1. Turnkey Investing

DSTs let you participate in large-scale commercial properties (e.g., multifamily, industrial, healthcare) with relatively small capital—often starting at $100K–$200K. Instead of managing leases, maintenance, and upkeep, you collect reliable passive income.

2. Strict “Yes/No” Structure

Under IRS rules, DST sponsors must follow a passive structure—no renegotiation of loans, no property reinvestment, no additional capital calls. This certainty minimizes investor uncertainty and helps meet IRS compliance for 1031 exchanges.

3. Diversification & Scale

By investing in one or more DSTs, you can diversify across property types, geographies, and sponsors. This helps reduce risk through a professionally managed portfolio rather than a single asset.

4. Flexibility & Liquidity

DSTs can offer greater flexibility than traditional real estate. Many run for 5–10 years or until sale, at which point investors receive proceeds and can 1031 exchange again—or opt for cash-out.

5. Estate Planning Advantages

Owning property through a DST allows heirs to inherit assets at a stepped-up basis, potentially eliminating capital gains on appreciation. Plus, trusts can hold property beyond the investor’s lifespan—streamlining estate settlement.

---

What to Watch Before Investing in a DST

---

DSTs vs. Tenants-in-Common (TIC)

• DSTs: Passive, IRS-friendly structures; no investor-level debt, easy post-acquisition consistency.

• TICs: Investors share ownership and decision-making—loans are pro-rata and require lender approval for changes; more exposure to investor-panel decisions.

---

Investment Timeline

1. Hold Phase

   • Sponsor manages property, distributes net income.

   • No active capital events; minimal to no investor involvement.

2. Exit Event

   • Property is sold per the trust term.

   • Net proceeds are distributed proportionally.

   • Investors can complete another 1031 exchange, liquidate, or roll into another DST.

---

Conclusion: Is a DST Right for You?

If you’re seeking passive income, streamlined diversification, and a hassle-free structure with 1031 eligibility, DSTs may be an excellent fit. They offer a compliant, professionally managed investment vehicle without the complexities of direct ownership.

Take the Next Step:
Schedule a consultation with a qualified sponsor or trusted advisor to explore available DST offerings, verify sponsor credentials, and ensure alignment with your 1031 strategy.

FAQ’s

1. How do I evaluate whether a specific DST offering is a good fit for my 1031 exchange needs?

Evaluating a DST offering involves a combination of qualitative and quantitative analysis. Here are the key steps:

• Sponsor Reputation: Start by reviewing the track record of the DST sponsor. Look for years of experience, past project outcomes, and transparency in reporting. Independent third-party ratings can also help.

• Property Fundamentals: Examine the underlying real estate—location, tenant quality, lease duration, asset class (e.g., multifamily, industrial), and demand-supply trends in the local market.

• Loan Structure: Ensure the debt is non-recourse (you’re not personally liable) and ideally fixed-rate. DSTs cannot refinance, so the loan terms are locked in from the start—making them critical to analyze.

• Projected Cash Flow: Review the expected distributions and whether they are net of fees. Are they sustainable given rent rolls, occupancy, and reserves?

• Exit Strategy: Understand the estimated holding period and what happens at the exit (e.g., forced sale vs. market-timing flexibility). Make sure it fits your own long-term financial and tax planning.

A qualified DST advisor can help interpret offering memoranda and identify risks versus rewards tailored to your goals.

---

2. What happens if the DST property underperforms or sells earlier/later than expected?

DSTs are structured to offer predictable timelines, but market conditions can affect outcomes. Here’s how various scenarios are typically handled:

• Underperformance: If occupancy drops or major expenses arise, distributions to investors may be reduced. However, DSTs usually hold cash reserves to cushion short-term issues. Sponsors provide ongoing performance reports so you can track income trends.

• Early Sale: While DSTs generally follow a 5–10 year hold strategy, properties can sell earlier if favorable market conditions arise or if asset performance declines. If this happens:

  • You’ll receive your pro-rata share of the net proceeds.

  • You can reinvest into a new DST or use another 1031 exchange opportunity to defer taxes.

• Delayed Sale: A delayed sale could extend your tax deferral but may affect liquidity and estate planning. Sponsors may allow for extensions depending on trust terms.

Importantly, DST investors have no control over management decisions—including sale timing—so understanding the sponsor’s philosophy on exits is key before investing.

---

3. Can I mix DSTs with other replacement properties in a single 1031 exchange?

Yes, you can mix DST investments with other replacement properties in a single 1031 exchange—as long as the IRS rules are followed:

• Multiple Replacement Properties: The IRS allows up to three properties identified (the “three-property rule”) or more under the “200% rule” (total value doesn’t exceed 200% of the relinquished property).

• DSTs + Direct Real Estate: You might, for example, place 60% of your exchange value into a DST and 40% into a directly owned rental property. This approach helps balance passive income with control.

• Flexibility in Allocation: Because DST minimums are often low (e.g., $100K), they’re useful for rounding out an exchange portfolio, especially if your relinquished property sells for a non-even number.

A skilled Qualified Intermediary (QI) and tax advisor can help structure the exchange to comply with IRS timelines, identity rules, and reinvestment amounts to fully defer capital gains tax.