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Who Should Consider A DST?
The Threshold: Accredited Investors Only
Investors Who Are Especially Good Candidates
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Who Should Think Twice
Just as important is recognizing when a DST is the wrong fit. Before investing, an honest investor should sit with a few pointed questions:
Are you truly ready to give up control? In a DST, you have no say in day-to-day decisions, no vote on when the property is sold, and no ability to step in if you’d manage things differently. For a hands-on investor who values control, that loss can chafe.
Can you tolerate illiquidity? DST interests are illiquid and meant to be held for years — often five to ten. There is no ready market to sell into if you need your capital back sooner. An investor who may need access to that money should be very cautious.
Do you actually have a gain to defer? The tax machinery of a DST is built around deferring capital gains. An investor without a realized gain, or one whose property would sell at a loss, gains far less from the structure.
Does it fit your broader plan? A DST should serve your overall financial and estate objectives, not distort them. If it doesn’t fit the larger picture, the tax savings alone aren’t reason enough.
An investor who bristles at these questions isn’t necessarily disqualified… but they should slow down and have a candid conversation with a knowledgeable advisor before proceeding.
The through-line is simple: DSTs reward investors who want long-term passive income, tax-advantaged real estate exposure, and who can comfortably part with both liquidity and control. For everyone else, the very features that make DSTs attractive become drawbacks. Those trade-offs deserve a full and honest accounting, which is exactly what the next chapter provides.
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Financing Without the Personal Guarantee
An Illustration
Consider an investor we’ll call Ellen (the profile is a composite, but it’s one advisors in this field see constantly). Ellen and her late husband spent 30 years assembling a handful of rental properties, now worth several million dollars, with very little cost basis left after decades of depreciation.
In her seventies, Ellen is tired of managing tenants and contractors, but selling outright would trigger a capital gains and depreciation-recapture bill approaching a million dollars… and she has three children with no interest in becoming landlords themselves.
Ellen’s situation illustrates why so many investors turn to DSTs. But a DST is emphatically not right for everyone. In the next chapter, we’ll look honestly at exactly who should — and shouldn’t — consider one.
