Know A Good DST Company ?

13 Replies

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 ! 

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.

@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!

@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!

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!

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.

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.  

@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.

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.

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.