Royalty DSTs can pay nearly double a typical real-estate DST. The yield is compensation for a different risk.
Oil-and-gas royalty interests routinely target current yields near 9–10%, well above the 5–6% common in real-estate DSTs. Because mineral rights are real property, these interests can serve as 1031 replacement property — an unusual income option for exchangers.
The higher yield is not free. Royalty distributions move with commodity prices, and producing wells decline over time as reserves are extracted. Programs are also concentrated in specific basins and operators.
Offsetting some of that is the depletion allowance, which shelters a portion of the income from tax. For income-focused investors who understand the commodity and decline risk, a modest royalty allocation can diversify a replacement mix.
This article is for general educational purposes only and is not investment, tax, or legal advice, or an offer to sell or solicitation to buy any security. DST, Opportunity Zone, and other private placements are speculative, illiquid, and sold only to accredited investors via private placement memorandum. Consult your own CPA and attorney.
