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  • Writer's pictureStephen Boatman

Can Delaware Statutory Trust Help During a 1031 Exchange?

Updated: Jan 22

What is a DST (Delaware Statutory Trust)?

"A Delaware Statutory Trust is a real estate ownership structure where multiple investors each hold an undivided fractional interest in the holdings of the trust. The trust is established by a professional real estate company, referred to as “DST sponsor”, who first identifies and acquires the real estate assets."

DSTs are popular because you can move assets from a real estate sale into them and qualify for a 1031 exchange. Using a DST (Delaware Statutory Trust) for a 1031 exchange can be a good option for some. But there are a few things to be aware of before traveling too far down this road.


Negatives:

  1. Less control than owning an asset outright means less room for creative problem-solving to increase your return or tax deductions.

  2. Illiquidity of the asset with typical holding periods being 5-7 years. This could make it more difficult to pursue another 1031 exchange in the future if that opportunity is available before your time horizon ends.

  3. Emergency exits could force you to heavily discount your sale price when exiting the DST. As opposed to a property you solely own that could be used as collateral for a loan, or refinanced for another investment opportunity.

  4. Possible fees attributed to the Trust manager.

Positives:

  1. It is a passive investment which means less time and effort is required from you.

  2. Illiquidity can influence you to be a buy-and-hold investor and remove the ability to move out of an investment in a fearful time.

  3. Access to more investment opportunities than you may currently be aware of.

Forbes discusses DSTs in more detail below

Delaware Statutory Trust







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