The democratization of real estate investing has reached new heights with platforms such as Arrived and Realbricks, which allow anyone to invest in rental properties and vacation rentals starting with just $100.
These platforms have attracted hundreds of thousands of investors by simplifying property investment and handling all management responsibilities.
With more than a million registered investors, such platforms demonstrate the appetite for accessible real estate investment opportunities.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
CLICK FOR FREE ISSUE
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more – straight to your e-mail.
Profit and prosper with the best of expert advice – straight to your e-mail.
Kiplinger’s Adviser Intel, formerly known as Building Wealth, is a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.
However, for accredited investors with substantial assets, these retail-focused platforms represent a fundamental compromise.
Investment caps, share limits, concentration in residential real estate and a lack of sophisticated tax-planning tools create inherent limitations that prevent serious wealth-building.
While these platforms can serve an important role for smaller investors, they pale in comparison to the institutional-grade opportunities available through Delaware statutory trusts (DSTs).
The Delaware statutory trust advantage
DSTs represent the pinnacle of passive real estate investing for accredited investors, providing access to institutional-quality assets that individual investors could never acquire independently.
These sophisticated investment vehicles allow multiple investors to pool their capital and acquire professionally managed, institutional-grade real estate offerings throughout the United States.
The fundamental structure of DSTs creates compelling advantages that retail platforms simply cannot match. With minimum investments typically starting at $100,000, DSTs immediately distinguish themselves by providing access to assets worthy of substantial capital deployment.
This higher barrier to entry enables participation in institutional-quality properties including large multifamily complexes, medical office buildings, industrial warehouses and Class A commercial properties valued in the hundreds of millions.
Institutional scale and asset quality
The asset quality differential between retail platforms and DSTs is profound and transformative. DSTs provide fractional ownership in institutional-grade assets often exceeding $100 million in value, with some offerings providing access to stabilized properties worth several hundred million dollars.
This scale advantage translates into superior diversification and risk management that smaller residential properties cannot achieve.
A single DST might own a portfolio of 15 Walmart stores across multiple states, a collection of Class A apartment communities in high-growth markets or a diversified portfolio of medical office buildings leased to health care systems.
Such diversification provides stability and risk mitigation that comes from institutional-level asset management.
DST properties also benefit from economies of scale and operational efficiencies that create competitive advantages. Large commercial properties typically feature long-term leases with credit-worthy tenants, professional property management teams with specialized expertise and operational systems that smaller residential properties cannot match.
This institutional approach consistently produces more stable cash flows and superior long-term performance.
Superior tax optimization through 1031 exchanges
Perhaps the most significant advantage DSTs offer accredited investors lies in sophisticated tax optimization, particularly through 1031 exchanges.
Revenue Ruling 2004-86 established DSTs as qualifying “replacement property” for 1031 exchanges, enabling investors to defer capital gains taxes indefinitely while building wealth through real estate.
For accredited investors with appreciated real estate holdings, this capability represents a wealth preservation tool of extraordinary value.
An investor who owns rental properties with substantial appreciation can execute a 1031 exchange into multiple DSTs, achieving superior diversification while deferring potentially hundreds of thousands in capital gains taxes.
This tax deferral preserves capital that continues working within the investment, compounding wealth over time.
DSTs provide the same tax advantages of direct real estate ownership, with depreciation and amortization passed through to investors based on their proportionate share.
The ability to execute subsequent 1031 exchanges from DST to DST creates a powerful wealth-building cycle that can span decades, allowing investors to continually upgrade their real estate holdings while preserving tax efficiency.
This tax optimization capability represents millions in potential wealth preservation for high-net-worth individuals over their investment lifetimes, creating compounding advantages that retail platforms cannot provide.
Efficient capital deployment for substantial investors
DSTs offer rational capital deployment solutions for accredited investors with significant assets to allocate.
Rather than fragmenting large investment amounts across dozens of small properties, investors can efficiently deploy capital across carefully selected institutional-quality assets that provide meaningful diversification and professional oversight.
A $2 million real estate allocation might be strategically divided among three or four DSTs representing different property types, geographic markets and economic drivers.
This approach achieves superior diversification while maintaining focus on institutional-quality assets managed by experienced professionals with proven track records.
Looking for expert tips to grow and preserve your wealth? Sign up for Adviser Intel (formerly known as Building Wealth), our free, twice-weekly newsletter.
The efficiency extends beyond initial investment to ongoing management and eventual exits. Professional DST sponsors handle all operational aspects while providing regular reporting and strategic guidance, eliminating the complexity that comes with managing multiple smaller investments.
DST investors benefit from sponsor expertise specifically focused on institutional real estate investment and management.
These sponsors often manage billions in assets and possess decades of institutional real estate experience, providing access to off-market deals and institutional-level financing terms unavailable to smaller operators.
The signatory trustee structure empowers professional management to take necessary actions including restructuring financing, renegotiating leases or executing property sales to optimize returns and reduce risks.
This professional oversight provides fiduciary responsibility to investors while maintaining the passive nature of the investment.
Leading DST sponsors maintain dedicated asset management teams, sophisticated financial reporting systems and strategic relationships with institutional lenders and service providers.
This infrastructure creates operational advantages that translate into superior investment performance and risk management.
Risk management through institutional structure
DSTs provide superior risk management through several structural advantages. The institutional quality of underlying assets creates inherent stability, while professional management teams implement sophisticated risk mitigation strategies.
Commercial real estate sectors accessible through DSTs often demonstrate superior resilience during economic cycles compared to residential real estate.
DST investors enjoy limited liability protection through bankruptcy-remote provisions, ensuring that even in adverse scenarios, investor exposure is limited to their investment in the trust.
This protection extends beyond the property level to shield personal assets from potential creditor claims.
The scale and diversification possible within DST structures provide additional risk mitigation. Rather than being exposed to single-property risks, investors participate in professionally managed portfolios that can weather individual tenant departures, market fluctuations or property-specific challenges.
Long-term wealth-building potential
DSTs enable true generational wealth building through real estate by providing access to institutional-quality opportunities previously reserved for pension funds, endowments and large institutional investors.
The combination of superior assets, professional management, tax optimization and efficient structure creates compound advantages that accelerate wealth accumulation.
The ability to continuously execute 1031 exchanges between DSTs allows investors to upgrade their real estate holdings over time while preserving tax efficiency.
This creates a wealth-building cycle that can span decades, allowing investors to participate in increasingly valuable institutional assets while deferring taxes indefinitely.
For estate-planning purposes, DSTs provide excellent vehicles for transferring wealth to future generations while maintaining professional management and institutional-quality assets.
The passive nature and professional oversight make DSTs ideal for family wealth transfer strategies.
The clear choice for sophisticated investors
The choice between retail real estate platforms and DSTs represents a fundamental decision about investment sophistication and wealth-building ambition.
For those who qualify, DSTs offer access to the institutional real estate market with all its attendant advantages: Superior assets, professional management, tax optimization and true wealth-building potential.
Even so, it goes without saying that not all DSTs are created equal. Working with a financial advisory team with extensive experience in this area is essential for your short- and long-term investing success.
Related Content
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
