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Understanding Delaware Statutory Trusts (DSTs)

Delaware Statutory Trusts (DSTs) are increasingly becoming a popular investment vehicle, particularly for investors looking to transition away from the complexities of managing rental properties. David Waal from Irvine Advisors provides valuable insights into who these trusts might be suitable for and the key parameters to consider.

Who Should Consider DSTs?

DSTs may be a viable option for several types of investors. Here are some scenarios when one should consider this investment:

1. Long-term Rental Property Owners: If you've owned rental property for an extended period and it has significantly appreciated, DSTs can be a good choice. Selling the property may trigger substantial capital gains taxes, but a 1031 exchange into a DST could defer these taxes while allowing you to divest from active management without losing your investment's value.

2. Seeking Passive Income: For those wishing to shift from active to passive income, DSTs offer a managed investment approach. By investing in a DST, you hand over the management tasks to professionals, allowing you to benefit from rental income without the hassle of overseeing the properties yourself.

3. Diversification Goals: If you aim to diversify your investment portfolio across various asset types and locations, DSTs can meet that need. They can spread your risk by investing in multiple properties managed by different sponsors.

4. Retirees Simplifying Life: For retirees or those nearing retirement, simplifying financial management is crucial. A DST investment can generate predictably stable income from the equity in rental properties while eliminating the hands-on management that once occupied significant time.

5. Institutional-Level Real Estate Investment: If you seek exposure to institutional-grade real estate that might be inaccessible to individual retail investors, DSTs open the door to such options, which typically feature larger properties in premier locations.

Who Should Avoid DSTs?

While DSTs have advantages, they may not suit every investor. Here are reasons to steer clear:

1. Desire for Control: If you prefer to maintain control over your real estate investments, DSTs will not be suitable for you. This vehicle requires relinquishing control as professionals manage the assets.

2. Requirement for Liquidity: Investors desiring liquidity may face challenges with DSTs since real estate investments are inherently illiquid. The secondary market for selling DSTs is limited, and selling might result in significant discounts from the original purchase price.

3. Fee Sensitivity: DSTs incur management fees since professionals manage the properties and their businesses. If this concept doesn't appeal to you and you dislike paying fees, it may be best to avoid DSTs.

4. Risk Aversion: Every real estate investment carries market risk. If you are averse to risk entirely, investing in DSTs may not align with your financial strategy.

5. Accredited Investor Status: Due to securities regulations, DST investments are available only to accredited investors, meaning not everyone qualifies to invest.

Conclusion

In summary, Delaware Statutory Trusts serve as a strategic option for investors aiming to step away from property management while seeking potential passive income and portfolio diversification. It's critical to understand the inherent risks and the absence of control associated with such investments. Consulting with a financial advisor for personalized advice may offer further clarity on whether DSTs align with your financial goals.

1031 Risk Disclosure

Before proceeding with any investment strategy, it is vital to acknowledge potential risks, such as property value decline, liquidity issues, and changes in tax status that could impact the profitability of a DST investment. Always consult a financial professional to understand fully the implications of your investment choices.

For further information about Emerson Equity and the details surrounding DSTs, feel free to visit their official FINRA BrokerCheck website.