We at Chicagoland 1031 Exchange often talk about the potential benefits of using a Delaware Statutory Trust (DST) as replacement property to complete 1031 exchanges. It’s true that DSTs have become a popular vehicle for 1031 exchange investors, with good reason. But it’s prudent for us to recognize that, although DST investments have a lot of positive features and are often an appropriate investment channel, they may not be a good fit for every investor.
Amount and Timing of Distributions
While the consistent and generally durable cash flow that DST investments can generate is a key feature, it is important to remember that the cash flow is not guaranteed. Consider how income is being generated in any given DST. For example, cash flow may be generated through rents on multi-family apartments or from rent on a triple net lease. As part of our due diligence—and as a consideration for all investors—we investigate how often a DST sponsor's programs perform at or above anticipated cash flow as opposed to below it.
Investor Capital Not Guaranteed
As with any real estate investment there are risks including the potential loss of capital when investing in DSTs. The value of real estate tends to move in cycles and there can be property level or more macro-economic influences on the value of the real estate. Most DST sponsors will provide a comprehensive report of past DST offerings and each of their respective purchase and sale price.
Investments are Not Liquid
DSTs are a long-term investment and likely will not be able to be sold in a secondary or public market. When investing in a DST it is important to know that these investments are not liquid and ensure that other available assets are substantial for liquidity needs.
Investors must carefully consider their overall financial situation prior to investing. Chicagoland 1031 Exchange can help you understand your options and investment choices.