I decided to start w fresh thread to answer DST questions.

As I understand and in my experience:

MY motivation: this is our 49th year. I don't want to be doing rentals til I'm 89 like a fellow local LL, or dead so my kids can inherit at a stepped up basis!

I almost died from prostate cancer and Wifey recently recovered from uterine cancer surgery. If anything happens to me SHE can live VERY comfortably on the monthly cash flow from these DSTs and just roll them into the next DST when the time comes.

Your kids don't want your RE.

But they will be super happy to inherit a fund that drops cash into their bank account every month with zero effort. A legacy of cash income, not real estate to handle.

The returns are low compared to what we can make with highly ACTIVE RE investing/flipping/renting. Key word: WORK!

Like many readers here I bought these at a lower price, they are paid off, have made me TONS of cash flow over the years to recoup my investment...but must continually be managed and repaired/upgraded.

Those awesome upgrades I made 10, 20 years ago are now outdated or worn and must be upgraded again to re-rent!

Equity does not make us money. So I'm cashing in on that new higher equity that was FREE - GIVEN to me by the market.

I did not have to work to add value. (We do spruce them up for the sale but not rehab)

5.1% DST on $225k is the same as 19% on my original $60k investment AS A SILENT PARTNER - NO WORK, NO EMPLOYEES, NO HASSLES! But remember I already got all that and more back in rent.

Me? Many of my props are totally or mostly depreciated out so I've lost that tax shelter, which means my taxes have gone up as the depreciation evaporates.

Caution to those who use advanced depreciation/cost segregation - it's fun now but you will quickly lose that tax shelter and then the required depreciation recapture when you sell will be brutal.

My CPA calculates I will pay up to 37% of the sales price to the IRS, EVEN WITH the smaller capital gains rates.

The rate of return is based on the profitability of those 5 commercial props in the single fund. As long as Home Depot keeps paying I assume we'll keep making our return.

I don't see any fees. They are built into the transaction. Surely these fund groups are making their share of profit which I'm OK with as long as *I* make money too.

Overall these fund groups plan to raise rents, reduce expenses, and gain market appreciation like we do with homes/ When they sell, sometime 4-7 years later *I* also share in their increase.

With each fund I can cash out when they sell, or 1031 it into another property or DST.

When they raise rents *I* share in that increase.

One fund I bought into carries 40% debt. As that debt is amortized (paid down) the equity of MY share increases.

All the deprecation taken on my prop rolls to the replacement prop (DST is considered a property) so if I still had $XXXX depreciation left, it would continue to depreciate at the same rate inside the DST and eventually run out.

BRAD

Prop to prop 1031s can be stressful. Details and deadlines, and buyers or sellers who don't perform ON TIME can mess up your 1031. I think I read that half of 1031s fail to happen. I always had both my sell and buy props on the closing table on the same day.

The common advice is to keep a DST in your back pocket, ready for a fast buy if your replacement prop bombs during the 45 day naming period.

Control: I don't need to control anything. The fund's staff of accountants and attys professionally control the props/leases/collections while I play at the MrLandlord Retreat in Cancun! No need for "managing remotely" or hiring help!

The DST return can change, it's based on the fund's profit, but the ones I bought into are set to increase x% each year. Know that our high yield savings account return has dropped.

I cannot sell or cash out until the fund sells the props unless I die.

Surprise: the good ones sell out fast and might not be available on the day you want so gotta watch the timing.

I use JRW Investing because the rep is good (Andres 626-629-0902) and they do A MOUNTAIN of research before recommending a fund - checking commercial data and leases for stuff I've never heard of. Currently there are 81 DST funds available but Andres only recommends 3 of them.

There comes a time in your life to change your investment criteria based on age, health, and family. We've made a fortune in RE by working hard, but now I want those years of work to work for me. And I don't want to saddle our kids or my Wifey with rental houses.

Make your own decisions for what works for you and your family.

I hope this thread was helpful.

"Make yer own decisions what works for you and yer family".

Already have, thanks.

Die Broke and let the Funeral Check Bounce.

Asset preservation is a valid point to invest into a DST.

If you feel the market has hit the top, buying fractional interest into a trust that built a class A property may make sense. It really depends on the plan on the place. Normally they time share or STR these places initially and then sell them off slowly.

A DST that buys NNN or NN assets is a bit wasteful. Why hire a manager and pay their fees for a hands-off investment. You can always buy one of these places and set it up as a TIC. These pay 7-7.5% and are hands free. Granted you might need to split that six figure rent check between a few partners instead getting it direct deposited into your own account.

Any salesperson worth their weight is going to give you 3-5 recommendations and ask you to pick the best fit for you.

There are also valid reasons why you need to be an accredited investor going into these syndications. If the market is at the top, what is going to happen to your potential appreciation? Even part of your initial investment might be loss. In a worse case, that new construction project goes belly up and you nothing. That typically doesn't happen. You are so true that you get to a certain point and it no longer becomes about the money. It is more about parking the cash instead.

I absolutely believe DSTs are valid tool to put any extra funds you might have left over from buying a 1031 property less than the property that you sold. DST are like the T-Bills of real estate - A very conservative play.

