DST 1031 Exchanges seem primed for Sponsor success while minimizing Investor security

[Alberto Solis]

I have been toiling over investing in DST 1031 Exchange vs cashing out by paying capital gains. I have read many DST PPM's and have come to conclusion the Sponsors are the only one that can reliably profit from these investment tools, whereas the investors can only trust their due diligence identified enough red-flags. If there is so much money invested in DST's, can one reliably say that sufficient number of investors are profiting? I have not found any unbiased data to show that DST's are safe and more advantageous than cashing out by paying the capital gains. Sure would love opinions with data.

[Evan Polaski]

@Alberto Solis, while I can't speak to any specific DST operator, I have a fairly good familiarity with them. They are effectively like any other syndication (by definition they are a syndication), but put in place a legal ownership structure to accommodate 1031 proceeds.

I understand why they have higher fees than the typical syndication, given the complexity in their ownership structure compared to a "typical" syndication.

At the end of the day, any return from a syndication (typical or DST) is going to be primarily driven by market cycles. Bull market: most everyone makes money. Bear Market (or correction): many, many are going to lose money.

As for fees, these are certainly dilutive to your overall return.  More fees = lower available returns for LPs.  You diligence needs to be trying to pull out if your operator has some competitive advantage that will let them eke out marginally more returns for you, to more than offset the additional fees you are incurring.

Of course, with a 1031, the analysis is slightly harder, because you have to factor in the tax savings you are getting through your 1031, relative to taking sale proceeds as taxable and investing in a group that may have lower fees.