Top 10 Myths & Truths of DST Investing

Myth #1: “I don’t own the properties in a DST!”

Truth: You hold a beneficial interest in the trust, which holds the title to the property. For IRS purposes, this is considered "fee-simple" real estate ownership. You are entitled to your pro-rata share of all income, tax benefits (including depreciation), and any potential capital appreciation.

Myth #2: “I have no control over when the DST is sold.”

Truth: While you do lose "active" control over the specific exit date, this is a legal requirement for 1031 eligibility. If investors had voting control over the sale, the IRS could reclassify the DST as a partnership, potentially making the exchange taxable.

DST holding periods are strategically designed by institutional Sponsors to optimize performance. Their goal is to exit the property when value is maximized—aligning their interests perfectly with yours.

Myth #3: “My income will be lower in a DST.”

Truth: DST yields (typically 5–6%) often appear lower than "cap rates" on a DIY spreadsheet, but this is an "apples-to-oranges" comparison. DST income is true net income. You are not responsible for the roof, the property manager, or vacancy losses—the trust handles these before your distribution is sent. Unlike even "Absolute NNN" properties, there are no capital calls or surprise expenses in a DST.

Myth #4: “I will get a lower total return.”

Truth: While an investor may find a "one-off" direct investment with an above-average return, DSTs have historically provided higher net returns than what most individuals can realize on their own. This is due to institutional scale, better financing terms, and professional management that a typical landlord simply cannot replicate at a smaller scale.

Myth #5: “DSTs have crazy high fees! They are much higher than investing on my own.”

Truth: Upfront "load" fees (typically 7–9%) include commissions, acquisition, due diligence, and legal costs. However, these are largely the same expenses you would pay to acquire a property on your own—you just see them all at once in a DST.

Unlike buying a property solo, these fees are "baked into" the DST offering. This allows you to defer taxes on the portion of the gain used to pay these fees, rather than paying them out-of-pocket with after-tax dollars.

Myth #6: “My investment is safer in something that I manage myself.”

Truth: Statistics often challenge this notion. Direct ownership usually involves concentration risk (one property, one tenant). DSTs allow you to diversify your 1031 proceeds across multiple institutional-grade properties and different asset classes.

Spreading your risk across larger, $100M+ assets typically results in lower income volatility and a higher statistical probability of positive overall returns compared to a single-family rental or small commercial building.

Myth #7: “The non-recourse debt is a gimmick.”

Truth: This is a major structural protection. In a DST, the trust is the borrower, not you. You do not have to sign for the loan, provide personal tax returns to a bank, or meet debt-to-income requirements. Most importantly, if the property defaults, the lender cannot pursue your personal assets or other properties.

Myth #8: “I have no protection if something goes wrong at the property.”

Truth: You are protected by a rigid Trust Agreement and Federal Securities Law.

If a manager fails to perform, the trust agreement typically includes "bad boy" clauses to remove them.

As securities, DSTs require a Private Placement Memorandum (PPM). This 100+ page legal document discloses every risk and fee, providing a level of transparency and accountability rarely found in private "handshake" deals.

Myth #9: “All DST Sponsors are essentially the same.”

Truth: There is a massive divide between "retail-grade" and "institutional-grade" sponsors. Reputable firms like Baker 1031 only work with multi-billion dollar institutional firms (e.g., Ares, Invesco, or Cantor Fitzgerald). These titans have deep lender relationships and "never-default" track records, which allows them to secure better interest rates and terms that directly increase your monthly distributions.

Myth #10: "NNN properties are just as passive as a DST."

Truth: NNN leases are "mostly" passive, but you are still the owner. You must audit insurance certificates, ensure property taxes are paid, and handle "landlord-responsible" repairs (like the roof or parking lot).

A single NNN property is binary—100% occupied or 0% occupied. If your tenant leaves, your income stops. A multi-tenant DST ensures that if one tenant leaves, the others continue to provide cash flow, protecting your retirement income from a single point of failure.