As real estate investors approach retirement or seek greater work-life balance, investments combining real estate ownership with passive management become increasingly attractive. These seasoned investors desire opportunities that generate consistent cash flow without the burden of day-to-day rental property operations. 

A recent Kiplinger’s article by a contributor named Daniel Goodwin highlights recent innovations from platforms like Arrived and Realbricks have made real estate investing accessible to the masses, allowing anyone to invest in rental or vacation properties with as little as $100. These platforms have attracted large user bases by simplifying property investing and handling operations for investors.

However, while ideal for beginners, these retail platforms fall short for accredited investors seeking meaningful wealth building. Investment caps, share limitations, a focus on residential properties, and minimal tax advantages restrict long-term growth for sophisticated investors.   

Over the past two decades, commercial real estate (CRE) has earned its place as a core asset class alongside equities, bonds, and cash—for compelling reasons. CRE offers superior income and appreciation potential, attractive risk-adjusted returns, and substantial tax advantages. Yet for most individual investors, commercial real estate appears financially inaccessible and operationally complex.  

The Critical Question for Independent Investors

How can smaller, independent investors access the benefits of institutional-quality commercial real estate without the capital requirements and management burden?  Delaware Statutory Trusts (DSTs) have emerged as an increasingly compelling solution.  

Why DSTs Are Superior for Accredited Investors

The author is making the case that Delaware Statutory Trusts (DSTs) offer a significantly higher tier of real estate investment. A DST is a specialized legal entity allowing accredited investors to hold fractional ownership in professionally managed, institutional-grade commercial properties that smaller investment platforms cannot match. An accredited investor is defined as an individual who has a net worth of no less than $\1$ million (excluding the value of their primary residence) or who has earned income over $\$200,000$ (or $\$300,000$ if married).

DSTs grant individual investors entry to high-caliber properties beyond their individual purchasing power or management capacity.  Typical minimum investments of $100,000 allow participation in large-scale multifamily properties, medical office buildings, industrial warehouses, and other Class A commercial assets often valued at $100 million or more.

DSTs deliver:

• Institutional-grade asset quality and scale with diversified portfolios across multiple markets and sectors.
  
• Professional management from billion-dollar sponsors with deep expertise, off-market deal access, and favorable financing terms.
  
• Operational efficiency through long-term leases, creditworthy tenants, and systems designed for stable, predictable performance.
  
• Superior risk management thanks to limited liability, bankruptcy-remote structures, and broad diversification.        

Delaware Statutory Trusts (DSTs) have become a leading 1031 exchange vehicle because they allow investors to pool capital and acquire fractional interests in large, professionally managed real estate assets. This structure delivers passive income, built-in diversification, and freedom from day-to-day management. By exchanging into a DST, investors can defer capital gains taxes by reinvesting the proceeds from a sale into a qualifying “like-kind” beneficial interest. DSTs are generally limited to accredited investors and, like all real estate investments, carry risks such as limited liquidity and the potential loss of principal.   

The type of real estate owned in a DST is typically:

• Class A Multi-Family Apartments
• Medical Buildings
• Hospitals
• Amazon Distribution Centers
• Manufactured Home Communities
• Senior and Student Living
• Distribution Facilities
• Storage portfolios
• In some cases Walgreens and Walmart Stores
• Industrial Buildings
  

Powerful Tax Optimization Through 1031 Exchanges

A major advantage of DSTs is their eligibility for 1031 exchanges, allowing investors to defer capital gains taxes indefinitely while upgrading into increasingly valuable properties. DSTs also pass through depreciation and other tax benefits, creating a compounding wealth-building cycle not available through micro-investing platforms.

Long-Term Wealth Creation

DSTs empower accredited investors to efficiently deploy large sums of capital, gain professional oversight, mitigate risk, and build generational wealth. Their passive structure and estate-planning advantages make them ideal vehicles for long-term real estate strategy and multi-generational wealth transfer.    

Potential Risks of Using a DST

DSTs come with certain tax-related risks that investors should understand before investing. One potential issue is exposure to Unrelated Business Income Tax (UBIT), which applies when a property generates income from sources not considered traditional rental income—such as parking fees, vending machines, or other ancillary revenue streams. These activities can trigger UBIT and reduce overall returns.

DST investments may also be subject to state income taxes. Investors living in states with higher tax rates could face an increased tax burden on income generated through the trust. Because tax treatment varies by state and individual circumstances, investors should consult a qualified tax professional to fully understand the implications before investing.     

DST investments are known for their higher fees, which cover acquisition and operational expenses. Investors may also incur increased tax preparation fees due to the added complexity of federal and state income tax compliance, especially for multi-state investments held by the DST.

The specific tax documents an investor receives can vary, but may include a profit and loss statement, a Schedule K-1, a copy of Form 8825 (reporting rental income and expenses), or other supporting documents to assist with income tax returns. Generally, income from DSTs is taxed as ordinary income, while losses are subject to passive activity loss rules, which may limit deductibility.

Despite the potentially high compliance costs, DSTs have a strong focus on cash flow. The DST sponsor typically seeks high-quality real estate in desirable areas with strong income potential, aiming to provide investors with a consistent income stream.

(DSTs) vs Real Estate Investment Trusts (REITs)

Real Estate Investment Trusts (REITs) are companies that own, operate, or finance real estate assets, giving investors access to property ownership without direct management. They come in four main types: publicly traded equity REITs, mortgage REITs, public non-listed REITs, and private REITs. Equity REITs provide liquid access to large commercial properties and must distribute at least 90% of their income as dividends, while mortgage REITs earn interest by financing real estate. Public non-listed and private REITs offer less liquidity and are typically accessed through brokers or sold to institutional investors.

REIT income is generally taxed as ordinary dividends or capital gains, and investors may qualify for a 20% deduction on ordinary REIT dividends through the Qualified Business Income Deduction. However, unlike DSTs, REITs are not eligible for 1031 tax-deferred exchanges.

Overall, REITs offer passive income, strong liquidity (for publicly traded REITs), and portfolio diversification without the need for hands-on property management.

Conclusion

Both Delaware Statutory Trusts (DSTs) and Real Estate Investment Trusts (REITs) hold institutional-grade real estate, making high-quality assets more accessible to smaller investors. These investment types offer portfolio diversification across various properties while allowing individuals to take a passive role in management.

REITs and DSTs are attractive alternatives because they can provide a competitive return on investment and offer the potential for asset appreciation, similar to traditional real estate. However, it is important to note that these investments carry many of the same risks as holding traditional real estate directly. To maximize its benefits and ensure full compliance with tax and accounting rules, it’s essential to work with a knowledgeable real estate tax advisor who can guide you through the complexities and help you capture the full value a DST can offer. Have any questions, feel free to reach out.