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Do I Qualify for a Delaware Statutory Trust Investment?

Many of you who follow our posts at fgg1031.com know that for over 15 years, our firm has specialized in providing a custom experience for clients interested in seeking to invest in income producing properties including traditional real estate options as well as those structured using the Delaware Statutory Trust (DST). One of the most common questions we receive from clients who are beginning to learn more about DSTs is “Do I Qualify for a Delaware Statutory Trust Investment?”

To help answer this and other related questions, we first speak individually with investors to understand their goals and objectives to help us determine if a DST may be option. Unlike traditional real estate investments such as single-family rentals, apartments, retail stores, etc. which are generally available to any investors regardless of their net worth, DSTs are more tightly regulated by the government which mandates that anyone who investments in a DST be an accredited investor. What does that mean?

The U.S. Securities and Exchange Commission (SEC) has regulations in place requiring companies that offer or sell securities to either register those securities with the SEC or find an exemption from the registration requirements. Registering a security with the SEC can be relatively expensive and time consuming, so all sponsors of DSTs avoid registration and instead take advantage of an exemption found in SEC Regulation D. One of the requirements of Regulation D is that all individual investors have the following minimum financial profile to qualify as an accredited investor:

  • At least a $1 million net worth excluding the primary residence, or
  • An annual income for the two previous years of $200,000 individually or $300,000 jointly

For the purposes of determining if the net worth requirement is satisfied, an investor should consider the combined value of all their investments and possessions excluding the equity in their personal residence. Items that comprise net worth could include the value of stocks, bonds, bank accounts, cars, boats, artwork, hobby collections, etc.

This exemption is not just limited to individuals. Accredited entities including partnerships, private business development companies, banks, etc. that meet other defined requirements within Regulation D, may also qualify.

Some investors may wonder why these requirements apply to a DST investment. Since DSTs are managed by a third party trustee who has essentially full control over the investment and investors remain passive (much like a investing in a mutual fund or a public company where day to day operations are managed by others) the government has decided to limit DST investments to those investors who have accumulated sufficient net worth and, by implication, gained sufficient financial knowledge to understand the pros and cons of making DST investments.

The accredited investor requirement is well intentioned, but it has some potential drawbacks. One of those is that many accredited investors may have accumulated a high net worth through long working years and wise savings, but they may still not have gained a enough understanding of private security investments. So, while they meet the financial qualifications, their limited knowledge could put them at risk of making a poor investment decision – perhaps at a late stage of life when they can ill-afford to make a mistake.

That is an important reason why our team at First Guardian Group devotes time up front in working with potential DST investors, first verifying their status as accredited investors, and then getting to know their goals, objectives, and risk parameters before we make any recommendations. If, after these detailed and informed discussions, we determine that DST options may be suitable, we then present active DST programs for consideration by the investor.

For more information please feel free to contact us at info@firstguardiangroup.com or you can also schedule some time on Paul’s calendar here.

Paul Getty

Paul Getty is a licensed real estate broker in the state of California and Texas and has been directly involved in commercial transactions totaling over $2 billion on assets throughout the United States. His experience spans all major asset classes including retail, office, multifamily, and student and senior housing. Paul Getty’s transaction experience includes buy and sell side representation, sourcing, and structuring of debt and equity, work-outs, and asset and property management. He has worked closely with nationally prominent real estate brokerage and investment organizations including Marcus Millichap, CB Richard Ellis, JP Morgan, and Morgan Stanley among others on the firm’s numerous transactions. Paul Getty also maintains a broad network of active buyers and sellers of commercial real estate including lenders, institutions, family office managers, and high net worth individuals.

Prior to founding First Guardian Group/FGG1031, Paul Getty was a founder and CEO of Venture Navigation, a boutique investment banking firm specializing in structuring equity investments made by institutions and high net worth individuals. He possesses over 25 years of comprehensive worldwide business management experience in environments ranging from early phase start-ups to multi-billion-dollar corporations. His track record includes participation in IPOs and successful M&A activity that has resulted in investor returns of over $700M.

Paul Getty holds an MBA in Finance from the University of Michigan, graduating with honors, and a Bachelor’s Degree in Chemistry from Wayne State University. He is a member of the Institute of Real Estate Management (IREM), a Certified Property Manager Candidate (CPM), and a member of the US Green Building Council. Paul Getty holds Series 22, 62, and 63 securities licenses and is a registered representative with LightPath Capital Inc, member FINRA /SIPC.

Paul Getty is a noted speaker, author, and actively lectures on investments and sales and management related topics. He is the author of The 12 Magic Slides, Regulation A+: How the JOBS Act Creates Opportunities for Entrepreneurs and Investors, and Tax Deferral Strategies Utilizing the Delaware Statutory Trust (DST), available on Amazon and other retail outlets.

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