“Sharpening Your Portfolio IQ: The New Semester of Alternative Investment Strategies” Part 3 ~ Returns, Minimums  & Estate Planning

We con­tin­ue with our edu­ca­tion­al series on most searched top­ics by investors regard­ing DST & 1031 exchange.  In Part One we briefly reviewed the How DSTs qual­i­fy as 1031 alter­na­tives and the Ben­e­fits. (“Sharp­en­ing Your Port­fo­lio IQ: The New Semes­ter of Alter­na­tive Invest­ment Strate­gies” ~ Part 1). In Part Two we iden­ti­fied the Draw­backs and Risks of the DSTs.  (“Sharp­en­ing Your Port­fo­lio IQ: The New Semes­ter of Alter­na­tive Invest­ment Strate­gies” Part 2 ~ DST Draw­back & Risks).

Sep­tem­ber 19, 2025

By Al DiNi­co­la, AIF®
1031 Tax Deferred Exchange Spe­cial­ists & DST Advi­sor
NAMCOA® — Naples Asset Man­age­ment Com­pa­ny®, LLC
Secu­ri­ties offered through MSC-BD, LLC, Mem­ber of FINRA/SIPC

In this final part we will take a look at Typ­i­cal Returns and Min­i­mum Invest­ments and then iden­ti­fy poten­tial Estate Plan­ning Strate­gies. These top­ics are the most searched top­ics by investors.

Typ­i­cal Returns & Min­i­mums

There may be a dif­fer­ent lev­el of accep­tance between what investors may accept as return based on how they arrived at invest­ing in a DST.  For cash investors these invest­ments may be their only way to enter real estate invest­ing and may be will­ing to accept low­er lev­els of returns cou­pled with the pas­sive nature of man­age­ment. For 1031 exchange investors the tax defer­ral aspect of the trans­ac­tion may be the pri­ma­ry goal of the investor. Giv­en the “pack­aged” nature of the DST (with pre­as­signed debt allo­ca­tion) the investors may view this as an easy path to com­plete the 1031 process.  The cash-on-cash returns often range between 4%- 6% ref­er­enced as a dis­tri­b­u­tion.  Typ­i­cal­ly, dis­tri­b­u­tions are made on a month­ly basis. In the past this was ref­er­enced as mail­box mon­ey but today dis­tri­b­u­tions are via ACH and investors may change the spe­cif­ic dis­tri­b­u­tions accounts with the prop­er notice to the spon­sor.  The oth­er analy­sis may be what the after-tax analy­sis is. Each investor may want to eval­u­ate their after-tax returns. Every tax pay­er have dif­fer­ent sit­u­a­tions as well as dif­fer­ent tax effi­cien­cies with regards to depre­ci­a­tion car­ried into the DST from pre­vi­ous §1031 exchanges.

Mini­um invest­ment for cash investors may be $25,000. Cer­tain spon­sors may accept invest­ment from qual­i­fied accounts (IRAs).  The cau­tion for qual­i­fied account hold­ers may be UBTI (unre­lat­ed busi­ness tax­able income) that needs to be account­ed for by the indi­vid­ual investors. Typ­i­cal­ly for §1031 exchange investors the min­i­mum invest­ment is $100,000 (some as low as $50,000).  This rel­a­tive­ly low­er bar­ri­er to entry (when com­pared to acquir­ing oth­er real estate) enables an investor to acquire sev­er­al prop­er­ties or asset class­es and in var­i­ous geo­graph­ic loca­tions.  With a diver­si­fied port­fo­lio risk may be spread across more assets.  How­ev­er, there needs to be addi­tion­al due dili­gence, paper­work and track­ing of the invest­ment.

