A Quick Guide to DSTs
A Legally Recognized Business Trust
A Delaware Statutory Trust, referred to as a DST, is an effective and judicially secure legal entity that allows investors to participate in potentially higher-grade real estate investments they otherwise might not be able to afford. A DST sponsor company acquires and maintains various types of real estate and packages them as securities used to hold title to investment real estate. In modern investments, DST structures vary and qualify as different types of trusts or investment conduits—but this wasn’t always the case. To fully understand a DST and its significance, one must understand its history.
Establishment and Evolution of DSTs
The state of Delaware influenced more than the name of a DST, but its entire composition. The concept of a business trust had been around for centuries, but in modernizing common law, Delaware was the first state to legally recognize statutory trusts when it passed the Delaware Statutory Act in 1988. Since, statutory trusts are separate from their trustee(s), they are recognized as their own legal entity. However, it took nearly 75 years for a DST to evolve into its most current concept. Below is a short timeline of significant events.
Delaware Statutory Trust Basics
Investors can potentially benefit when a DST is used correctly in real estate planning. Though DSTs have their pros and cons, by deferring capital gains taxes, DSTs potentially help investors build and maintain wealth through real estate investment opportunities, including:
Avoid the Three Ts: DSTs offer the opportunity for passive income streams, and therefore the opportunity to avoid active real estate positions and their (often unpleasant) demands, such as managing and maintaining tenants, toilets, and trash (i.e. Beneficiaries are exempt from landlord duties; allows passivity to investors; no management responsibility).
Access to Long-Term NNN Properties: Depending on the property, triple net leased (NNN) properties offer investors a long-term income stream potential without the responsibility of a lease renegotiation. DSTs potentially offer investors access to these types of properties with no active day-to-day management either.
Non-Recourse Debt vs. Recourse Debt: An investor's liability to the lender is potentially limited through a DST because most DST debt is non-recourse; a loan that adds an extra layer of safety and only seeks the property itself rather than the investor’s other assets in the event of a default. DSTs have varied amounts of leverage.
Diversification* Into Smaller Amounts: With a DST, investors can potentially avoid concentrating risks on one DST property, and instead can distribute the risk to multiple assets. This means Investors have access to institutional-grade real estate for smaller dollar amounts.
*Diversification does not guarantee profits or protect against losses.
1031 Exchange with a Delaware Statutory Trust
One of the most beneficial aspects of a DST lies within a 1031 exchange. In order to defer Capital Gain Tax upon sale of a piece of investment real estate, investors may utilize a 1031 exchange, replacing the relinquished property with “like-kind” investment property. A DST qualifies as a like-kind property for a 1031 Exchange according to IRS ruling 2004-86.
DST 1031 Exchange Properties
With a Delaware Statutory Trust, a property will qualify for a like-kind exchange property for a 1031 exchange according to the IRS revenue ruling 2004-86. This allows an investor to diversify the exchange proceeds, being that the typical minimum investment for a DST property is $100,000. Additionally, there’s the potential to better satisfy an investor’s exchange requirements by leveraging various ratios.
Kay Properties & Investments, LLC has years of experience and has helped hundreds of clients invest in DST real estate. When you’re ready to pursue a 1031 exchange into DST investment properties, speak with our trusted experts to learn how your family can potentially enjoy their benefits.
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Trusted by Customers Nationwide
It was a pleasure working with Dwight Kay and his company this past year on my 1031, DST exchange. Everything has worked as Mr. Kay said it would and the checks arrive at the same time each month. As I do more 1031 exchanges in the future I look forward to working with Dwight Kay and Kay Properties with a DST to defer my taxes on the sale. Richard V., Hotel Developer & 1031 DST Investor – Overland Park, KS
Debbie and I received a beautiful basket of goodies and wine from you and Kay Properties. It was not expected but very much appreciated and will be put to good use as we host a big super bowl party 🙂 When you called the other night to tell us that everything was in place with our investments, it was very comforting to hear that considering this was our first experience doing a DST. Will look forward doing some more in the future and I have been passing on your info to people who might have an interest in doing one themselves. Enjoyed working with you and lets keep in touch.Jon and Debbie E. – Maple Glen, PA
I want to thank you for the amazing service you have provided in my 1031 DST purchase. I appreciate your patience with all our questions and quick response to every concern. It has been a pleasure to work with you… C. E. - Dayton, MD
I appreciate very much your assistance in making the purchases. I hope to do more business with you in the future as I have several more properties on the market. I have also counseled other family members and friends about your services so you can expect more business in the future. R. N. - Thurston County, WA
These testimonials may not be representative of the experience of other clients. Past performance does not guarantee or indicate the likelihood of future results. These clients were not compensated for their testimonials. Please speak with your attorney and CPA before considering an investment.
About Kay Properties and www.kpi1031.com
Kay Properties is a national Delaware Statutory Trust (DST) investment firm. The www.kpi1031.com platform provides access to the marketplace of DSTs from over 25 different sponsor companies, custom DSTs only available to Kay clients, independent advice on DST sponsor companies, full due diligence and vetting on each DST (typically 20-40 DSTs) and a DST secondary market. Kay Properties team members collectively have over 115 years of real estate experience, are licensed in all 50 states, and have participated in over 21 Billion of DST 1031 investments.
This material does not constitute an offer to sell nor a solicitation of an offer to buy any security. Such offers can be made only by the confidential Private Placement Memorandum (the “Memorandum”). Please read the entire Memorandum paying special attention to the risk section prior investing. IRC Section 1031, IRC Section 1033 and IRC Section 721 are complex tax codes therefore you should consult your tax or legal professional for details regarding your situation. There are material risks associated with investing in real estate securities including illiquidity, vacancies, general market conditions and competition, lack of operating history, interest rate risks, general risks of owning/operating commercial and multifamily properties, financing risks, potential adverse tax consequences, general economic risks, development risks and long hold periods. There is a risk of loss of the entire investment principal. Past performance is not a guarantee of future results. Potential cash flow, potential returns and potential appreciation are not guaranteed.
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