Real estate owners are able to reap countless benefits. That being said, the hassles that property owners go through tend to make them opt for other means of passive income. Imagine owning a private building that generates tax to be paid or having to renegotiate leasing deals over time. How are you going to deal with quarrelsome tenants and paying for the maintenance of the properties?
In the US, successful investors gave credit to real estate investment as their source of wealth.
With the introduction of Delaware Statutory Trust, investors have an alternative means to a passive income. DST allows investors to be beneficial owners of a commercial property that an individual may not be in a position to have without any managerial responsibilities.
Experienced CEO and founder of the Kay properties who had over 21 billion exchange revenues of DST had the following to say about the potential passive benefit DST has to offer to investors.
What DST means
A DST is a legal entity that allows a pool of investors to hold title to a piece or multiple properties. The trust is similar to a family trust or an LLC. As per the name, the properties or investors need not come from the state of Delaware.
DST has made it possible for individuals to have ownership of properties that would be seen as impossible. Examples of the said properties include but are not limited to private homesteads, students apartments, Commercial malls, industrial storage, and parking.
The advantage that DST has to investors is, investors are eligible for a passive monthly income, the option to a 1031 exchange with tax deferment, and with no managerial responsibilities to the property. Kay states that DST offers great opportunities to investors who are trying to diversify their investment in several properties and in different locations. Today investors are selling their property to differ from capital gains through the 1031 exchange in order to passively gain from a DST replacement. With this, individuals can spend more time with their loved ones.
Benefits of DST Investments
Diversification – Professionals advise investors to focus on having multiple-income properties rather than single ones. Since the hit of the pandemic, DST has proven to be a major component to investors in generating income streams. DST allows a minimum investment of $25,000 which can be invested in multiple assets. Investors are not assured of protection against loss with such an investment, but it’s the right way to invest. The advantage that DST has on diversification is that investors are not limited to property ownership. In a single DST, investors can own a unit of apartment, or a self-storage facility, and even a long-term lease commercial building.
Passive Income Stream – Most DST properties are under the operation of a sponsor who makes control decisions on the DST properties. This means that investors put their funds in a trust and have access to monthly cash flow with no managerial responsibility for the properties. DST has provided investors with an online platform for investment in the real estate market.
DST Provide Secure Assets – Most DST properties tend to have a stable market with a higher occupation rate and leasing period. With that in mind, DST provides investors with a long-lasting investment. Since the pandemic, most DSTs are shifting to long-term leasing, commercial properties, and multifamily buildings as people have switched to being indoors.
Risks Involved
They are no investment that comes with no risks, and neither is DST. Any person telling you that their investment assures you returns is a liar. Most investors are subjected to a higher vacancy rate when compared to what the market has to offer. This is as a result of a new product being introduced with the potential of higher returns.
Another risk involved with DST is sponsors being over-consumed with the leverage of properties. Since investors are only funding a trust, they have no power to protect their investment when there is a loan default. That’s why before any dealing with DST, there is a need to incorporate legal and tax advisors.
With DST, individuals are able to gain real wealth at a fraction of what real estate investment used to cost.
Article contribution by freelance writer Julie Carter.