Estate Plan­ning Strate­gies

There are a vari­ety of top­ics that investors should have with their entire advi­so­ry team. After years of acquir­ing real estate, by indi­vid­ual investors, the dis­cus­sion of estab­lish­ing a trust of some style or type (char­i­ta­ble endow­ments or sim­ple trans­fer) may be top­ics of dis­cus­sion. Our advi­so­ry team is capa­ble of inter­act­ing with investors regard­ing estab­lish­ing trusts. When the dis­cus­sion turns to the real estate there are sev­er­al clar­i­fi­ca­tions that need to be made as to what and when to take action.  We have tak­en calls from investors who have reached a time in their life decid­ed to sell their real estate and give the pro­ceeds to their chil­dren and grand­chil­dren. Yes, cap­i­tal gains tax­es were paid on the sale of the prop­er­ty. There may have been an urge to present the soon to be heirs with a check that the heirs could take to the bank imme­di­ate­ly. How­ev­er, when the real estate was acquired through a series of §1031 exchanges includ­ing DSTs, that may require a dif­fer­ent strat­e­gy. Espe­cial­ly because in most sit­u­a­tions the title of those assets will more than like­ly have been in the same tax­pay­er iden­ti­fi­ca­tion through­out the years. The investor may des­ig­nate or direct his assets to be trans­ferred upon their death to an heir (or oth­ers) and there would be a step up in basis at that time.  This ele­vates the tax­able val­ue of the prop­er­ty (or asset) to the cur­rent mar­ket val­ue. Mean­ing there would be no cap­i­tal gains tax­es due in almost all cas­es. Here is an ele­men­tary exam­ple. Investor sells an invest­ment prop­er­ty acquired for $250,000 held for 10 years and sold for $1,250,000.  Cap­i­tal Gains of $1,000,000 would be sub­ject­ed to depre­ci­a­tion recap­ture, cap­i­tal gains, NIT, and poten­tial­ly state income tax that could be 35%.  That reduced the $1,000,000 to $650,000.  If the prop­er­ty is trans­ferred after the pass­ing of the investors 9to the heirs) there will be no cap­i­tal gains tax­es due.  If the invest­ment is cur­rent­ly gen­er­at­ing cash as a rental for exam­ples there may be no real rush to sell the prop­er­ty.

The top­ic of pro­bate enters the dis­cus­sion and there are com­plex­i­ties with assets mov­ing through pro­bate.  DSTs may also avoid pro­bate com­plex­i­ties, although fea­tures like Trans­fer on Death (TOD) pro­vi­sions vary by spon­sor and state.

Investors who uti­lize a 1031 exchange and acquire DST may have addi­tion­al options. There is also a recent exit strat­e­gy for DST to move into a Real Estate Real Estate Trust (REIT) through a 721 UPREIT. As with all exit strate­gies there are advan­tages and draw­backs to review.  If you are inter­est­ed in hav­ing a dis­cus­sion, please con­tact us.

NAMCOA® is a SEC reg­is­tered invest­ment advi­so­ry firm that pro­vides com­pre­hen­sive port­fo­lio man­age­ment, finan­cial plan­ning, and fidu­cia­ry deci­sion-mak­ing ser­vices on behalf of retire­ment plan spon­sors. Our Dif­fer­ence is sum­ma­rized by our fidu­cia­ry approach which enables us to bet­ter meet port­fo­lio and retire­ment plan objec­tives, result­ing in stronger risk adjust­ed returns for investors and peace of mind for Clients. We also focus on alter­na­tive real estate invest­ment. Many real estate investors are seek­ing tax deferred solu­tions uti­liz­ing §1031 exchanges or Oppor­tu­ni­ty Zones.

Alter­na­tive invest­ments and DSTs are not for all investors.  The acqui­si­tion of a cer­tain alter­na­tive invest­ments includ­ing DSTs is for accred­it­ed investors only.  Con­tact your invest­ment advis­er for addi­tion­al details on how a DST may be a solu­tion to your §1031 Exchange and suit­ed for your invest­ment future. For more infor­ma­tion on how to prop­er­ly set up an IRC §1031Tax Deferred Exchange or if you are an accred­it­ed investor and would like addi­tion­al infor­ma­tion on a DST con­tact Al DiNi­co­la at 239–691-8098 or email adinicola@namcoa.com.

This is not an offer to pur­chase or solic­i­ta­tion to pur­chase any secu­ri­ty, as such be made only through an offer­ing mem­o­ran­dum or prospec­tus.  Invest­ing in secu­ri­ties, real estate, or any invest­ment, whether pub­lic or pri­vate, involves risk, includ­ing but not lim­it­ed to the poten­tial of los­ing some or all of your invest­ment dol­lars when you invest in secu­ri­ties. You should review any planned finan­cial trans­ac­tions that may have tax or legal impli­ca­tions with your per­son­al tax or legal advi­sor.   NAMCOA, LLC is a Reg­is­tered Invest­ment Advi­sor, reg­u­lat­ed by SEC (Secu­ri­ties and Exchange Com­mis­sion). Our cor­po­rate office is locat­ed at 999 Van­der­bilt Beach Road, Suite 200, Naples Flori­da 34108. Secu­ri­ties Offered through MSC-BD, LLC, Mem­ber of FINRA/SIPC. 5 Cen­ter­pointe Dri­ve, Ste. 400 Lake Oswego, OR, 97035MSC-BD, LLC and NAMCOA are inde­pen­dent­ly owned and are not affil­i­at­ed.

Thank you.