Know A Good DST Company ?

1031 Exchanges
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Know A Good DST Company ?

AS Chow
Member since 2019 · 4 posts · 4 votes

So I've gone through the entire 1031 Exchange Forum and there are very few posts on DST Companies. I am a complete novice at the entire Real Estate game. (I inherited partial ownership in several buildings more than 20 years ago.)

I'm not even sure who the big DST companies are...

I'd like to hear if anyone has invested in one, and would they recommend it ?  What have been your actual returns ?

I worry about fee's and don't really see it mentioned very often. 

I have large Capital Gains coming (1-2m) and would like to at least defer them so I can spread them out over a number of years.  I live in California and the state tax is high.

(I don't have any children to pass it down to, and I can't take it with me, so I'm not concerned about defering it forever.)

Also I have ZERO desire to become a Landlord of any kind. I'd just pay the Cap Gains if being a Landlord was the only option. DST companies might not give the best return but I'll be ok with smaller returns.

Oh and if anyone knows when it says 7-10 years holding period ... what does that mean exactly ? I'd prefer knowing the year, so I could choose different lengths.  

Thanks ! 

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Jacqueline Gardiner
Engineer · Genoa, NV · Member since 2016 · 87 posts · 59 votes
6y

I wanted to chime in and say that I would no longer recommend Rockwell. One of the two investments that I made with them has gone south because the tenant has filed bankruptcy. The general consensus is that we overpaid for the property based on inflated rent rates and so we don't have any desirable exit strategy.

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  • Brandon BruckmanPro Member
    Financial Advisor · Milwaukee, WI · Member since 2018 · 110 posts · 96 votes
    7y

    Inland, Passco and AEI are three of the largest and longest tenured firms in the space. The 7-10 years depends on the ability to sell the property. You would have to really dig in with the sponsor to understand their intentions deal by deal.

    Fees for each deal are different and classified very differently as well. I’ve categorized and calculated averages for a large section of deals.

    I did something very similar with historic returns.

    I can talk through this with you on a call. Shoot me a note direct.

    8Reply
  • Jacqueline Gardiner
    Engineer · Genoa, NV · Member since 2016 · 87 posts · 59 votes
    7y

    @AS Chow. I read through several of the DST offerings and ultimately decided to go with a couple of TIC properties offered by Rockwell Debt-Free Properties. With those, you at least have the option of selling off a part or all of your interest to another investor after a few years. With the DST offerings, the sponsor is going to decide when to sell based on the market and you won't have any control over when that is.

    The reason you don't see much about the DST offerings is that all of them that I saw are for accredited investors only and so you can't get any information until you sign up with one of the investment advisors who offers them and provide them with some assurance that you are accredited.

    Leslie Pappas on Bigger Pockets is one of the advisors who can provide you with DST offerings to review. Another is Cornerstone R.E. Investment. (I never had any personal contact with the latter, but I am on their mailing list and get a regular list of potential investments to look through. Leslie provided more personalized service and set up regular conference calls so that one can hear about the details of various offerings directly from the sponsors.)

    The details of the offerings are rather extensive and filled with a lot of legal jargon, disclaimers, and risk analysis. They do not make for enjoyable reading.

    I hope that you will find this helpful. Good luck!

    5Reply
  • Jay Hovis
    Member since 2018 · 8 posts · 1 vote
    7y

    Just sent you a private message! Feel free to reach out.

    0Reply
  • Account Closed
    Attorney · Fort Lauderdale, FL · Member since 2019 · 8 posts · 4 votes
    7y

    @AS Chow, Brandon is accurate with the top three largest, though there are a lot more sponsors that have varying DST portfolios. The fees are built into the portfolio where the sponsor earns on their spread over the actual yield to investor, so there is no decrease to capital going into the portfolio. You can absolutely spread your funds around into multiple DST portfolios with different objective and timelines. Returns can range from 4-6% annually. The holding periods are never set, though the sponsors typically like to get out in 5-7 years, but that differs across sponsors and portfolios. The sponsor would sell out of their portfolio investments, dissolve the DST, and return capital and any gains to investors, at that time you can 1031 into another DST or building direct if you wanted. Happy to answer any more questions you may have. Best!

    2Reply
  • Mike Jacobson
    Rental Property Investor · Rochester MN · Member since 2018 · 64 posts · 106 votes
    7y

    @AS Chow There is some good discussion is going on about DST's in another thread. Search for the thread " Delaware Statutory Trust DST 1031 exchange Difficulty giving up control".

    3Reply
  • Randy Wallis
    Rental Property Investor · Boca Raton, FL · Member since 2019 · 6 posts · 2 votes
    7y
    pretty much spot on with the experience I had in mine.

    @AS Chow, Brandon is accurate with the top three largest, though there are a lot more sponsors that have varying DST portfolios. The fees are built into the portfolio where the sponsor earns on their spread over the actual yield to investor, so there is no decrease to capital going into the portfolio. You can absolutely spread your funds around into multiple DST portfolios with different objective and timelines. Returns can range from 4-6% annually. The holding periods are never set, though the sponsors typically like to get out in 5-7 years, but that differs across sponsors and portfolios. The sponsor would sell out of their portfolio investments, dissolve the DST, and return capital and any gains to investors, at that time you can 1031 into another DST or building direct if you wanted. Happy to answer any more questions you may have. Best!

