Understanding the Difference Between REITs and DSTs
When it comes to real estate investing, REITs and DSTs stand out as popular vehicles for passive investors. While both structures provide opportunities to participate in the real estate market without the hands-on responsibilities of property management, they differ significantly in structure, purpose, and potential benefits. For California investors exploring passive real estate options, knowing the difference is essential.
What is a REIT?
A Real Estate Investment Trust (REIT) is a corporation that invests in real estate through properties or mortgages. REITs typically raise capital to purchase a portfolio of properties over a period of several years to produce rental income. Investors purchase shares of the REIT, similar to buying stock in a company, and the REIT’s management team oversees the properties or investments.
REITs do not qualify as “like kind” for the purposes of a 1031 exchange and are not recognized as a 1031-exchange eligible investment option.
What is a DST?
A Delaware Statutory Trust (DST) is an investment vehicle for fractional ownership in institutional-quality real estate. Formed by a third party sponsor, DSTs can include several asset types, including multifamily, office, industrial, and/or retail. Despite the name, neither the property nor the investors need to be located in Delaware. Investors purchase a beneficial interest in the trust, giving them a fractional ownership in the specific property(s) held by the DST.
DSTs do qualify as replacement property in a 1031 Exchange (per IRS Rev Ruling 2004-86).
Whether you’re looking to diversify your portfolio, defer California capital gains taxes through a 1031 Exchange, or generate passive income, understanding the differences between REITs and DSTs is essential for making informed investment decisions.
At Legacy, we can help you determine whether a DST or REIT is the right fit for your real estate strategy. Give our knowledgeable team a call to learn more about DSTs and REITs and if they align with the legacy you want your investments to build.
Legacy Investments & Real Estate is your partner in passive real estate.
We are passionate in our pursuit to help every investor build their financial legacy by unlocking the power of passive real estate. Through custom strategies aligned to their unique goals and needs, we provide investors with the potential for all the benefits of real estate investing without the headaches of property management.
Ready for professional, tailored guidance on your passive real estate investment needs?
Other resources you might find helpful
There are material risks associated with investing in private placements, Delaware Statutory Trusts (“DSTs”) and real estate securities including the potential loss of the entire investment principal, illiquidity, tenant vacancies impacting income and revenue, general and real estate market conditions, lack of operating history, interest rate risks, competition, including the risk of new supply coming to market and softening rental rates, general risks of owning/operating commercial and multifamily properties, short term leases associated with multi-family properties, financing risks, potential adverse tax consequences, general economic risks, development risks, long hold periods, and investors should read the PPM carefully before investing paying special attention to the risk section. This material is not to be interpreted as tax or legal advice. Please speak with your own tax and legal advisors for advice/guidance regarding your particular situation. Securities offered through Concorde Investment Services, LLC (CIS), member FINRA/SIPC. Advisory services offered through Concorde Asset Management, LLC (CAM), an SEC registered investment adviser. Legacy Investments & Real Estate is independent of CIS and CAM.