In a recently published article I wrote discussing the three primary multifamily investment strategies (private investments, real estate syndications, and real estate investment trusts (REITs), along with the pros and cons of each that can be found here: Three Types of Multifamily Investment Strategies), one strategy I didn’t mention at the time is Delaware Statutory Trusts (DSTs).
DSTs (Delaware Statutory Trusts) are similar to REITs (Real Estate Investment Trusts) in that both are investment vehicles that allow individuals to invest in real estate without directly owning property. They both provide access to large, institutional-sized assets that would typically be out of reach for individual investors or through syndications. Both options offer a hands-off investment approach, with investors receiving regular income payments. DSTs and syndications are also similar in that both pool investor capital to acquire real estate, but DSTs are unique in that investors can 1031 exchange into and out of them, and they typically involve larger properties compared to the smaller-scale investments commonly found in syndications. DSTs, REITs, or syndications can be ideal for property owners who want to step away from day-to-day management and maintain consistent returns going forward.
DSTs and REITs Have Some Key Differences:
- Investment Structure: DSTs usually involve one or a few similar properties typically valued at $50M-$100M, whereas REITs usually hold a large number of properties.
- 1031 Exchange: You can 1031 exchange into and out of a DST maximizing appreciation and income, but you typically must purchase REIT shares with after-tax dollars and appreciation of REIT shares are subject to capital gains upon sale (721 exchanges are the one exception to this rule).
- Investment Horizon: DSTs typically have an investment period of 5-7 years, while REITs offer greater liquidity, as they can be bought or sold when the investor wants.
- Management: DSTs are managed by a trustee or sponsor with limited investor control, whereas REITs are managed by a board, and shareholders can vote to replace the board.
If you own investment real estate and would like to learn more about DSTs as a passive income-producing 1031 Exchange replacement property option, feel free to explore further via the following resource page: DST Educational Hub.
Jordan Lester, CCIM, MBA joined SVN Cornerstone as a Commercial Real Estate Broker in 2022. Jordan specializes in advising clients with the acquisition and disposition of multifamily investment properties. With a primary focus in Spokane County and an expert understanding of the latest market trends, Jordan is committed to maximizing his client’s financial goals to achieve their real estate objectives. Jordan began his real estate career as a broker’s assistant for three years with SVN Cornerstone, which gave him valuable knowledge and experience to jumpstart his career as a broker. To get in touch with Jordan, email jordan.lester@svn.com or call 509.496.6922