What is a DST 1031? I’m hearing my real estate investor friends and CPA mention it may be a good exit strategy for my appreciated real estate but I need to know more about it…
First, let us explain a DST.
DST stands for Delaware Statutory Trust. Here’s the full technical definition: a separate legal entity established under a trust created for the purpose of holding, managing, administering, investing, or operating a property, or for allowing business/professional properties to have multiple trustees where each owner has beneficial interest for federal tax income purposes and every owner gets an undivided fractional interest in the DST property. These properties are not limited to the state of Delaware, but the idea of a DST was created under Delaware law.
A DST allows each investor to own a fractional interest in a property with other investors, not as limited partners, but instead as their own individual owner inside the trust. Everyone will receive his or her own percentage share of the potential income, tax benefits, and potential appreciation of the whole property. Each owner is treated as owning an undivided fractional interest. This allows the minimum investment to often be as low as $100,000, allowing investors to not only be able to invest in properties that can be too expensive to purchase individually (like large multifamily apartment communities, office buildings, industrial properties, single tenant net lease retail, self-storage facilities, and medical offices), but to invest their money into multiple properties, diversifying their real estate portfolios.