Owning and maintaining a traditional rental property requires lots of time actively managing that property. Whether unclogging toilets or paying the taxes, overseeing property may become expensive, and may lead to stress in the tenant-owner relationship.
Owning a DST is vastly different. Property owners are no longer hamstrung by daily upkeep and repairs. My clients experience a wide range of emotions when they transition to DST ownership, but they all feel a tremendous sense of relief. They are liberated. Read on to find out how DSTs can set your financial life free.
Relief at Your Doorstep
Moving from traditional rental property ownership to DST investing means increased free time and potentially increased cash flow and overall returns. Let’s assume the investment is structured on a sound business plan and maintained by active professional property managers. DSTs have the potential to provide greater cash flow than a traditional single investment, as the managers work to increase income and decrease expenses over time.
Rather than focusing on termites and toilet repair, DST investors receive monthly or quarterly written reports from the firm’s managing their properties (also known as Sponsors) with updates on the properties relative to their business plans. Sponsors will also prepare an annual tax package for your tax professional.
Diversification provides investor relief too. When assets are all in one geographic location, an ever-present chorus of “what if’s” nag the property owner. What if there’s an earthquake? What if the tenant leaves? DSTs may reduce many of these concerns. Rather than own property in one location, DST investors spread their wealth across the country, in different types of real estate, with several different DSTs. This way, one catastrophe won’t devastate the entire portfolio.
DSTs also have the benefit of time. On average, a DST has a lifespan of five to seven years. After selecting the investments, DST investors can relax, while the property managers go into high gear, often spending the first year or two making property improvements, increasing rent, and working out lease renewals. Sponsors will continue to operate the property, finding ways to increase income and reduce expenses until the time is right to sell and move on to the next investment.
No investment is completely risk-free, and DSTs are no exception. There are four principal risks associated with DSTs: real estate risk, operator risk, interest rate risk, and liquidity risk. Be sure to do your research prior to investing in institutional-grade investments to mitigate your risk.
By Leslie Pappas, Founder and CEO