How Do I Choose the Right DST Investment?
When it comes to deferring capital gains taxes through a 1031 Exchange, Delaware Statutory Trusts (DSTs) have quickly become a preferred vehicle for savvy real estate investors. But with so many options available—and each DST offering a unique mix of risk, return, and property type—how do you know which one is right for you? In this blog, we’ll break down the essential steps to evaluating a DST investment in 2025, so you can make a confident, informed decision. Whether you’re aiming for passive income, portfolio diversification, or long-term appreciation, selecting the right DST starts with understanding your goals—and seeking expert guidance along the way.
Understanding the DST Landscape Loan-to-Value (LTV) Ratios: Lower is safer.
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Tenant Diversity: Single-tenant properties carry higher vacancy risk.
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Geographic Diversity: Multiple markets can reduce risk.
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Sponsor Fees and Hidden Costs: Read the PPM (Private Placement Memorandum) carefully.
A DST that looks promising on the surface may underperform if risk factors are poorly managed.
4. Research the Sponsor’s Track Record
The DST sponsor is responsible for acquiring and managing the asset. A trusted, experienced sponsor can make or break your investment.
Ask:
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How long has the sponsor been in business?
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How many DSTs have they successfully exited?
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What is their historical return on investment?
Sponsors with a strong reputation and proven history should be prioritized.
5. Understand the Projected Returns
DST investments generally offer 5%–7% annual cash flow. But compare:
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Preferred returns vs. actual distributions
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Whether returns are guaranteed (they rarely are)
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Tax implications, especially in states with different tax treatments
Make sure the projected income aligns with your retirement or investment income goals.
6. Consult an SEC-Regulated Financial Advisor
This step is essential.
DSTs are not one-size-fits-all, and their complexity requires professional guidance. Work with a:
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Registered Investment Advisor (RIA) with DST experience
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1031 Exchange specialist
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CPA familiar with passive real estate tax benefits
An expert will help tailor your selection based on your portfolio, liquidity needs, and exit strategy.
7. Review Exit Strategy Options
Since DSTs are typically held for 5–10 years, you must plan ahead:
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What happens at the end of the trust’s term?
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Is there a built-in exit strategy, or will you need another 1031 Exchange?
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Are there penalties for early liquidation?
Understanding how you’ll eventually exit the investment is just as important as how you enter.
Choosing the right DST is more than just picking the highest projected return. It requires evaluating the trust structure, sponsor credibility, asset quality, and alignment with your goals.
And most importantly—don’t go it alone. DSTs may be passive, but smart investing is always active. Consulting with a trusted, SEC-regulated advisor will ensure you navigate the complexities and reap the full benefits of this powerful investment vehicle.
