For property owners looking to exchange into a passive ownership structure, buying fractional interests of property through a DST (Delaware Statutory Trust) is by far the most popular tool used today, and for many good reasons.A DST is a legal property-ownership structure that allows property owners to buy a fractional interest of an investment property. This is a critical component as your ownership interests cannot be negatively impacted by the actions of other property owners. This is often a downfall of TIC (tenant-in-common) structures as one rogue investor can force all other investors to take an undesirable action that is not in their best interest.
DST’s are typically sponsored by national real estate companies that specialize in investment grade real estate. Due to the size and scope of these companies, property owners usually have dozens of potential options available at any given time. This availability frees the property owner from locating properties, conducting their own due diligence on properties, and securing any necessary financing within the allotted timeframe of the exchange provisions.
Tax Diversification: With the abundance of DST options, we can often guide our clients to attractive properties located in states with LITTLE to NO STATE INCOME TAX. When appropriate, this is wise tax-management inside of a tax-deferral strategy.
Asset Diversification: The abundance of DST properties often provides the property owner the flexibility to diversify their real estate holdings. This usually means a property owner could sell one property, and re-invest those proceeds into several different real estate asset classes, such as retail, office, multi-family (apartments), self-storage, industrial and medical offices. This type of diversification can assist the property owner in weathering the different cycles of real estate investing.
Geographical Diversification: Beyond just asset class diversification, we help our clients with geographical diversification. We can help our property owners exchange from a single property into multiple properties spread around the country. This further mitigates the risk of any local economic forces harming our clients.
Diversification does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk.