How we build your replacement portfolio

Most marketplaces hand you a list of whatever is open this week and let you sort by yield. We start from your numbers and your goals, decide how many positions make sense and why, and stress-test concentration before anything is identified. The result is an allocation with a rationale you can actually explain — not a pile of one-off purchases.

1. We start with your exchange math

Every plan begins with four figures from your relinquished sale, because they constrain everything that follows:

• Net sale proceeds — the equity that must be reinvested to fully defer gain.
• Debt to replace — the mortgage paid off at sale. Under the exchange rules you generally must replace that debt (or add equivalent cash) to avoid taxable “boot.”
• Timeline — 45 days to identify and 180 days to close, with no extensions in practice.
• Goals & constraints — income vs. growth, hold horizon, estate plans, liquidity needs, and risk tolerance.

DSTs are useful here precisely because they are pre-packaged, already financed, and can typically close in a few business days — which makes them a reliable way to use exact dollar amounts and replace a specific debt figure inside a tight window.

2. How many DSTs should you own?

There is no single “right” number, but the decision is driven by a few competing forces rather than guesswork:

• Diversification pushes the number up — more positions spread sponsor, sector, and tenant risk.
• Investment minimums push it down — DST minimums commonly run $25,000 to $100,000, so a smaller exchange supports fewer positions.
• The 45-day identification rules shape the list — the three-property rule, the 200% rule, and the 95% rule govern how many properties you can name and back up.
• Operational simplicity matters — each position is a separate K-1 and a separate full-cycle event to track.

As a general framework — not a recommendation — most exchanges we work on land somewhere between three and six DST positions, with larger or more complex exchanges supporting more. We also identify backup properties within the 45-day rules so a single sponsor closing or capacity change cannot derail the exchange.

3. The diversification framework

Once the position count is set, we diversify deliberately across several independent axes — not just “different buildings,” but different sources of risk:

• Sponsor — spreading across managers so no single operator dominates the portfolio.
• Sector — balancing income-oriented sectors (net-lease retail, medical) with growth-oriented ones (multifamily, industrial).
• Geography — avoiding concentration in a single market or region.
• Leverage — matching the debt you need to replace, and blending leveraged with debt-free positions.
• Business plan — core/stabilized income vs. value-add, and the role each plays.
• Vintage & hold — staggering expected hold periods so full-cycle events do not all arrive at once.

We watch concentration on each axis and flag it when any single sponsor or sector starts to dominate. The objective is a portfolio whose outcome does not hinge on one manager, one tenant, or one local economy.

4. Matching debt — or going debt-free

If your relinquished property carried a mortgage, replacing that debt is usually necessary to avoid a partial taxable event. DSTs carry property-level, non-recourse financing, so your share of a leveraged DST’s debt counts toward your replacement requirement. Where an investor prefers no new debt, debt-free (all-cash) and low-leverage programs can be used instead. We model the blended leverage so your debt replacement lands where it needs to — not by accident.

5. Illustrative portfolios

The scenarios below are hypothetical illustrations of how a diversified plan can be structured — not recommendations, offers, or projections, and not based on any specific investor or current availability. Allocations are shown by sector and structure to demonstrate the framework; actual portfolios are built only after a suitability review and from programs available at the time.

6. Identification & deadline strategy

The 45-day clock is unforgiving, so identification is a strategy, not a formality. Depending on the exchange we use the three-property rule (name up to three, any value) or the 200% rule (name more, capped at twice the relinquished value) to build in backups, and we sequence funding so the highest-conviction positions close first. The aim is to remove single points of failure before day 45, not to scramble at day 44.

7. Ongoing stewardship

The plan does not end at closing. We track each position toward its full-cycle event, watch sponsor reporting, and help you plan the next move — another exchange, a 721 UPREIT roll where eligible, or a different allocation as your goals change. The track record we publish is the same realized, net-of-fees data we use to evaluate sponsors in the first place.

The frameworks and example portfolios on this page are educational illustrations only. They are hypothetical, are not based on any specific investor, do not reflect current availability, and are not recommendations, offers, solicitations, projections, or suitability determinations. Investment minimums, leverage, and availability vary by program and change frequently. Identification and exchange rules summarized here are general; the IRS rules are technical and fact-specific. Delaware Statutory Trust interests are speculative, illiquid securities for accredited investors only and involve substantial risk, including possible loss of principal, lack of control, and the potential failure of a 1031 exchange to qualify for tax deferral. Any reference to performance is sponsor-reported, realized (full-cycle) only, net of all fees, sales load, and program expenses, unverified, and not indicative of future results. Baker 1031 Investments does not provide tax or legal advice; consult your own advisors. Securities offered through Aurora Securities, Inc. (ASI), member FINRA/SIPC; Baker 1031 Investments is independent of ASI. Educational content is subject to registered-principal review.