how to avoid DST high commisions?

[Alberto Cioni]

Soon I will sell my 1.3M rental propriety and I'm looking to 1031 into a DST. One of the biggest complaints with DSTs is the high cost/fees associated with them. A big part seems to be the broker commission (8-12% from what I have seen). Is it possible for an investor to work directly with a DST sponsor and "save" some/all of the commission that would have been paid to a broker? It's a pretty big chunk for the amount I'm looking to invest.

Any suggestions would be appreciated.

[Josh St Laurent]

Quote from @Alberto Cioni:

Soon I will sell my 1.3M rental propriety and I'm looking to 1031 into a DST. One of the biggest complaints with DSTs is the high cost/fees associated with them. A big part seems to be the broker commission (8-12% from what I have seen). Is it possible for an investor to work directly with a DST sponsor and "save" some/all of the commission that would have been paid to a broker? It's a pretty big chunk for the amount I'm looking to invest.

Any suggestions would be appreciated.

Unfortunately, I haven't seen the ability to do this. Typically a DST sponsor will only distribute through an SEC-registered broker-dealer for compliance and regulatory reasons.

Out of curiosity why use the DST in your situation? It may be the best option but there are quite a few other strategies as well that could help lower your tax burden when you move on from this current property. I.E. Charitable remainder trust, opportunity zones, 1031 to another property, installment sales, accelerated depreciation of your next property etc

[Conner Jackson]

@Alberto Cioni Typically, the broker commissions within a DST investment are 4-6%, and the rest of the fees are used by the sponsor to structure the offering, marketing fees, lender fees, reserves (any remaining returned at disposition), etc. While these fees are higher than purchasing another rental property, it's a tradeoff to investing in a passive real estate investment and not having to put more money into capital calls if there were big ticket items needing repairs in a rental.

Conner Jackson

Tangible Wealth Solutions

[Jon Taylor]

@Alberto Cioni, 

You want to make sure you really understand the fair market value of the real estate you are purchasing at your price - which includes all fees.

Today's generation of DSTs has begun hiding fees inside of acquisition pricing, so without a commercial underwriting comp study, it's difficult to understand whether the price is fair.

[Joe Vesey]

Quote from @Alberto Cioni:

Soon I will sell my 1.3M rental propriety and I'm looking to 1031 into a DST. One of the biggest complaints with DSTs is the high cost/fees associated with them. A big part seems to be the broker commission (8-12% from what I have seen). Is it possible for an investor to work directly with a DST sponsor and "save" some/all of the commission that would have been paid to a broker? It's a pretty big chunk for the amount I'm looking to invest.

Any suggestions would be appreciated.

 Albert, 

We are a fee only advisor that specialize in passive investment solutions for 1031 exchange clients.  Please send me a note if you'd like to discuss how we may be able to assist. Thank you, 
Joe

[John McKee]

Paying a commission seems ridiculous for a seasoned investor but if that's the way these our sold I guess you don't have a choice.  One way to look at is that your paying a property management fee of 8-10% to do absolutely nothing but just hope that this is a long term hold because you might have to pay these again to buy something else....correct me if I am wrong.

[Alberto Cioni]

Correct. They sell every 5-7 years so you lose the capital

[Conner Jackson]

The targeted distributions with DSTs are based on the original investment amount. But, theoretically, if you invest $100,000 in a DST with a 10% load and five years later the property sells for the same price it was purchased, you would have $90,000 left to roll into an exchange. It's important to look at the track record of the sponsor and how successful they've been in returning at least the original capital to investors at the sale. While that isn't a guarantee of future success, it gives you an idea of their experience. Some sponsors sell to REITs that may pay a premium, others may have different relationships/strategies for exits. Most DSTs have a disposition fee on the back end that they only receive after they've returned original capital, giving them an incentive to do so.

Work with a group that has experience with the sponsors and knows what potential red flags to look for in each offering so you might mitigate potential risks.

[Leslie Pappas]

Quote from @Alberto Cioni:

Soon I will sell my 1.3M rental propriety and I'm looking to 1031 into a DST. One of the biggest complaints with DSTs is the high cost/fees associated with them. A big part seems to be the broker commission (8-12% from what I have seen). Is it possible for an investor to work directly with a DST sponsor and "save" some/all of the commission that would have been paid to a broker? It's a pretty big chunk for the amount I'm looking to invest.

Any suggestions would be appreciated.

The fees are built in so they do not impact the equity you are earning off of. Which is different if you are buying into a fund where they take it off the top. The benefit of working with a quality rep is that not all sponsors are created equal. There are many qualified Sponsors to consider. In my firm, we underwrite the Sponsor as a company in addition to their individual offerings. It's vitally important to know who you are working with, and have the history of the players involved. I see former players from the 2000's coming back to the industry under different business names, and some of their prior work was less than stellar. It's important to have the advice and perspective of an industry old-timer, in my opinion.

[Jim Peret]

Quote from @John McKee:

Paying a commission seems ridiculous for a seasoned investor but if that's the way these our sold I guess you don't have a choice.  One way to look at is that your paying a property management fee of 8-10% to do absolutely nothing but just hope that this is a long term hold because you might have to pay these again to buy something else....correct me if I am wrong.