Comprehensive Guide to DSTs - Delaware Statutory Trust

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DST Strategy – Complete your 1031 Exchange through a DST for passive ownership in institutional-grade real estate.

QOZ Opportunity – Defer or eliminate capital gains by reinvesting through a Qualified Opportunity Zone fund.

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Directory:

CHAPTER 01 What Is A Delaware Statutory Trust?

CHAPTER 02 The History and Legal Foundations of the DST

CHAPTER 03 How DSTs Work Within a 1031 Exchange

CHAPTER 04 The IRS Rules Governing DSTs

CHAPTER 05 The Tax Benefits of DST Investing

CHAPTER 06 Beyond Taxes: The Other Benefits of DSTs

CHAPTER 07 Who Should Consider A DST?

CHAPTER 08 Understanding the Risks and Considerations of a DST

CHAPTER 09 Types of DST Properties and Asset Classes

CHAPTER 10 The Parties to a DST Investment

CHAPTER 11 A Step-by-Step Guide to Investing in a DST

CHAPTER 12 DST Exit Strategies: When The Trust Sells

CHAPTER 13 The 721 Exchange and the UPREIT

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I’M ON A DEADLINE! – The 45-day clock is ticking. Get help identifying replacement options now.

DST Strategy – Complete your 1031 Exchange through a DST for passive ownership in institutional-grade real estate.

QOZ Opportunity – Defer or eliminate capital gains by reinvesting through a Qualified Opportunity Zone fund.

Energy Investment – Explore oil, gas, and mineral rights strategies designed for current income and significant tax advantages.

Marketplace Inquiry – Talk through a specific property you’re considering or get strategy guidance on a current offering.

Not Sure Yet – I’d like Daniel’s expert guidance on which path fits my situation.

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Understanding The Risks and Considerations of A DST

If you’ve read this far, you’ve heard a great deal about what makes Delaware Statutory Trusts attractive. A guide that stopped there would be doing you a disservice. Every worthwhile investment carries risk, and a DST is no exception. The mark of a good investor — and a trustworthy guide — is a willingness to look squarely at the downside.

So let’s do exactly that. Below are the six risks every prospective DST investor should understand. Notice a pattern as you read: nearly every one of them is manageable, but only for an investor who goes in prepared and surrounds themselves with capable advisors. Knowledge, here, really is power.

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Risk No. 1: There Are No Guarantees

A DST is a real estate investment, and real estate values fluctuate. Property values can decline, tenants can default, and broad economic downturns spare no one. In a severe market downturn, DST investors (like nearly every other kind of investor) can see properties that had looked like sure things lose substantial value, and some may suffer real losses.

The honest response isn’t to pretend this away, but to plan for it. Diversification across property types and markets softens the blow of any single failure, and no sound investment plan should be built around either the hope of guaranteed returns or the fear of a once-in-a-decade catastrophe. Risk of loss is simply the price of admission to investing of any kind.

Risk No. 2: You’re a Passenger, Not the Driver

We’ve said it before, and here it counts as a risk: in a DST, you don’t control anything. You hold beneficial interests, not title, and the sponsor makes every decision: how the property is managed and when it’s sold. If you’re the sort of investor who spots a struggling anchor tenant and wants to act, the inability to do so can be genuinely frustrating.

The safeguard is upstream, in the choice of sponsor. A capable advisor will vet a sponsor’s track record before you invest, favoring one that has navigated both good and bad markets. You can’t steer the car, so it matters enormously who’s driving.

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I’M ON A DEADLINE! – The 45-day clock is ticking. Get help identifying replacement options now.

DST Strategy – Complete your 1031 Exchange through a DST for passive ownership in institutional-grade real estate.

QOZ Opportunity – Defer or eliminate capital gains by reinvesting through a Qualified Opportunity Zone fund.

Energy Investment – Explore oil, gas, and mineral rights strategies designed for current income and significant tax advantages.

Marketplace Inquiry – Talk through a specific property you’re considering or get strategy guidance on a current offering.

Not Sure Yet – I’d like Daniel’s expert guidance on which path fits my situation.

