1031 options- DST's- yay or neigh?

Question

We are about to sell a property with a net of approx 1M. I'd love to hear more experienced investor's thoughts on diversifying and reinvesting this. Background: My husband is very close to retirement (maybe 2-3 yrs?) We have 3 rentals (commercial, shop & SFH), maxed 401K, FI etc... Ideally we would like to use this to generate more income for retirement. The local market is super high (MT) and low inventory. I am younger and content to still work or jump in to something new as self employed, so I would consider businesses, passive investments, or more RE. I've just jumped in to REI this past year, so I'm a newbie and we weren't expecting to sell this property for at least another 5 years, but here we are... I have a meeting scheduled w/ a Financial Planner but I'd love to learn from this community as well.

I've briefly looked in to DST's because it would buy us some time to make decisions and let the market soften, but I'm not well educated (yet) on DST's and I don't love the returns. It just feels like an "easy button." What are your thoughts on DST's?

Can we split the profit for part 1031 and use a portion for other investments? (yes we'd have to pay capital gains if it's not RE) Should we consider a business? Any wisdom for me? Thanks so much!

I've briefly looked in to DST's because it would buy us some time to make decisions and let the market soften, but I'm not well educated (yet) on DST's and I don't love the returns. It just feels like an "easy button." What are your thoughts on DST's?

Can we split the profit for part 1031 and use a portion for other investments? (yes we'd have to pay capital gains if it's not RE) Should we consider a business? Any wisdom for me? Thanks so much!

Taylor L. · Answer

From my observation a few of those aspects of the DST are somewhat pitched as features, rather than bugs. The 'easy button' nature of it (super passive) and modest returns (part of the structure re: capital inflows) fit some folks' priorities. I think there is a lot of risk in hiring the wrong financial planner.

Nicole Sternad · Answer

Thanks Taylor and Dave. I absolutely agree there's risk in hiring the wrong FP, I had a discussion about that today. Also agree that DST's seem to be a "holding tank" and sometimes that has value. Personally I'd like to see more growth and actually "do something" w/ this investment, but I wouldn't be surprised if we take a serious look, like you said, at the very least to fill in corners. Trying to identify a property in this market feels insane but I know it can be done, just need to make the right connections. Dave, I think I spoke w/ your company a few weeks ago, very helpful. I want to learn more about syndications and other RE opportunities as well.

Dave Foster · Answer

@Nicole Sternad, You'll hear a dozen different takes on DSTs.  Some love em.  Some don't Some are looking at them as a growth vehicle.  And that is probably where the disconnect comes.  They're much better as a place holder or generator of retirement wealth since they are generally very conservative and the returns reflect that. And there are quite a few folks out there who have kept a lot of legacy wealth going through that particular vehicle.

But it is not uncommon for our clients to sell an asset and divide the proceeds into several different DSTs or a combination of a DST and bricks and mortar real estate.  And it's very common for clients to use a DST or two as back ups in case they can't find exactly what they're looking for.  Or to fill in the corners of a 1031 if they find a good replacement property worth less than their sale.