If you are passionate about real estate, you probably heard about Delaware Statutory Trusts. These are legal trusts that can be used without involving any sorts of risks and deferring taxes at the same time. In this article, you will learn more about DSTs and why are they so important in the real estate industry.
You’ll get to know what is a DST, how can you use it to gain profit at the end of the month without putting in much effort or resources, you’ll get to know the risks you are going to face and so on – everything in one single article. Even though you might have doubts or you might fear investing in a DST, you should know that this real estate investment strategy is the safest you can choose. The relationship between DST, 1031 exchanges and TIC (Tenancy-In-Common) is a close one so you should pay attention to the differences between them. Here is everything you need to know:
DST – definition and characterization
The Delaware Statutory Trust is a type of agreement that allows more than one investor to contribute to a certain asset. Usually, Delaware Statutory Trusts are related to 1031 exchanges, but they aren’t identical. 1031 exchanges refer to swapping commercial properties of similar value. They are also known under the name of like-kind exchanges and they work hand in hand with DSTs.
These aren’t for personal uses, although there are exceptions. Sometimes, clients can use a special transition rule that has to do with personal properties, but these are rare cases that don’t have to do with business purposes. DST involves a series of benefits, among which deferring taxes, a paramount help for people who want to make small investments and earn passive income. With DST investments, you won’t have to pay a franchise tax, the initial investment will be as low as you want and so on.
1031 exchanges
Regarding 1031 exchanges, they can be of several types. The delayed 1031 exchange is the most common type. It involves simply swapping similar value properties between two people, but it involves a delay which is dealt with by a third-party. The middleman is supposed to keep things clean by holding the money until you sell the initial property and buy the replacement one afterwards. 1031 exchanges should be closed in maximum six months from the moment you applied for one. There are 180 days to find the swapping property and make the necessary proceedings.
TIC
Finally, Tenancy-In-Common is often confused with DST. In reality, there are many differences between the two. TIC is much more limited compared to DST. First of all, a TIC is limited to maximum 35 investors, while DST has no limits from this point of view. Secondly, TIC involves spending more money on the initial investment until earning passive income. Both types of agreements are convenient as long as you know exactly what your needs and preferences are. Depending on your specific situation, one of them is more suitable than other. Make sure to get informed before closing.