Passive Real Estate Investing

What is a DST?

Delaware Statutory Trusts (DSTs) allow owners of real estate to sell their investment real estate and potentially defer capital gains taxes. DSTs are derived from Delaware Statutory law as a separate legal entity and formed as private governing agreements for the purposes of managing, administering, investing, and/or operating real, tangible, and intangible property; or business or professional activities for profit that are carried on by one or more individuals who act as trustees for the benefit of a party who is entitled to a beneficial interest in the trust property.

Though Delaware Statutory Trusts are not new, in 2004 the IRS came out with an official Revenue Ruling detailing how a DST could be structured in such a way that it would qualify as a property replacement vehicle for 1031 Exchanges. Well known to real estate investors, a 1031 like-kind exchange allows you to defer the capital gains tax on the sale of investment property by reinvesting the proceeds into a similar qualifying property.

As a result DSTs have 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.

How do DSTs work?

A property is identified and acquired under a DST by a sponsoring real estate investment firm. The same firm, also acting in the capacity as the master tenant, opens up the trust for potential investors to purchase a beneficial interest. In this realm an accredited investor would have an opportunity to own a beneficial interest in a property that would normally be out of reach to them from an investment standpoint. Additionally, they would also benefit from a professionally managed property without any of the associated landlord responsibilities.

What are the benefits of a DST?

  • Receive passive income from real estate minus the work
  • Own shares of major commercial real estate properties that currently produce income
  • Cash out the equity on your highly appreciated property into an income producing property AND potentially defer your capital gains with a 1031 exchange
  • Get the benefits of real estate ownership and income without the stress and hassles of property management
  • Create an easily dividable asset for your heirs
Do you own highly appreciated investment property?
  • Many people who own highly appreciated investment property feel trapped from cashing out due to the high tax bills they face on their gains. A DST qualifies as a 1031 like-kind exchange. That means you may be able to defer your tax bill AND still be invested in an income producing property without any property management responsibilities.

Are you interested in investing in income producing properties?

  • If suitable in light of your other holdings and risk tolerance, a DST can be a great addition to your portfolio whether you are a seasoned real estate investor or new to investing in real estate. The sponsoring firms make it easy to choose from a portfolio of properties to find one that best suits your investment strategy. There are also opportunities to invest in properties that are currently producing income.

Are you a current landlord tired of the responsibilities and dealing with the Terrible Ts?

  • A DST can be a great way to enjoy the benefits of real estate ownership without dealing with the Terrible Ts of being a landlord: Tenants, Trash, and Toilets. As an investor in a DST, you are not responsible for the property management. In fact, many of the properties have professional property management companies already in place so you no longer need to be involved in the upkeep and maintenance.

Are you looking for an easily divisible asset to leave your heirs?

  • Owning property can be a wonderful investment but challenging to split up amongst loved ones. A DST is a real estate investment where you buy a fractional ownership interest that can be easily divided amongst your heirs avoiding potential family squabbles.

Did you just sell your highly appreciated investment property and can’t find a like-kind replacement?

  • A DST qualifies as a like-kind 1031 exchange, so if you have sold your property and are almost out of time to find a suitable replacement, you can invest in a DST and defer your taxes on the gains. When it comes to investing in real estate, finding the right property is crucial. Don’t rush into it just because you may be running out of time. Invest in an income producing property that qualifies as a 1031 like-kind exchange.

What would be a reason not to do a DST?

  • Liquidity – You are not in control of the decision as to when the assets will be sold. If you need liquidity in less than 10 years from your real estate investments, The DST may not be a good alternative for you. Many investors however wish to keep their 1031 exchanges going until there is eventually a step up in basis. Also, you may not be ready to retire from building your real estate empire. For instance, if you are younger and a successful real estate developer, you may have a much higher potential investment return continuing your building of real estate equity as an active investor rather than as a passive investor using the DST.
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    *To be an accredited investor, an individual must have had earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the prior two years and “reasonably expects the same for the current year,” according to the SEC. Or, the individual must have a net worth of more than $1 million, either alone or together with a spouse.

    About Mainstay Madrona 1031

    Being an independent financial advisory firm allows us to serve you in very unique ways. As a fiduciary, we have the responsibility to place your personal financial needs before anything else. We do this by educating you with specific information so you can determine what is best for your unique and individual financial plan. We also have developed partnerships with CPA’s, Enrolled Agents, and attorneys and can refer you , as needed, to further help guide you through the maze of retirement and estate planning.

    Our goal is to do what is best for you today and for your heirs in years to come by helping you achieve the peace of mind that comes with knowing that you have been educated and taken action on the road to financial security.

    The Mainstay Core

    Mainstay Financial Group offers advocacy and personal financial guidance, in a caring environment, where you learn about choices available to you in your particular situation. We believe your financial plan should be as unique as you are.

    We will always treat you with respect, care and warmth. We will inform you clearly, and patiently allow you the time you need to make good decisions. We will explain things in ways you understand and the reasons behind our suggestions.

    We dedicate ourselves to exemplary service and caring relationships, focusing on helping clients arrive at clear, straightforward answers.


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    To be an accredited investor, an individual must have had earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the prior two years and “reasonably expects the same for the current year,” according to the SEC. Or, the individual must have a net worth of more than $1 million, either alone or together with a spouse. With the passage of the Dodd-Frank Act, this now excludes a primary residence as being eligible as part of an investor’s net worth (investors who had existing accredited investments but who now fail the net-worth test without their residence being valued were grandfathered).

    The information, suggestions, and opinions included in this material is for informational purposes only and cannot be relied upon for any financial, legal, tax, accounting or insurance purposes. Mainstay Financial Group will not be held responsible for any detrimental reliance you place on this information. It is agreed that use of this information shall be on an “as is” basis and entirely at your own risk. Investments in a DST involve certain risks, including the potential lack of return, loss of principal and tax consequences. Investment Advisory Services offered through AlphaStar Capital Management, LLC, a Registered Investment Adviser. AlphaStar Capital Management, LLC and Mainstay Financial Group are independent entities. Mainstay Financial Group cannot and does not guarantee the performance of any investment product. DST investments are only available to accredited investors and are offered solely through the issuers offering documents. The DST sponsor determines whether to accept any individual’s subscription documents. Portfolio management services provided by a third party sub-advisor.