Researching Your Options
Know your tax consequences. How much is your capital gains tax, depreciation recapture, and loss of step-up if you don't 1031? Understand each option: buy another property, take cash out, or use a DST.
Real estate is an incredible investment. But it can be a lot to manage and maintain. Eventually, most investors hit a point where they ask: Do I still want to manage this? A DST is worth exploring if you’re thinking about stepping back from landlord duties, selling a ranch, exiting a partnership, or just wanting your time back while staying invested. It’s a way to keep your wealth in real estate without the responsibilities.
DSTs are made up of institutional-quality properties pooled into a trust. You purchase a percentage and collect passive income. A professional manager handles everything else.
For many investors, the real value is what a DST solves all at once. You keep your wealth in real estate, gain access to property types that would be difficult to purchase individually, and free up your time. Whether you’re using a DST as your primary 1031 replacement, a backup to protect your exchange, or a place to put leftover proceeds, the structure is built to be practical.
Some of the most valued reasons for choosing a DST are:
Collect rent checks without landlord duties.
Professional team handles tenants, maintenance, and repairs.
Defer capital gains taxes through a 1031 exchange.
Potential ownership of multiple properties instead of one.
Get started with less capital than individually buying property outright.
Institutional-quality properties with professional oversight.
Get your life back while staying invested in real estate.
DST investments are available only to accredited investors. They are illiquid by nature and involve risks, including the potential loss of principal. This is not an offer to sell securities.
Know your tax consequences. How much is your capital gains tax, depreciation recapture, and loss of step-up if you don't 1031? Understand each option: buy another property, take cash out, or use a DST.
What are your top priorities? Tax deferral, reliable passive income, exit from management, estate planning, or unwinding a partnership? Know your "pinch point." This shapes everything that comes next.
You have closed on your relinquished property, your money is in a qualified intermediary account, and you now have 45 days to identify a replacement property and 180 days to close on it. The real question: If you are considering a DST, which DST aligns with what you're trying to accomplish? Now is the time to evaluate your options and find the DST that fits your goals.
When choosing the right DST, start with some of the basics. What follows are a few of the considerations when investing in a DST. There are other items to understand, but this will bring a foundation to the design of the investment.
Look at the quality, location, and demographics surrounding the property/s, as that can affect value and returns. Review risks and fees. Know the tenant occupancy rates and whether tenants are financially solid. And confirm you qualify for a 1031 exchange if tax deferral matters to you.
I take a consultative approach. We start by understanding what matters most to you, walk through your options, and lay out your best move forward together.
Want to talk through whether a DST fits your situation?
Yes. DSTs are private placements under federal securities regulations, so they are only available to accredited investors. Generally, that means an individual with a net worth over $1 million (excluding their primary residence) or annual income over $200,000 individually ($300,000 jointly) for the last two consecutive years.
Most DSTs provide income beginning the month after you close on the project. Expect the first month’s distribution to be prorated based on your ownership period. Typical yields range around 4-6% annually, though returns vary by project and are not guaranteed.
One exception: zero-coupon DSTs do not distribute income. These are structured so that collected income services the debt on the property, and they are typically used as a blending tool to help match debt requirements.
Usually just a few days. This makes DSTs particularly useful for investors working within tight 1031 exchange deadlines.
Yes. A DST qualifies as like-kind replacement property under IRS Revenue Ruling 2004-86 and can be formally identified on your QI’s identification form within the 45-day window. Many investors name a DST as a backup alongside a traditional property purchase to protect the exchange if the primary deal falls through.
Yes. When a DST is involved in a reverse exchange, it is often used in conjunction with a boot in a multiple-property purchase. Reverse exchanges are more complex and require funds to be in place upfront, so advance planning is important.
It depends on your goals. Spreading funds across multiple DSTs offers diversification across asset classes, geographies, and hold periods. It can also help match debt requirements, since different DSTs carry different loan-to-value ratios (typically 25%-70%). Consolidating into one simplifies paperwork and tax reporting. Both approaches have trade-offs. Call us and we can walk through the math with you.
Plan sponsors make every effort to give timely notification of a pending sale, with about 45 days of lead time being a common expectation. From there, investors can take the proceeds (triggering taxes) or execute another 1031 exchange into a new replacement property. The key is to have your strategy in place before that notice arrives.
DSTs hold real property, so the underlying assets can appreciate depending on market conditions and property performance. At liquidation, the sponsor sells the property and distributes proceeds to investors based on their fractional interest. Investors can then take the distribution (which triggers capital gains and depreciation recapture taxes) or do another 1031 exchange to continue deferring. If held through to an investor’s estate, the step-up in cost basis may eliminate those taxes entirely for heirs.
Minimums vary by sponsor and project but are generally much lower than purchasing institutional-quality real estate directly. This is part of what makes DSTs accessible for 1031 investors.
Yes. As a DST investor, you hold a fractional beneficial interest in real property, so depreciation passes through to you and can offset the income you receive on your tax return. If you are coming from a 1031 exchange, your depreciation schedule from the prior property carries forward. Coordinate with your CPA on how this applies to your specific situation.
Yes. You will receive a 1099 or similar statement annually, reported on Schedule E as passive income. If the DST holds properties in multiple states, there may be additional state filing requirements.
Project sizes range from around $20 million to several hundred million dollars, depending on the asset class and whether multiple buildings are included. Once a sponsor has sold all available investor interests, the project closes to new capital, so availability can move quickly.
A Qualified Intermediary (QI) is an independent third party who holds your sale proceeds and facilitates the 1031 exchange. IRS rules require that someone other than the taxpayer receive the funds from the sale. Without a QI, you risk “constructive receipt,” which voids the exchange and triggers the full tax.
Yes, use one. Rod coordinates directly with your QI to make sure the exchange is structured correctly from the start.