Pros and Cons of the Delaware Statutory Trust

In the realm of real estate investing, the Delaware Statutory Trust can provide savvy investors with a unique opportunity to achieve passive management, the potential for regular monthly distributions, and access to institutional-grade properties. One of the best ways to maximize this investment strategy is by first understanding the pros and cons of Delaware Statutory Trusts.

This article will examine three specific advantages and three disadvantages associated with DST investments to provide a comprehensive look into this popular investment strategy.

DST Pros

Pro #1: Diversification

One of the primary potential benefits of a DST investment is diversification. Many investors work with portfolios ranging from $2 million to $25 million in net worth, but often find themselves overconcentrated in a single property or market.

Delaware Statutory Trusts help investors achieve diversification by spreading equity across multiple properties, asset classes, and geographic regions. Instead of placing $3 million into one property, investors can diversify across medical facilities, multi-family units, self-storage, industrial properties, and net lease buildings. This diversification extends to tenants (Walgreens, CVS, FedEx, Amazon) and locations (various states, cities, and submarkets), potentially reducing risk associated with any single investment.

It is crucial to understand that diversification does not guarantee profits or shield investors from losses.

Pro #2: 100% Passive Investment

DSTs offer investors the ability to move from active property management into a purely passive investment opportunity. Unlike managing properties independently, where owners deal with the "3 T's of Tenants, Toilets, and Trash," DST investors rely on professional sponsors to oversee daily property and asset management responsibilities.

This is particularly valuable for investors nearing retirement who want to eliminate day-to-day property ownership burdens while maintaining real estate benefits. Many investors enjoy spending more time with family, traveling, or pursuing hobbies once they remove themselves from active management roles.

Pro #3: Pre-Packaged Investments

DSTs are pre-packaged investment opportunities where sponsors have completed property analysis, third-party reports, and all necessary documentation before offering to investors. This structure allows for quick closings—often within 3-5 business days—which can be especially beneficial for investors facing tight 1031 exchange deadlines.

The pre-packaged nature eliminates risks associated with financing, appraisals, and undisclosed property issues that can derail traditional real estate purchases during the 45-day identification period.

DST Cons

Con #1: Lack of Control

The primary disadvantage of DST investments is the complete lack of control. Investors cannot make decisions about property management, tenant selection, capital improvements, or operational matters. The DST trustee makes all such decisions.

While this lack of control benefits investors seeking truly passive investments, it can be a significant drawback for those who prefer hands-on involvement in their real estate assets.

Con #2: Leverage Considerations

Additionally, debt-free investors entering leveraged DSTs may find themselves forced to take on more debt in future 1031 exchanges, putting them back in the leveraged position they worked years to eliminate. Investors who were debt-free should strongly consider only all-cash DST investments.

Con #3: No Guarantees

Like all real estate investments, DSTs offer no guarantees of monthly cash flow or property appreciation. Real estate markets fluctuate, and properties can lose value, as seen during the 2008-2010 financial crisis.

Investors must thoroughly review Private Placement Memorandums and consult with CPAs, attorneys, and family members before investing, understanding that DST investments are subject to market risks and unforeseen circumstances.

Ready to explore DST opportunities? Contact Juniper Exchange to discuss how DSTs might fit your investment strategy.