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Risk No. 3: Your Money Is Locked Up

DST interests are illiquid by design. Hold periods typically run five to ten years, and there is no active secondary market where you can readily sell your stake if your plans change. An unexpected need for cash — a medical emergency, a family obligation — can collide painfully with capital that is inaccessible.

The defense is basic financial hygiene: never place money you may need in the near term into an illiquid investment, and keep a sufficient emergency fund in liquid accounts first. A DST should be funded with capital you can afford to leave working for years.

Risk No. 4: Fees Can Erode Returns

DSTs come with a layered fee structure — acquisition fees, asset management fees, disposition fees, and others — and those costs are real. Even a seemingly modest annual drag can compound into meaningful money over a decade-long hold, quietly turning a projected return into a smaller realized one.

None of this makes DSTs a poor choice; sponsors are entitled to reasonable compensation, and fees are part of every managed investment. But the costs must be weighed honestly against the tax savings and income a DST offers, and a good advisor will help you scrutinize a deal’s cost structure with clear eyes. You’re in this to improve your bottom line.

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Step 1 of 3 – Step 1 of 3 – What Brings You Here Today?

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Step 1 of 3 – What Brings You Here Today?

Select your service*

I’M ON A DEADLINE! – The 45-day clock is ticking. Get help identifying replacement options now.

DST Strategy – Complete your 1031 Exchange through a DST for passive ownership in institutional-grade real estate.

QOZ Opportunity – Defer or eliminate capital gains by reinvesting through a Qualified Opportunity Zone fund.

Energy Investment – Explore oil, gas, and mineral rights strategies designed for current income and significant tax advantages.

Marketplace Inquiry – Talk through a specific property you’re considering or get strategy guidance on a current offering.

Not Sure Yet – I’d like Daniel’s expert guidance on which path fits my situation.

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Risk No. 5: The Tax Rules Could Change

The entire DST edifice rests on IRS Revenue Ruling 2004-86. In theory, the IRS could change its position, or rule unfavorably on a particular offering… and an investor who had deferred a large gain could suddenly face that tax bill, along with interest and penalties.

In practice, a properly structured DST sits comfortably within current IRS rules, and this risk is best managed by ensuring a deal is soundly structured in the first place — which, again, is where experienced professionals earn their keep. The danger lies far more in a poorly structured offering than in the well-established rules themselves.

Risk No. 6: The “Seven Deadly Sins” Cut Both Ways

The very restrictions that give a DST its favorable tax treatment — the seven deadly sins of Chapter 4 — also limit its ability to adapt. Consider a DST holding an office building whose major tenant’s lease is expiring. Because the trustee can’t renegotiate the lease or sign a new tenant without jeopardizing the trust’s status, that inflexibility could translate into a costly vacancy.

This is precisely why the quality of the tenants and the length of the leases should be known to you before you invest. A well-constructed DST is assembled with its own inflexibility in mind, built around durable, creditworthy, long-lease tenants so the restrictions never become a trap.

Eyes Wide Open

None of these risks should scare you away from a DST. They are the ordinary trade-offs of a specific, powerful investment structure, and each can be anticipated and managed by an investor who approaches the decision with realistic expectations and sound guidance. The goal of this chapter isn’t to discourage you; it’s to make sure that if you invest, you do so with your eyes wide open. In this arena, as in most, fortune favors the prepared.

With the risks now honestly on the table, we can turn to the practical question of what a DST actually holds — the property types and asset classes you’ll encounter as you evaluate offerings.

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Who Should Consider A DST?

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Directory:

Step 1 of 3 – What Brings You Here Today?

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Step 3 of 3 – Your Information

Understanding The Risks and Considerations of A DST

Risk No. 1: There Are No Guarantees

Risk No. 2: You’re a Passenger, Not the Driver

Step 1 of 3 – What Brings You Here Today?

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Step 3 of 3 – Your Information

Risk No. 3: Your Money Is Locked Up

Risk No. 4: Fees Can Erode Returns

Step 1 of 3 – What Brings You Here Today?

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Step 3 of 3 – Your Information

Risk No. 5: The Tax Rules Could Change

Risk No. 6: The “Seven Deadly Sins” Cut Both Ways

Eyes Wide Open

Who Should Consider A DST?

Types of DST Properties and Asset Classes

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