Diversification Your Real Estate Portfolio With Delaware Statutory Trusts

Delaware Statutory Trusts for Effective Asset Protection Planning

Introduction

Diversifying your real estate portfolio is a crucial strategy for managing risk and potentially increasing your returns. One often overlooked but highly effective way to achieve diversification is through Delaware Statutory Trusts (DSTs). These investment vehicles offer a unique and flexible approach to owning and managing real estate assets, making them an excellent option for investors seeking to expand their portfolios. 

How DSTS Work

A Delaware Statutory Trust (DST) is a legal entity that allows multiple investors to co-own real estate properties while enjoying the benefits of limited liability and pass-through taxation. DSTs are established under Delaware state law, and they are commonly used for various real estate investment opportunities, such as apartment complexes, office buildings, retail centers, storage units, assisted living facilities and more.

DSTs are used as replacement properties in a 1031 exchange, a tax-deferred transaction that allows investors to defer capital gains taxes when selling one investment property and reinvesting the proceeds into another.  By acquiring a DST, you will receive a fractional interest in a diversified portfolio of real estate assets. This fractional ownership model means that you can invest in multiple properties with a relatively small amount of capital. By spreading your investments across various properties, you reduce the risk associated with having all your eggs in one basket.

Diversification

DSTs often offer a range of property types within their portfolios. This diversity allows investors to participate in different sectors of the real estate market, including residential, commercial, industrial, storage, assisted living and more. As the real estate market can be cyclical, having exposure to multiple property types can help mitigate the impact of market fluctuations.

Additionally, DSTs can provide geographic diversity as although the DST is a trust organized under Delaware law, the real estate assets within the trust will be in various geographic locations throughout the United States, reducing your exposure to regional economic downturns or market-specific challenges. Investing in different regions can help balance the performance of your real estate investments.

Hands Off Investing

DSTs provide access to institutional-quality real estate assets that may be otherwise out of reach for individual investors. This allows you to benefit from on-site, professionally managed properties.

DSTs are managed by experienced professionals who oversee property operations, maintenance, and leasing. This professional management ensures that your investments are well-maintained and can generate stable rental income, regardless of market conditions.

As DST investors receive a share of the rental income generated by the underlying properties. This passive income can provide a steady cash flow, helping you diversify your income sources beyond traditional stocks and bonds.

DSTs offer various exit strategies, allowing you to adjust your portfolio as your investment goals change. Whether you want to sell your DST interest, complete a 1031 exchange into another DST, or explore other options, you have the flexibility to adapt to your evolving financial needs.

Conclusion

Diversifying your real estate portfolio through Delaware Statutory Trusts is a smart way to manage risk, enhance your investment returns, and simplify your real estate investments. Through fractional ownership, you can gain access to diverse professional managed institutional grade properties of varying types and locations. If you’re looking to expand your investment horizons and minimize risk, exploring DSTs may be a wise move to achieve your financial goals.

Voss Real Estate Advisors

October 4, 2023

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