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Passive Real Estate Investment Benefits
Rather than deal with the “Terrible T’s” consisting of toilets, trash and tenants, many seasoned investors are in search of the “Terrific T’s” which give them time, travel and teeing off.
To accomplish these goals, many have turned to real estate investment strategies such as Tenants in common 1031 exchange.
Tenants in common 1031 exchanges have long permitted investors to own professionally managed properties with virtually no property management responsibilities. Most of these investors have been able to accomplish these forms of ownership in a tax-deferred manner through a 1031 Exchange.
Delaware Statutory Trusts
Though Delaware Statutory Trusts (DST) are not new, current tax laws have helped them to become an investment vehicle for investors who want the benefits of owning real estate without becoming a “landlord”, as well as current real estate investors who no longer want the responsibilities of being a landlord. DSTs allow owners of real estate to sell their rental properties and potentially defer capital gains taxes.
DSTs are derived from Delaware Statutory law as a separate legal entity, created as a trust, and real estate qualifies for Section 1031 like-kind exchange which defers the capital gains tax on the sale of real estate. In 2004, the IRS blessed DSTs with an official Revenue Ruling about how to structure a DST that will qualify as replacement property for 1031 Exchanges.
The Revenue Ruling (Rev. Ruling 2004-86) permits the DST to own 100 percent of the fee-simple interest in the underlying real estate and participate as beneficial owners of the property.
How DSTs Work
The real estate sponsor firm, which also serves as the master tenant, simply acquires the property under the DST and opens up the trust for potential investors to purchase a beneficial interest.
DST investors may benefit from a professionally managed, potentially institutional quality property.
Most DST investments are assets that your run-of-the-mill, small- to mid-sized accredited investors could not otherwise afford. However, by owning a beneficial interest in the DST, they can acquire this type of asset.