    1Reply
  • Jacqueline Gardiner
    Engineer · Genoa, NV · Member since 2016 · 87 posts · 59 votes
    6y

    I wanted to chime in and say that I would no longer recommend Rockwell. One of the two investments that I made with them has gone south because the tenant has filed bankruptcy. The general consensus is that we overpaid for the property based on inflated rent rates and so we don't have any desirable exit strategy.

    10Reply
  • Tien Ly
    Member since 2019 · 11 posts · 2 votes
    6y

    Wow, thank you for sharing the info, Jacqueline. Was it a STNL property? Is Sponsor going to look for another tenant? Was the property debt free?

    0Reply
  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    6y

    DST's often overpay for properties. They make money off of the fees going in. If you are paying a premium you better make sure the tenant is really strong (typically Standard and Poor's) BBB- Investment grade rating or better. Some developers build STNL and in agreement for tenant to receive heavy TI's (tenant improvements) they agree to pay above market rents. This helps developer recover higher sales price on resale than they spent in extra TI's.

    DST's can work in certain situations but there can be other investment alternatives. One thing I have seen is someone wanting to own directly but buying in the 2 million range. Lots more buyers in the 2 million range and many all cash so best case might get a 6 cap whereas if a DST is a buying a 20 million property the cap rate and loan available can change for higher returns. With a DST you also lose control with voting rights and controlling the exit timing to a degree.

    There is pluses and minuses and not one solution fits all. There are just solutions after investors research that they decide give them more positives than negatives to go that direction.  

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    2Reply
  • Jacqueline Gardiner
    Engineer · Genoa, NV · Member since 2016 · 87 posts · 59 votes
    6y

    @Tien Ly Yes, it is a STNL property. The sponsor is no longer involved. Once the deal closes, it's up to the TIC owners to work with each other to make decisions. That was my biggest concern going in, but in retrospect, I should have been much more concerned with other aspects of the deal.

    4Reply
  • Tim Jensen
    Rental Property Investor · Rockford, IL · Member since 2010 · 65 posts · 45 votes
    6y

    I am going to assume, then it might make sense to go with a major player in the dst's. You may not make as big of a return, but the downside is a lot less. Correct me if I'm wrong.

    2Reply
  • Kyle Winther
    Financial Advisor · Los Angeles · Member since 2020 · 53 posts · 19 votes
    6y

    The biggest DST sponsors are Inland, AEI, and Pasco. We work with all of them. Hope that helps!

    0Reply
  • Paul MoorePro Member
    Commercial Real Estate Fund Manager · Lynchburg, VA · Member since 2015 · 1k+ posts · 1k+ votes
    6y

    To add to this old thread... there are now Delaware Statutory Trust options that allow investors to directly invest with sponsors - which can avoid front-end loads.  That has long been a criticism of this structure, but this can help boost returns. 

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  • Vladimir Kotomin
    Member since 2021 · 10 posts · 2 votes
    5y
    Originally posted by @Paul Moore:

     there are now Delaware Statutory Trust options that allow investors to directly invest with sponsors - which can avoid front-end loads.  

    I am looking for such a DST. Can anyone recommend them? Is due diligence a concern when the broker-dealer is not involved?

    1Reply
  • Paul MoorePro Member
    Commercial Real Estate Fund Manager · Lynchburg, VA · Member since 2015 · 1k+ posts · 1k+ votes
    5y

    Hi Vladmir, I don't have a DST available at this time, but I would point you to @Mark Creason - he can help you! @Vladimir Kotomin

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  • Mark Creason
    Real Estate Lender and Broker · Dallas, TX · Member since 2013 · 966 posts · 500 votes
    5y

    @Paul Moore

    Thank you for the recommendation.  I would be happy to discuss DSTs with Vladimir.

    Mark

    1Reply
  • Vladimir Kotomin
    Member since 2021 · 10 posts · 2 votes
    5y

    I am not looking to someone to sell me a DST. My inbox is full of these messages. I am looking for a DST sponsor that does not employ broker-dealers and sells directly.

    0Reply
  • Joe SeraBusiness Member
    MD · Member since 2021 · 29 posts · 16 votes
    5y

    @Vladimir Kotomin You can't purchase a DST directly from a DST Sponsor, you must use either: a commission based Broker-Dealer (BD) or Registered Investment Advisor (RIA).  

    0Reply
  • Perry L.
    Investor · SAN FRANCISCO, CA · Member since 2012 · 42 posts · 10 votes
    4y
    Quote from @Joe Sera:

    @Vladimir Kotomin You can't purchase a DST directly from a DST Sponsor, you must use either: a commission based Broker-Dealer (BD) or Registered Investment Advisor (RIA).  


    Here is my understanding: RIA gets DST from BD. The structure is very rigid for SEC compliance. Sponsor-BD-RIA-Investor. However, BD and RIA can reduce commission at their discretion.

