The Delaware Statutory Trust (DST) has been making a comeback during these turbulent economic times. A DST is similar to a Tenant In Common (TIC) investment with just several key differences. In this blog we will take a look at DSTs and how they differ from the more publicized TIC investment concept.
Technically a DST is a separate legal entity created as a trust under Delaware Statutory law that qualified under section 1031 of the IRS code. The DST owns 100% of the fee simple interest in the real estate and permits up to 100 investors (sometimes more). The DST is supported legally by IRS Revenue Ruling 2004-86 and qualifies as a tax-deferred exchange. The real estate sponsor firm who organizes and manages the deal generally serves as the master tenant and the investors of the DST own a beneficial interest in the trust which owns the underlying real property.
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DST |
TIC |
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Investors: |
Up to 100+ investors for accredited* investors |
Up to 35 investors for accredited* investors |
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Ownership: |
Beneficial Ownership Percentage |
Undivided Fractional Deed/Title |
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Active/Passive: |
Passive – no voting rights |
Passive – equal voting rights |
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1031 Exchange: |
Yes (or direct) |
Yes (or direct) |
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Minimum: |
Lower – $100k min. |
Avg. min. – $300k – $400k |
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LLCs: |
No need – no fee for LLCs |
Required to be formed for each investor – annual fee |
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Financing: |
Lender does not underwrite each investor |
Lender does underwrite each investor |
Securities offered through Pacific West Securities, Inc. – Member FINRA/SIPC
*Accredited Investors (Individuals = net worth in excess of $1 million and/or annual income of $200,000. Accreditation for entities = total assets of $5 million and/or each entity member must be an accredited investor as an individual.
This material is neither an offer to sell nor the solicitation to purchase any security. The information is for discussion and information purposes only. It is not intended to replace competent legal, tax or financial planning advice. The applicable tax codes apply to and relate to federal law only. Individual states may have their own additional tax codes. Please contact the appropriate tax and legal professional in your state. This information is provided from sources believed to be reliable but should be used in conjunction with professional advice that is consistent with your personal situation.
Article Author:
Grant ConnessGrant has written 6 articles for us.
Visit Grant's Website: http://www.1031alternatives.net
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