Illiquidity
A DST interest is not liquid. There is no public market and only a limited, uncertain secondary market. Investors should expect to hold for the full duration of the sponsor's business plan — often five to ten years — and should not commit funds they may need before then. The sponsor controls the timing of any sale.
No control
Investors are passive by design. You do not choose tenants, set the business plan, approve financing, or decide when to sell. The restrictions that preserve 1031 eligibility (see what is a DST) also mean the trustee has limited flexibility to respond if circumstances change.
Fees and load reduce returns
DST offerings carry costs — selling commissions, dealer-manager fees, sponsor acquisition and disposition fees, and ongoing management fees — that reduce the capital at work and the return an investor ultimately realizes. These are disclosed in the PPM and should be understood before investing.
Leverage and interest-rate risk
Many DSTs use mortgage debt. Leverage can amplify returns, but it also amplifies losses if property income falls or values decline, and a property that cannot refinance or sell on favorable terms can impair investor capital. Rising interest rates can pressure both property values and refinancing.
Market and property risk
Returns depend on real-estate fundamentals — occupancy, rents, expenses, and local supply and demand. Tenant defaults, oversupply, or a downturn in a sector or region can reduce or suspend distributions and lower the eventual sale price. Distributions are not guaranteed.
Sponsor dependence
Outcomes hinge on the sponsor's underwriting, financing, and management. A sponsor's past full-cycle results do not predict a current offering, and a strong track record on realized deals can coexist with strained active programs. Diligence on the sponsor matters as much as diligence on the property — see our methodology for how we frame track-record data.
Exchange and tax risk
If a DST or the surrounding exchange is not structured and executed correctly, the 1031 deferral can fail, making the original gain taxable. Tax treatment depends on your specific situation and on current law. This is general education, not tax advice — work with your own qualified tax and legal advisors.
- DST interests are illiquid; plan to hold for the full multi-year business plan.
- Ownership is passive — no control over tenants, financing, or sale timing.
- Fees and sponsor load reduce the capital at work and your realized return.
- Leverage, interest rates, and real-estate fundamentals can reduce or suspend distributions and impair principal.
- Outcomes depend heavily on the sponsor, and a botched structure can cause the 1031 deferral to fail.