Pros and Cons of a Delaware Statutory Trust

The Delaware Statutory Trust is a system strategy used mostly in the real estate business. The idea is that it allows the pooling of money between multiple investors, who then become owners of fractions of the entire investment and assets of the trusts. It provides owners with limited liability and allows cash distributions to the investing parties. So what are some of the pros and cons of the Delaware Statutory Trust?

Pros of a Delaware Statutory Trust

Passive Management for Investors. By being one of the investors, the bulk of the control is left up to the sponsor (the master investor). Once invested in a DST, any profits made on the investment would go to you as a partial owner of the financed property.

Affordable Assets. A DST allows up to, or more than 100 investors at the time. For that reason, the investments are reasonably priced. Otherwise, typical investors may not be able to afford assets of this scope.

Loans are Simpler. No one investor is obligated to pass a specific approval process for loans, as the trust would take out loans as a whole, making it easier to have a significant investment without needing to dip into personal loans for it.

Cons of a Delaware Statutory Trust

Trust in the Controlling Investor. It is wise to do your research into the controlling partner in a DST endeavor. Many bad actors in these positions can take advantage of the other investors, and “rig the game” or be careless with the investments, impacting everyone involved. By being an investor in a DST, there is a lack of control, and while that may also mean a lack of active responsibility, keeping an eye on your investment and the parties controlling it is always wise.

Risky with Real Estate Market Fluctuations. If conditions of the real estate market change, it may have a dramatic effect on the investment. This could result in lost profits and loan defaults, which hurts all investors involved.

Tax implications. There is a litany of tax codes and rules that need to be followed when investing in a DST, and not only on a federal level. Some state-level laws and regulations come into play, depending on where the investment is made, so for legal and financial purposes, one should be well versed in those rules before investing.

Travis King
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