---
title: "The DST: Rules of the Road & Advantages of a DST for Investment Property Exchangers"
description: A Delaware Statutory Trust (DST) is a separate legal entity created as a trust under the laws of Delaware, in which each owner has a beneficial interest in the DST for federal income tax purposes and is treated as owning an undivided fractional interest in the property.
image: https://www2.1031dst.com/hubfs/Rules%20of%20Road%20DST.jpg
---
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# Fortitude's Insights
[DST](https://www2.1031dst.com/insights/topic/dst) [1031 Exchange](https://www2.1031dst.com/insights/topic/1031-exchange)
# [The DST: Rules of the Road & Advantages of a DST for Investment Property Exchangers](https://www2.1031dst.com/insights/the-dst-rules-of-the-road)
By [Jeffrey Kiesnoski](https://www2.1031dst.com/insights/author/jeffrey-kiesnoski) | 8, August 2019
[READ NOW](https://www2.1031dst.com/insights/the-dst-rules-of-the-road)
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[Jeffrey Kiesnoski](https://www2.1031dst.com/insights/author/jeffrey-kiesnoski)
Tags: [DST](https://www2.1031dst.com/insights/topic/dst) [1031 Exchange](https://www2.1031dst.com/insights/topic/1031-exchange)
A **Delaware Statutory Trust (DST)** is a separate legal entity created as a trust under the laws of Delaware, in which each owner has a beneficial interest in the DST for federal income tax purposes and is treated as owning an undivided fractional interest in the property. In 2004, the IRS released Revenue Ruling 2004-86, which allows the use of a DST to acquire real estate where the beneficial interests in the trust will be treated as direct interests in replacement property for purposes of IRC Section1031.
#### **For a DST to quality for a 1031 Exchange, the trustee may not have the power to do any of the following:**
1. Accept contributions from either current or new investors after the offering is closed,
2. Renegotiate the terms of the existing loans, or borrow any new funds from a third party,
3. Sell real estate and use the proceeds to acquire new real estate,
4. Make, other than minor repairs that are considered (a) normal repair and maintenance; (b) minor non-structural improvements; and, (c) those required by law,
5. Invest cash held between the distribution dates other than in short-term government debt,
6. Retain cash, other than necessary reserves (all cash must be distributed on a current basis) or enter into new leases or renegotiate the current lease.
A chief advantage of the DST structure is that the lender views the trust as only one borrower (rather than having up to 35 borrowers as in many [Tenant’s in Common (TIC)](https://www2.1031dst.com/insights/delaware-statutory-trust-dst-versus-tenant-in-common-tic-ownership)arrangements.) This makes it easier and less expensive to obtain financing. In addition, the taxpayer’s only right with respect to the DST, is to receive potential distributions. They have no voting authority regarding the operation of the property. Therefore, the **“bad boy carve outs”** are eliminated and the lender looks only to the sponsor for these carve outs from the non-recourse provisions of a note.
#### **The Fast Close**
**What makes a DST investment so attractive to so many real estate investors is the ease of the “QUICK CLOSE.”**
As with all [1031 real estate exchanges](https://www2.1031dst.com/a-guide-to-your-1031-exchange), all proceeds from the sale of the previously-owned property need to be placed with a Qualified Intermediary (QI). The exchanger has **45 calendar days** to identify his or her replacement property or properties using three rules. The three-property rule, the 200% rule, and the 95% rule. (you can call us to explain these different options at any time). After the 45 days, they have an additional 135 days to close on the properties.
With a DST, if the investor knows they want to diversify out of a single asset or multiple assets they can invest into many different DST’s in all real estate sectors around the Unites States.
If an investor has pre-existing debt on his or her sale property, he or she must exchange into a new property with equal or greater debt to complete the exchange correctly. This could be a long and arduous process that eats up a considerable amount of time and lead to lost income potential for the exchanger.
DST investments come in all shapes and sizes. Some are 100% all cash and some have as much as 83% debt already built into them. This makes for a fast close if the exchange has debt to replace. Since the sponsor buys the property or properties in advance after their due diligence, they will place institutional financing on a property, typically in the 40% to 60% range that is non-recourse to the investor.
Therefore, for example, if a seller has 50% debt on their relinquished property and they sold for $20M dollars they would, at closing, put $10M with the qualified intermediary and pay off the $10M loan to the bank. **They now can invest immediately into a diversified portfolio of properties that have pre-existing non-recourse debt on them, for which they do not have to be underwritten for, granting them a fast close.**
If a client has depreciated their property to zero, they can leverage up instantly. If they sold a property for $20M all cash, they can purchase multiple 50% leveraged properties and own now, $40M worth of real estate without being underwritten, and have the newly assumed debt be non-recourse to them while getting the step up in cost basis and potential tax advantaged income. For more information please reach out to our team at Fortitude today.
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# [Jeffrey Kiesnoski](https://www2.1031dst.com/insights/author/jeffrey-kiesnoski)
Since Founding Fortitude Investment Group, Jeffrey has been providing accredited investors with real estate investment opportunities utilizing the Delaware Statutory Trust (DST) for their 1031 exchange needs. A licensed registered representative since 1995, he provides wealth management solutions for investors nationally and internationally, focusing on access to multiple investment products from multiple firms.
This is for informational purposes only and is not an offer to buy/sell an investment. There are risks associated with investing in Delaware Statutory Trust (DST) and real estate investment properties including, but not limited to, loss of entire principal, declining market value, tenant vacancies and illiquidity. Diversification does not guarantee profits or guarantee protection against losses. Potential cash flows/returns/appreciation are not guaranteed and could be lower than anticipated. Because investors situations and objectives vary this information is not intended to indicate suitability for any particular investor. This information is not meant to be interpreted as tax or legal advice. Please speak with your legal and tax advisors for 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. Insurance products offered through Concorde Insurance Agency, Inc. (CIA) Fortitude Investment Group is independent of CIS, CAM, and CIA.
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