Perks of DST Investment
Delaware Statutory Trust
A Delaware Statutory Trust or a DST is a private governing trust responsible for buying, managing, administering, and selling real estate properties. DSTs are formed by filing a Certificate of Trust with the Delaware Division of Corporations and governed by Chapter 38, Part V-Title 12 of the annotated Delaware Code. DST investors enjoy fractional ownership in large institutional-grade properties. The amount of profit that a DST investor earns is directly proportional to their investment.
Salient features of a DST
- Unlike TICs where the number of investors is limited to 35, there is no limitation on the number of investors a DST could possess. A DST may have a hundred or even more investors
- Due to its large structure, a DST investment may start from as low as $100K
- DSTs enable small investors to acquire large institutional-grade properties along with other investors, which otherwise they may not be able to purchase individually
- DST investors don’t have voting rights
- 1031 exchange investors can invest their proceeds into a DST and complete their exchange
- Accredited investors can invest in DSTs with the help of a real estate broker or agent
- DST investors don’t receive the title to the property
Perks of DST Investment
The seven limitations of DST investment
It’s evident that DST investors enjoy a lot of benefits that an individual real estate investment may not provide. However, like any other investment, DSTs also have a few limitations or drawbacks.
- No new contribution – A DST can’t receive contributions from its current or new beneficiaries once the offering is closed.
- No renegotiation on existing terms – The trustee can’t renegotiate the terms of the existing loans. Neither can it borrow new funds from any lender.
- Limitation on the reserves – Any cash held during distribution dates can only be invested for paying off short-term debts.
- Can’t reinvest the proceeds – The trustee isn’t allowed to reinvest the proceeds obtained from the sale of its real estates.
- No extra reserves – It’s mandatory that all cash held during the distribution dates, other than necessary reserves, is distributed among the beneficiaries on a current basis.
- No new leases – The trustee isn’t allowed to enter into new leases.
- Limited capital expenditure – The trustee is only allowed to make limited capital expenditure pertaining to (a) normal repair and maintenance (b) minor non-structural capital improvements, and (c) those required by the law.