For most people, a house is a financial asset, a place to rest your head and a way to get your kids into the good schools. Some people may even put it up for rent to earn “passive” income. Some people may buy and rent many homes to earn money. Income from rent is a great way to have some additional cash, but it also requires a lot of hard work. You will have to deal with your tenants’ complaints, mowing the law, fixing the roof, evictions and a lot of other headaches.
If you talk to landlords, there is one complaint that almost all of them have, and that is the cost of repairs and maintenance. You will have to take care of leaky pipes or clogged toilets. You may have to remodel or paint. Not only does this put a dent in your bank account, but it also drains your mental energy as well. Under these circumstances, wouldn’t it be better if you came across a way to have passive ownership that gets you good returns without asking you to constantly deal with the “terrible T’s”; tenants, toilets, and trash?
Delaware Statutory Trusts
Enter the “DST.” Commonly referred to as DSTs, Delaware Statutory Trusts are a form of ownership through a separate legal entity. Under this investment plan, you are allowed a co-investment among accredited investors and sponsors to purchase interest in either a portfolio of properties or a single asset.
Why Should You Consider Passive Investment?
Passive or active management? It’s an age old question for landlords and not one to easily wrestle with. Many experienced landlords may have this question on their minds. After all, most landlords have chosen to be “hands on,” taking care of issues themselves and even dealing with the many challenges that come from land lording. It’s not easy to just take a step back one day and let someone else “run the show.” Whether you wanted to rent out your home or let someone else deal with these headaches, maybe it’s time to be able to sit back and collect checks and let someone else deal with those challenges? And while there is nothing wrong with being hands on and actively managing your assets as a “Do it Yourselfer,” do you think there could be one day when your back may go out, you may be too tired for all of those fixes yourself, and maybe you want to enjoy travel in a foreign country without a phone call about unit 3’s leaky plumbing? If you are looking for some additional income and some time to use that income on yourself, passive investing may be the very thing you need to take away the stress of micromanaging the buildings, dealing with troublesome tenants and fixing the wear and tear on your property.
What are the Benefits of DSTs?
If you still aren’t sure whether or not you should go with a DST, this section may help you decide. We will talk about some of the advantages this investment option may bring for you:
1. Gain Opportunities for Diversification
DST offers you the opportunity to diversify your real estate portfolio. You don’t really have to follow the “all-eggs-in-one-basket” approach and you can split your investment into multiple DST properties. Your money will be more secure and the multiple options would make your investment less risky.
2. Minimum Investment
How much money do you need to own a house these days? Plenty! Housing prices are soaring to new heights these days and buying a house, unfortunately, is not everyone’s cup of tea. In a DST, the number of investors is higher. This allows you to invest your money in some real estate property without breaking the bank. You can invest as low as $100,000 and own a part of the property.
3. Quality Property
A small house in a residential area will be rented at a low price. On the other hand, the same-size shop in a mall will generally result in higher rent. The underlying property in DST could be a shopping center, medical office property, a single family home or an apartment complex, all of which are leased to investment-grade tenants, resulting in a sufficient amount for rental income.
4. Receive Regular Distributions
What happens if the property you invest in needs repairs? You’re in lucky, you may not have to worry about that. The Trust is allowed to keep some amount of cash as a provision for unexpected expenses. The rest of the amount is supposed to be distributed among the beneficiaries. In case of any emergency expense, the cash reserve amount will be used and you wouldn’t have to worry about a further allocation.
5. A Valuable Inheritance
A house is a valuable way to pass down wealth for your legacy. So what’s the point in preferring a DST over renting and leaving the house to your kids in a typical trust? For a house to be financially beneficial, the beneficiaries usually need to keep the property as a rental or face tax consequences. They may also have to go through the trouble of dealing with regular repairs and maintenance of the property. The DST could be a great investment option to pass it on to your legal heirs without some of these issues.
6. Easy to Change Beneficiaries
The process of changing beneficiaries in a DST is very simple. This is also one of the advantages that attracts people to a DSTs.
Is DST Risk-Free?
In the financial world, risks are an integral part or reward. You cannot find anything without risk and get a decent return. When it comes to a DST, investors may face challenges such as loan defaults and high vacancy rates. But how is that different than owning the property outright?
What Should I Do If I Want to Invest in DST?
For investing in DST, you should first consult with a financial advisor. A DST expert will help you understand all the complexities of the investment, plan accordingly and guide you through what you should expect once you’ve invested in the Trust. While this investment is very beneficial, it is always advisable to consult with an experienced professional to avoid common mistakes that new investors may make. Make the learning curve easier and work with a seasoned professional.
It is important to note that there are lots of scammers out in the market, always planning to trap an investor. Since you will be consulting with an expert, they may be able to give you details of credible DSTs. Make sure that you consult with a financial advisor before you invest in any DST.
The Final Word
We know the hard work landlords have to put in to keep their rental property in good condition. In addition to the constant work, they also have to incur a large number of expenses – the common one is their repair expenses. DSTs allow investors to enjoy the income from a passive investment standpoint. There is minimal work involved so that you can spend your time on enjoying life, not drywalling or unclogging a toilet. In addition, you don’t have to worry about any unexpected expenses, since the trust should have it covered. Anyone who is looking for investment options should consider investing in DST.