I have done a couple past 1031s and just learned about and started exploring DST's since I don't really have anything good to exchange into from my 2 current duplex sales. I also looked at syndications with bonus depreciation to negate cap gains, but I would still have to pay 10% CA tax and you cannot bonus depreciate forever. DSTs seemed like manna from heaven when I discovered them a month ago. At the end of the 5-10 year term you can 1031 into another DST or buy your own property. Or you can get into a 721 Upreit where the asset ends up getting sold sold to a REIT that you get operating shares of. It's a nice late stage play since you can then liquidate shares however and whenever you want. But once you get REIT shares there is no going back to 1031. I still like the swap until you drop strategy, stripping equity as needed, and passing my heirs stepped up assets with tons of gains and unrecaptured depreciation.
Then l I started looking at DST PPM's "use of proceeds" and "other compensation to sponsor"
Current Example: Sponsors buy a 300+ Class A apartment built in 2021in Lexington, KY or somewhere for $91M with $42M debt and $49M in equity. Then there are $6M worth of commissions and selling expenses and another $2.5M in acquisition fees and expenses. Add another $3M in reserves and total equity that is offered to investors is $60.5M. Even If you deduct the reserves you're still paying $57.5M or an 18% premimum for $49M in equity. These costs are all front loaded. In addition to those there is 3% annual asset mgmt, fee, 5% for construction/renovation mgmt fee, and a 3% disposition fee.
Most sponsors predict you will get a 3-4% annual distribution or cash flow and possibly 2% annual appreciation. These are all after fees. Except bear in mind that the sponsor is buying at 3 1/2 cap with rents at all time highs, in a rising interest rate environment. What will cap rates and rents be when they sell the building I bought well over market price. I thought I noticed an offering that read "sponsor subordinates their fees until all equity is returned". Some skin in the game like that would gain my trust, but at this point I'm back to looking for my own property.
