There are many different types of entities that can be used, and sometimes entity types are used specifically for capital raising purposes. But this older, lesser known entity has gained a lot of excitement and note and has become very popular in the last few years, especially in the real estate sphere. It’s called a DST or a Delaware Statutory Trust. It’s a different way of doing fractional ownership, and one of the reasons it’s become so popular lately is because of the tax law section 1031, commonly known as the 1031 exchange. It allows investors to exchange property for another property by deferring the gains. The whole section is all about making exchanges. You don’t take any of the money, but the whole premise is built upon appreciated property, where if you sold it for cash, you’d have a big capital gain, but if you exchange it for this other piece of property, then you get the asset that you want but don’t pay the capital gains taxes. Now the gains are deferred. They’re not excluded, but the DST allows an investor to exchange for fractional interest in the trust, which will qualify as a 1031 exchange asset. So that’s a big deal! There are lots of companies using the DST to raise capital now, to buy assets and then to exchange with other investors who are looking to get in. It’s interesting, if somewhat technical and a little bit complex.
Check out the article we linked above to learn more about yet another vehicle in the complex world of raising capital. These are the things that we help clients with every day, give us a call if we can help you.