Initial investment - DST vs syndication

[Steve Ross]

Hi All,

Newbie here. 55 yr old planning to retire in 2 years, learning about real estate investing in order to have a source of steady inflation-proof cashflow (in addition to stock dividends) prior to taking social security at age 70 - so I don't need to sell stock investments. But I'm still working and have other things going on so not looking for a time-consuming real estate investor side-hustle. Able to invest cash with no need for high leverage. I am not in a hurry.

These are the options on the table right now:

1) Buy a duplex or four-flex - would probably be out of state, and need to get a property manager

2) DST investments

3) Syndication investments

Friends who already have investments are advising #1 may not be worth the trouble since I'm not looking to invest a lot of time managing. So how does syndication compare to DSTs for someone who does NOT already have a property for 1031 exchange?  My understanding is that DSTs offer lower returns but are safer and easier than syndications since they are less leveraged and sold through brokers who provide some filter for quality. However, I've never heard of anyone buying a DST who isn't doing a 1031 in??? Re syndication I understand you need to develop an extensive personal network to try to vet the various operators directly. That sounds rather time-consuming. Is that really the case or are they also sold via brokers similar to DSTs? Also why are the advertised syndication returns so much higher than DSTs?

Thanks in advance for any insights!

[Ian Ippolito]

Quote from @Steve Ross:

Hi All,

Newbie here. 55 yr old planning to retire in 2 years, learning about real estate investing in order to have a source of steady inflation-proof cashflow (in addition to stock dividends) prior to taking social security at age 70 - so I don't need to sell stock investments. But I'm still working and have other things going on so not looking for a time-consuming real estate investor side-hustle. Able to invest cash with no need for high leverage. I am not in a hurry.

These are the options on the table right now:

1) Buy a duplex or four-flex - would probably be out of state, and need to get a property manager

2) DST investments

3) Syndication investments

Friends who already have investments are advising #1 may not be worth the trouble since I'm not looking to invest a lot of time managing. So how does syndication compare to DSTs for someone who does NOT already have a property for 1031 exchange?  My understanding is that DSTs offer lower returns but are safer and easier than syndications since they are less leveraged and sold through brokers who provide some filter for quality. However, I've never heard of anyone buying a DST who isn't doing a 1031 in??? Re syndication I understand you need to develop an extensive personal network to try to vet the various operators directly. That sounds rather time-consuming. Is that really the case or are they also sold via brokers similar to DSTs? Also why are the advertised syndication returns so much higher than DSTs?

Thanks in advance for any insights!

First to back up a second, syndication deals are basically the old-school version of crowdfunding deals (with the main difference that crowdfunding deals are allowed to be marketed on the Internet).

And you can find syndication/crowdfunding deals that are set up as DSTs. And you can find others that aren't.  So the two aren't mutually exclusive.

And generally, creating a syndication/crowdfunding deal as a DST involves considerable extra expenses (versus not doing so). And as you mentioned, the main benefit of the DST is 1031 exchange (although not just in, but also out as well). So usually, investors who aren't interested in that aspect will save that money and invest in a non-DST syndication/crowdfunding deal.

Also, you don't have to develop a huge personal network to find deals.  That's one way but other ways involve going to crowdfunding sites or joining an investment club.