Earn Truly
Passive Income in Real Estate
There is hardly anything passive about dealing with your Bay Area investment property and the associated challenges with tenants, toilets, taxes and trash. We hear all the time from clients who are frustrated with dealing with rent control, eviction protections, vacancy taxes and landlord reporting requirements.
I’ve found that many of our clients aren't familiar with Delaware Statutory Trusts (or DSTs) so I thought I’d share a high level overview.
A DST allows you to own a percentage of a large, class-a property like a hospital, university building, or distribution center. You benefit from owning a passive real estate investment without having to manage the property yourself. This is because the DST sponsor handles all property management responsibilities, including leasing, maintenance, and repairs.
They’re fairly simple to own since DSTs do not require group decision making and consensus. In fact you know who’s in charge and what guides their investment decisions before you buy, so you either like their strategy or you don’t and there are thousands of options to choose from around the country.
One of the benefits of investing in a DST is the potential for maintenance free, passive income. DSTs also receive all of the tax deferred capital gains benefits using everyone’s favorite deferral strategy - 1031 exchange. DSTs can be owned in a Trust and passed to your heirs, just like traditional real estate.
A big consideration is that a DST investment is less liquid than a piece of real estate - typically they are only able to be sold once their term is up - usually 5, 7 or 10 years, depending on the prospectus. Since you would own a fraction of a larger piece of real estate, it is affected by the same things traditional real estate investments are subject to including natural disasters, deteriorating market conditions and vacancy.
If you own or have inherited an investment portfolio and would like to discuss an exit and/or simplification strategy, give us a call. We’re happy to help.
Note: We do not sell DSTs, but we can connect you with the professionals who do.