    0Reply
  • Account Closed
    Manhattan Beach, CA · Member since 2021 · 76 posts · 40 votes
    4y

    I'll send you a message

    0Reply
  • Kristen Schade
    Residential Real Estate Broker · Savage, MN · Member since 2015 · 8 posts · 3 votes
    4y

    @Paul Moore what are the companies where you can go direct??  I am looking to do something but a bit hesitant with the up front fees especially given the limited upside and risks involved in today's market.  Thanks!

    0Reply
  • Celia Moore
    Specialist · Portland, OR · Member since 2020 · 97 posts · 109 votes
    4y

    Inland is huge in the DST space! Robert Smith of Peregrine Private Capital works for Inland and is the broker we use for our deals. He also has an immense video library on the topic: https://www.youtube.com/channe... 

    0Reply
  • Matthew Shedd
    Member since 2018 · 20 posts · 17 votes
    3y

    BP Braintrust,

    I'm looking for some insights/perspectives on DST OR alternatives. My wife and want to move away from the traditional ownership of small residential properties. We've recently invested in syndications and are very happy with the hands-off nature of the investment along with returns. Moving forward, we'd like to unload our rentals and move the proceeds into syndications, however, we do not have the accumulated losses to offset capital gains/recaptured depreciation for our rental properties. We don't want to do a 1031 exchange into another property, but rather move the proceeds to a truly passive investment like a syndication or DST. We're just starting our education in the DST space. Each syndicator we've talked to cannot accept a 1031 into the syndication unless it's a TIC structure and the few that do it, only do it for existing clients/investors. DSTs, however, do accept and/or are designed for 1031s.

    I see the most common DST returns to be in the 4-5% range. DST providers/literature often cite that though the return is low, when combined with the tax deferred benefit, it's better than selling an asset, paying the capital gains, and reinvesting in a normal syndication. Of course the proof is in the actual investments and numbers, but this assertion seems unlikely based on the value-add upside normal syndications can provide which DSTs can't. I would welcome any feedback on viable 1031 options as well as alternative options that will yield the same or higher long-term returns. Thanks.

    0Reply
  • Alex Olson
    Real Estate Broker · Kansas City Metro · Member since 2015 · 2k+ posts · 1k+ votes
    3y
    Quote from @Matthew Shedd:

    BP Braintrust,

    I'm looking for some insights/perspectives on DST OR alternatives. My wife and want to move away from the traditional ownership of small residential properties. We've recently invested in syndications and are very happy with the hands-off nature of the investment along with returns. Moving forward, we'd like to unload our rentals and move the proceeds into syndications, however, we do not have the accumulated losses to offset capital gains/recaptured depreciation for our rental properties. We don't want to do a 1031 exchange into another property, but rather move the proceeds to a truly passive investment like a syndication or DST. We're just starting our education in the DST space. Each syndicator we've talked to cannot accept a 1031 into the syndication unless it's a TIC structure and the few that do it, only do it for existing clients/investors. DSTs, however, do accept and/or are designed for 1031s.

    I see the most common DST returns to be in the 4-5% range. DST providers/literature often cite that though the return is low, when combined with the tax deferred benefit, it's better than selling an asset, paying the capital gains, and reinvesting in a normal syndication. Of course the proof is in the actual investments and numbers, but this assertion seems unlikely based on the value-add upside normal syndications can provide which DSTs can't. I would welcome any feedback on viable 1031 options as well as alternative options that will yield the same or higher long-term returns. Thanks.


    I have a 1031 DST group that is excellent. He does not put your money in a simple inland fund or some other big conglomo with 4% returns. DM and I can try to connect you.

    0Reply
  • Account Closed
    Manhattan Beach, CA · Member since 2021 · 76 posts · 40 votes
    3y
    Quote from @Matthew Shedd:

    BP Braintrust,

    I'm looking for some insights/perspectives on DST OR alternatives. My wife and want to move away from the traditional ownership of small residential properties. We've recently invested in syndications and are very happy with the hands-off nature of the investment along with returns. Moving forward, we'd like to unload our rentals and move the proceeds into syndications, however, we do not have the accumulated losses to offset capital gains/recaptured depreciation for our rental properties. We don't want to do a 1031 exchange into another property, but rather move the proceeds to a truly passive investment like a syndication or DST. We're just starting our education in the DST space. Each syndicator we've talked to cannot accept a 1031 into the syndication unless it's a TIC structure and the few that do it, only do it for existing clients/investors. DSTs, however, do accept and/or are designed for 1031s.

    I see the most common DST returns to be in the 4-5% range. DST providers/literature often cite that though the return is low, when combined with the tax deferred benefit, it's better than selling an asset, paying the capital gains, and reinvesting in a normal syndication. Of course the proof is in the actual investments and numbers, but this assertion seems unlikely based on the value-add upside normal syndications can provide which DSTs can't. I would welcome any feedback on viable 1031 options as well as alternative options that will yield the same or higher long-term returns. Thanks.

    Sent you a DM with some info!
    0Reply
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