Owning rental property can be a great way to make some income, but it's typically anything but passive. If you're managing the property on your own, you're responsible for repairs and upkeep, renovations, vetting tenants, and more. Even if you use a property management company, you can still find yourself battling the stress of being a landlord.

But if you invest in a Delaware statutory trust (DST), you can get access to commercial and institutional real estate investments and enjoy truly passive rental income, with no maintenance or management obligations on your part. Let's take a closer look at the structure of DSTs and their benefits to investors.

Split Investment Costs with Many Investors

If you understand the concept of tenancy in common, then you can grasp the ownership structure of DSTs – it's very similar. While a tenancy in common arrangement may have only about 35 investors owning a piece of real estate in common, a DST may have 99 to 499 investors, or even more than that. Because they have so many more investors, the minimum individual investment can be lower than it might be for a tenancy in common investment opportunity, and that can make institutional real estate investment more accessible to investors.

Defer Capital Gains Taxes

Many investors choose to invest in a Delaware statutory trust as part of a 1031 exchange to put off paying capital gains taxes on the gains realized from the sale of another investment property. If you perform a 1031 exchange, you can roll the profit from one piece of investment real estate over into the purchase of a second piece of investment real estate without having any gain or loss recognized by the IRS for that sale. Hence, a perfectly legal tax benefit.

DSTs are a popular choice for individuals seeking to defer capital gains taxes using a 1031 exchange. They count as a real estate investment, so they meet the like-kind requirements, but owning them is a lot more like owning mutual funds than owning real estate. You can enjoy all of the tax benefits of performing a 1031 exchange, as well as the passive income and property appreciation benefits of owning real estate, while avoiding all of the work that goes into maintaining a property, fielding tenant calls at all hours, performing background checks, fixing things on an emergency basis, and so on.

Enjoy a Greater Level of Security than Other Real Estate Investments

When you invest in a DST, you're somewhat insulated from any financial troubles that may affect the value of the real estate – you and your fellow investors aren't the direct owners of the real estate in the same way that you would be if you held a property directly as tenants in common. Instead, a sponsor owns the property, and that sponsor is ultimately responsible for paying off the mortgage and taking care of the property. A lender has generally evaluated the sponsor for creditworthiness in the process of giving them a mortgage.

You Must Be an Accredited Investor

Delaware statutory trusts can allow accredited investors with less wealth to access a class of property that might otherwise remain forever out of reach. But you do have to be an accredited investor in order to buy shares in a DST.

That means you have to have a personal net worth of at least $1 million, not counting the value of your house, or have income as an individual of $200,000 a year for the last two years. If you're married, you must have a combined income of $300,000 a year for the last two years. You need to be able to vouch that you can reasonably expect your future income to remain the same.

Individuals aren't the only ones that can be accredited investors for the purpose of investing in DSTs. Accredited investors can also include:

• Family and other trusts worth at least $5 million;
• Investment companies, banks, and insurance providers;
• Pass-through entities;
• Some employee benefit plans; and
• Some corporations, partnerships, and tax-exempt charitable organizations with assets in excess of $5 million.

When it comes to investing in real estate, you don't always want all the work of being a landlord. In fact, in my personal experience many people let sound real estate investment opportunities pass them by, simply because they fear the hassle that comes with property management and tenant issues. You can invest in a Delaware statutory trust using a 1031 exchange, and reap all the tax benefits of exchanging a maintenance-heavy rental property that you manage yourself for shares in an institutional or commercial property that someone else is taking care of. Take the stress out of rental real estate and earn true passive income with DSTs.