Debt & Leverage

Many DST invest­ments use prop­er­ty-lev­el financ­ing, while oth­ers are struc­tured as all-cash offer­ings. Lever­age can increase pur­chas­ing pow­er and may enhance returns when prop­er­ty per­for­mance is favor­able, but it can also mag­ni­fy loss­es.

Investors should under­stand the loan-to-val­ue ratio, inter­est rate, matu­ri­ty, amor­ti­za­tion, debt-ser­vice cov­er­age, pre­pay­ment restric­tions, refi­nanc­ing assump­tions, and lender covenants. For 1031 investors, debt replace­ment should be ana­lyzed togeth­er with replace­ment-prop­er­ty val­ue, equi­ty rein­vest­ed, lia­bil­i­ties relieved, and addi­tion­al cash.

Key Point: Eval­u­ate the debt with the same care as the prop­er­ty. Lever­age can increase poten­tial returns and poten­tial risk.

Relat­ed DSTNews.org Arti­cles

• Debt, Lever­age, and Non-Recourse Loans in DSTs: What Every Investor Must Under­stand

Edu­ca­tion­al use only. This mate­r­i­al is not tax, legal, account­ing, or invest­ment advice. Pri­vate real estate invest­ments involve risk, includ­ing pos­si­ble loss of prin­ci­pal and illiq­uid­i­ty.

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