Could this solve my issues with family member with no money sense, which would make managing rentals extremely difficult? Can I sell the targeted for them and 1031 into a DST, giving them income but no responsibility from then on out?

Brad, you've given some good info, I appreciate it so much.

My kids said exactly what Brad wrote above. They don’t want my RE.

Yup Ken, nothing you can do about it and you would possibly lose your investment. This is why picking a solid player with a proven history underwriting the investments is more important than who you go through to buy them.

My returns are very high on my original investment but not nearly as much when you consider equity. It puts the DST and self management on a more level playing field.

WMH do you mean this in regards to a DST?

That is more private equity than DSTs.

Thank you Brad for helping with the understanding of this very complex (to me) undertaking. But yep kids don't want it and DH is tired of working on them. Just got a call this morning of a ceiling light filled with water from whatever is going on in the unit above it. (dear lord).

The risk seems great that you have to be a qualified investor, so you can assume (I assume) large risk. (eek)

The one I've been looking at would like a 200k min but may let me in for less. Check out Origin. I heard a video they did. It made a good impression. I've not spoke to them yet. If anyone else has had experience, I'd love to hear.

I will also check out who you mentioned.

This is a link to the webinar on Origin I viewed if I can post it here. I thought links were now okay on here.

This is very interesting to my husband and me since we are in the same position as many of you. Our depreciation is just about used up. The kids don't want the real estate because it is too much work. We have started investing in Syndications as limited partners-just putting money in but reaping distributions. The main idea is to not work so hard but the Syndicator MUST be vetted and have a good track record.

I don't want to buy my own commercial props because the tenant (Dollar General or whoever) has more lawyers than me. They can pressure the owner for giant repairs or improvements ornew parking lots on the threat of not renewing the lease, or in the case of a local Dollar General they moved out when they built a larger store across the street to add food - BG Market.

The DSTs I invest in have TONS of lawyers to keep the leasing profitable because THEY also have skin in the game.

A wise farmer taught me "there comes a time to stop fattening the pig and eat it."

DG come in three sizes primarily. 9,026 sq/ft, 9,100 sq/ft and 10,600 sq/ft. The fourth category that they have are custom build outs - typically found in strip plazas or in small malls.

That last category gets beat up hard at lease renewal. My DG signed a 15-year NNN lease that is completely hands off. They then have five 5-year NN lease options after that.

What am I am doing 40 years from now - I am not sure. But I know I will not be alive.

In the NN, they can request roof and HVAC work. Let's think this over. They want $50,000 for roof repairs and they will sign for another $600,000 in income. How many times are you wanting to do that?

I'm with you Ray. DG is very investor friendly. The key to me on DG is location. Don't buy a DG in small town USA where it is the ONLY store. They can rebuild quick and leave you with a metal box unable to rent. But every month on the 9th, rent is there via ACH. Didn't have to ask, but my copies of liability insurance showed up in my email. Never a bounce rent payment (looking at you H&R Block/Cushman Wakefield)...

And don't worry, we're not leaving the biz. We're keeping a smaller, highly profitable portfolio of super easy homes.

BRAD

Thank you, Brad and others, for all the details.

I don't think these things are a silver bullet, they are a interesting tool though.

Here are my thoughts:

Its still a 1031 if you want the money you will have to pay taxes at some point. 1031's just allow you to kick the can down the road.

Your still holding an asset until you die so your heirs can inherit at a stepped up bases. My concern would be liquidity of the DST when that time comes, you cannot always cash out.

5% isn't really a great return, you can draw 5% from your invested assets in the market just about forever and you will still get the gains on top of that. You can also do some stuff with loss harvesting to help with taxes. An investment portfolio in a trust is a about as easy for your children to inherit as it gets.

My concern is the underlying assets, real estate is still real estate. Just because its big doesn't mean they cannot make bad bets and fail, plenty have.

Brad,

The up reit investment (721) options are much more limited.

I don’t think of the DST as an investment. For me it’s plain and simple tax avoidance. The returns are modest. If you are lucky they do well your overall returns are higher. There is the yearly return and the potential of another gain upon sale.

So I consulted two financial advisors about DST's and if I get closer to selling I'll set up a meeting with one, a couple of things I discovered:

If you own the property with a business partner you basically both have to do it, they said its very hard to unwind a partnership going into a DST.

You need a good intermediary you can't touch the money.

Two year lock, in which they pay you 4.5% on your money. After that its 6% but you can withdrawal its just not super fast. Think of it like owning real estate you have some friction. Also taxes come due on withdrawal, its a 1031 after all.

What I still have a question on is this. I'll use one of our sites as an example. Its worth $4.5M and we have a $2.9m mortgage on it. So we would need to put it into a DST that finds us a similar property for two years IE a multi that is worth at least $6.75 million, ie 50% more. Some DST's offer a leverage option so we would put our $1.9 in equity against it and pull out a loan for the rest. I'm not sure how that would work since we would pay the note out of our return which much make it pretty poor. That is still a question I have.