when DSTs qualified for the 1031 exchange rules, those benefits include saving vast amounts of tax via the 1031 Exchange, preservation of the “step-up in basis” rule, moving away from loan guarantees, cash calls and the three T’s: TenantsToilets and Trash.

Delaware Statutory Trust 1031 investors buy into institutional-grade multifamily apartments, distribution facilities, medical buildings, office space, retail, national brand hotels, senior living, student housing, and storage portfolios. Subject properties are commonly over $100 million and far out of reach for smaller “do it all yourself” individual investors.

The peace of mind of a tax-advantaged cash flow distribution each month and the removal of all the headaches that go along with managing real estate make the DST a fabulous option for many real estate investors.

Although many people feel like the Delaware Statutory Trust may be the greatest thing since sliced bread, we would caution that rarely is one thing the best idea for everyone. The following is a list of five types of investors who should probably avoid the DST option.

1. Investors who are not yet accredited

Investors who have not yet built enough wealth and/or equity are prohibited from entering into a DST arraignment via Securities Regulation D, under the Accredited Investor Rules. This rule states that to invest in private placement investments one must have a net worth of over $1 million excluding one’s primary residence or income requirements  of at least $200,000 per year (for singles, or $300,000 for couples filing jointly) for the last two years.

For a greater explanation of those requirements, I highly recommend you sign up for my course, Master The 1031 Exchange. Below is a quick taste of what you can expect.

2. Younger wealth builders

Younger investors who are seeking a higher risk/return profile might not yet be ready for a DST solution.

Young wealth builders might be in a greater position to take on substantial risk and in turn reap the benefits of higher risk returns than what a more seasoned investor might be willing to do. Should those risks cause the younger investor to lose income or equity, the younger investor usually has more time to overcome such losses.

Generally, most DST investors tend to be more seasoned investors who have a few battle scars and life experience than that of younger investors.

3. Do-it-yourself types

Some investors have a personal preference for finding tenants, negotiating leases, …….

Source: https://www.kiplinger.com/real-estate/real-estate-investing/604423/5-types-of-investors-who-should-not-do-a-dst

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