Questions to ask when vetting DSTs

[Rob King]

BLUF: I am selling three condos in Honolulu, two rentals and one primary residence.  I will list the three properties and hopefully sell in July of this year as I am relocating to Baltimore, Maryland.  I think a 1031 would be the best for the funds generated from the sale of two and have been looking into DSTs.

If I assume, based on my seller's estimates a profit of approximately $250-280k for the sale of the two properties with a combined sale price of $760-800k. 

As I educate myself on DSTs I would appreciate the BP community's insights into successful due diligence practices when vetting DST opportunities.

Please forgive the broadness of the question but at this junction I'd rather cast a wide net.  Thanks in advance.

[Jon Taylor]

In regards to evaluating DSTs, each asset class needs to be evaluated with an understanding of the technical fundamentals that matter, AS IF you were purchasing those properties outright.

Questions like:

Were the properties purchased at the right price?

Are the properties being marked up before they are sold to investors.

How is the cash-on-cash being modeled?

What are the assumptions that are being factored in - namely occupancy rate and rent per square foot per unit type - and how do they compare to the local market?

What are the terms of the debt?

What are the demographics of the area? (Population in the 5-mile, population growth, etc…)

What's the exit strategy?

I generally stay up to date on the current DST market, and there are a few that are currently attractive enough to invest money in. A lot has changed since the fed started to raise rates. And a lot changed since the COVID crisis. Some are great. Most are not… (IMO)

So, proceed with caution.