Experiences with Zero-Coupon DST

[Carlos Ptriawan]

Any of you had experience buying zero-coupon DST as part of the replacement of debt ? I know I can read the PPM per-se but wants to understand if you need to pay an additional fee on yearly basis ? or is there any other hidden factor ? I guess the fee would be one time only.

With the rising interest rates, I think it's just easier to buy a replacement property with cash from the equity; and for the mortgage required I will just buy zero-coupon. I do understand that the typical zero-coupon has 86% LTV w/a value of 100k. I know there's still potential boot somewhere but it's ok to manage.

So if the house is sold for $1m with 50% remaining mortgage. I willl use 50% cash to buy home and 50% ZC DST. I just want to understand all the fees and that. In this case, it seems I need to buy at very least FIVE (100K) ZC-DST.  Understanding the fee and obligation part of  ZC DST is important to me.

[Brandon Bruckman]

Zero coupon DSTs typically have higher up front fees than cash flowing DSTs.  This is a large drawback of the structure.  For our clients, we will use a small amount of zero coupon DSTs to replace debt in an exchange, but other than that we usually stay away.  

You wouldn't need to buy five DSTs. You could invest the full amount in one Zero DST.

Reading through your example, you would have to look at the economics of acquiring a mortgage for replacement vs the cash / zero DST option.

Hope that helps a bit.