1031 fees vs owning private RE

3 Replies

Hi!

Can anyone give me a rough estimate of a fee comparison of buying into a DST vs buying a private RE deal? Looks like the DST has fairly high fees with 11% right away for acquisition/marketing/commissions/etc and then ongoing management fees. What are the typical broker commissions on owning a private deal?

Thanks!

If you go the DST route (I’m in that space), go with a registered investment adviser (RIA) as opposed to a Financial Adviser who is a broker. All those upfront loads/commissions are waived and credited back to you. Not a knock against FAs...just a difference in structure.

I can’t speak for all registered investment advisers, but my fee ranges from 1-4% depending on several factors. I’d expect most RIAs to fall in that range.

Remember, you have to be accredited to invest in a DST.

I’m sure a real estate broker will hop in this thread with general costs for buying real estate directly. Depending on size of deal, I’d expect anything from 2-4%...but there’s plenty of factors that could drive this.

@Dave Foster Is knowledgeable about 1031s and might be able to answer your question better than I. Broker commission varies from 1-3% depending on the deal/market/agent. 

Don't forget to consider liquidity when making your decision. In my experience, a DST is generally marketed as a retirement investment where you're not going to be concerned with getting cash quickly, but you're happy with tax savings being inherited by your successors.

DSTs are no more liquid than any other real estate. However, you have more liquidity options with a directly owned piece of real estate for sure. Cash out refi, sell when you want, etc. With a DST, you get out when the sponsor sells the property.

That said, they work great for people wanting to exit real estate altogether and defer tax...but also for people who want to invest directly in passive real estate and just collect a check. You could always go the route of buying property and hiring a manager, but in my experience you’re never truly hands off in that scenario.

There are a couple of DST sponsors that either have or are considering adding a liquidity provision to their DSTs which is a cool feature depending on the circumstance.

Pros and cons to both. Really depends on what you’re looking to accomplish.

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