We (my wife and I through a trust) have owned several DST properties for about 4 years now. We got tired of managing our rental and are actually earning more money through the DST than we did with our rental.
A DST is similar to a TIC (tenant-in-common) which provides an easy method to buy a portion of a property, or the entire property. The TIC is handicapped by the fact that ALL the members must agree on any change in plan, which is nearly impossible to achieve in practice. The DST is restricted by law and the PPM as to what it can actually change or how it operates.
We ended up owning parts of 4 different DSTs, all bought through Kay Properties and Investments (KPI). We paid no fees to them and were pleased with their support. The DSTs are conservative in operation, with large reserves and relatively low monthly distributions. We are getting 5% - 7% annual distributions paid monthly and expect IRRs of 10-14% at sale. The exit strategy is usually a sale within 7-10 years whereupon another 1031-exchange will put us in another property, hopefully with a larger stake. Eventually, they will pass to our heirs with a stepped-up basis. Capital preservation is critical. We also own some shares of properties in LLCs, but since I retired, I find the steady cash flow of the DST is much preferred to the lumpiness of the LLCs distributions. Many of the DST sponsors are excellent managers.
I understand that a few DSTs made capital calls in the great recession, which means the investors were forced to come up with more money to offset loss of operating income and to preserve the investment. This risk should be thoroughly understood for the property you are considering. IIRC, Passco was the only sponsor which made no capital calls during that time, but you should check my memory with your broker (KPI).
Some of the bigger DST sponsors are Capital Square Realty Associates (CSRA), ExchangeRight, Inland, Passco.
Here's a summary of our investments and how they've fared so far:
1. Made a cash purchase in a CVS on the Vegas strip through CSRA. This property has been vacated by CVS, but they must continue to maintain the property and pay rent through the lease end in 2029. They are trying to sublet it. There is some small risk that the lender will hold all the income in reserve, but this has not happened so far. We continue getting monthly payments from them. CVS, being investment grade, guarantees the lease and is not at risk of bankruptcy, so the property should continue to provide income.
We broke the proceeds from our rental sale into 3 different DSTs via 1031:
1. ExchangeRight5 - an assortment of 12-14 retail properties in many locations throughout the midwest and south. They are all neccessity retail, which means auto parts, drug stores, grocery stores, etc. There were some reports of hurricane damage to one or two properties last fall, but there was no interruption to cash flow.
2. ExchangeRight6 - similar to ER5 above. I really like the geographical diversity and mix of tenants provided by these large DSTs.
3. A multifamily property run by Bluerock in NC. This property is being sold (early in the cycle IMO) and we're looking to flip via 1031. We got about 7% IRR which was mostly the monthly distribution of 5.75%. I may have made a poor choice on location with this one because I was stretching for yield. Lesson learned.
After almost 4 years of mailbox money with no concerns and regular status reports, we're now getting back into the details to make the best choice for the proceeds from the multifamily property. We are considering if we want to stay in the multifamily sector or pick another sector which may experience more growth in a growing economy. Industrial, office, self-storage, medical, retail are some examples.
I realize all of these are at risk if we go through another great recession, but hopefully have picked my spots carefully enough to avoid getting roasted. The risks are all identified in the PPM (private-party memorandum) which you should get from KPI.
You may hear on this forum that that there are no good investments mass-marketed to individuals and you must be an insider to profit. The landscape really changed in 2012, with the passage of the JOBS Act, which now allows sponsors and operators to publicly advertise these investments. Prior to that there had to be a personal relationship between sponsor and investor, which really cut down on activity and rewarded insiders. I've never really been an insider and have benefited from the new openness. I hope you do too.
Another benefit of the JOBS Act was to open many of these investments up to non-accredited investors. Previously, they were restricted to accredited investors who met net worth or income requirements. Now, it's far more open, although there are limits on how much you can invest.
