The Financial Benefits Of A Delaware Statutory Trust

With the continued popularity of 1031 exchanges – and the ability to include ownership interest in a Delaware Statutory Trust (DST) within this section of IRS code – many investors flock to fractional ownership as way to help diversify their investment portfolios and acquire higher-quality properties. Yet, financial reasons are still often the primary driver. These include:

Lower Minimum Investment

A DST is allowed up to 499 individual investors, which allows the minimum investment amounts to be much lower than with a TIC (which only allows up to 35). This lets investors with less to invest to still participate in a shared-ownership strategy for real estate investments.

Streamlined Financing

For purposes of financing purchases by the DST, lenders treat the DST as a single borrower (rather than scrutinizing each and every individual investor). This makes financing easier and less expensive to obtain. Likewise, because the individual investor is not subject to a credit screening, his or her individual credit rating is not impacted by participation in a DST.

Loan Carve-Out Requirements Eliminated

Since a DST investor’s rights are limited to only receiving distributions and the investor has no voting authority related to day-to-day operations, investor fraud carve-outs are eliminated for the individual investors. Any lender will only look to the signatory trustee or sponsor for these carve-out provisions.

Limited Personal Liability

Because of the “bankruptcy-remote” provision of every DST, individual investors enjoy limited liability as to their personal assets. Should the DST fail and enter bankruptcy, the most at risk for any individual investor is his or her investment in the trust. Creditors of the trust are limited from reaching any other assets of any investor.

To find out how we can help you find and close on your next 1031 exchange property or to learn more about the exchange process and our qualified intermediary services, please visit our website.