Property investing is one of the best ways to build and sustain wealth. However, like any other investment, it’s not risk-free. From low liquidity to structural damage and bad tenants, investors must deal with several issues that can impact their ROI. Another issue with real estate investing is that it’s not for everyone due to the high cost of acquiring and maintaining properties.

However, in recent years, there’s been a rapid influx of innovative solutions to democratize investing and make it feasible for everyone, regardless of their market experience or budget. Among these solutions is Delaware Statutory Trusts, or DSTs.

DSTs offer a fractional ownership model similar to real estate investment trusts (REITs). However, investors must fractionally invest in properties with sponsors who manage their portfolios independently.

In this post, we’ll share how DSTs work and four things every real estate investor must know before investing in them.

How Delaware Statutory Trusts Work

DSTs are fractional assets owned by sponsors. Investors who invest in a DST buy a percentage of the property the sponsor purchased with their capital. The sponsors’ properties are held in a trust, hence the asset’s name.

Today, commercial and residential properties can easily cost hundreds of thousands of dollars. In contrast, DST investors can start with $100,000. The more they invest, the more fractional shares they can own, increasing their monthly cash flow and post-sale distributions.

Four Things to Know About DSTs

1. DST Transactions Are Much Faster than Traditional Real Estate Investments

Opting for traditional properties gives you little time to identify and close on a property. If you miss the deadline, you can’t qualify for a 1031 exchange and will be forced to pay capital gains tax by the IRS. DST transactions are faster and allow you to file the necessary paperwork and transfer properties quickly.

2. DSTs Provide Access to Institutional-Grade Properties

Traditional real estate investors can choose from various commercial and residential properties, including apartment buildings, houses, mobile homes, warehouses, office buildings, etc. One way DSTs stand out is that they offer access to institutional-grade properties as well, including full-service hotels, industrial parks, and Class A buildings.

3. DSTs Offer Estate Planning Benefits

Once you purchase a DST, you can legally place ownership interest into your trust and pass the property to heirs. Following your demise, your real estate assets held in the trust will automatically be transferred according to new owners as per their current value.

4. Sponsors Do Most of the Legwork

One of the core benefits of opting for a DST is convenience. Sponsors running DSTs add properties to their portfolios. You can choose multiple properties that pique your interest and seamlessly diversify your fractional asset portfolio. In other words, you can forego the legwork of finding investment properties on your own. Plus, you don’t have to worry about property management since it’s the sponsor’s job.

Wrapping Up

DSTs are a lucrative investment option for real estate investors. However, before purchasing them, you must do your due diligence to learn about sponsors, DST platforms, property types, and other essential details. DSTs are also susceptible to losses. So, even if you’re not spending as much as you would on a traditional property, you still need to be careful before splashing your cash.

For more interesting posts on real estate investing, tune into CHRE now. Feel free to explore our vast options of investment properties in Rio Grande Valley as well.