Delaware Statutory Trust Rates of Return Explained

One of the most common questions investors ask about  Delaware Statutory Trusts (DSTs) is also one of the least useful when taken at face value. What is the rate of return?

The question assumes that DSTs can be evaluated the same way as a stock, a fund, or a single rental property. In practice, that assumption often leads to confusion and misplaced expectations.

With DSTs, the question is not ‘what is the return,’ but ‘what role is this return meant to play.

This article explains how returns in a DST are generated, why there is no single rate of return, and how experienced investors evaluate DST performance in context.

Why There Is No Single DST Rate of Return

A DST is not a uniform product. Each DST owns a specific property, with its own lease structure, financing, market, and business plan.

As a result:

• Returns vary by property and sponsor
• Cash flow and appreciation are separate components
• Timing of exit materially affects outcomes

Any quoted return is an estimate based on assumptions, not a guaranteed result.

The Two Components of Return in a DST

DST returns are typically experienced in two distinct phases.

Ongoing cash flow

• Distributed monthly or quarterly
• Driven by rental income, expenses, and financing
• Often prioritized by investors replacing active rental income

Value at exit

• Determined when the property is sold
• Influenced by market conditions and interest rates
• Occurs years after the initial investment

Combining these into a single headline number often hides how the investment actually behaves.

A Simple Math Example (How Returns Are Experienced)

Consider a simplified illustration.

An investor allocates $1,000,000 into a DST.

• Annual cash distribution: 5%
• Annual income received: $50,000
• Holding period: 7 years

Total income received
$50,000 × 7 years = $350,000

At sale, assume the investor receives $950,000 net of debt and expenses.

Total cash received over time

• Income distributions: $350,000
• Net sale proceeds: $950,000
• Total cash received: $1,300,000

This is how DST returns are actually experienced. A series of cash flows over time, followed by an exit event. Not continuous compounding.

Why Cash Flow Is Often Emphasized

Many DST investors are coming out of actively managed real estate. Cash flow replaces income they previously generated themselves.

That focus is intentional.

• Cash flow supports lifestyle or reinvestment needs
• Stability is often valued over growth
• Conservative leverage may reduce yield but lower risk

Higher income does not automatically translate into higher total return.

Why Comparing DSTs by “Return” Is Misleading

Investors often try to rank DSTs by projected return. This ignores structural differences.

Two DSTs with similar projections may differ meaningfully in:

• Lease duration and tenant concentration
• Use of leverage
• Market and asset risk
• Sponsor conservatism

Return numbers without context are incomplete.

How Experienced Investors Evaluate DST Returns

Sophisticated investors usually start with purpose.

They ask:

1. What role does this DST play in my portfolio
2. How stable is the income relative to my needs
3. How does this interact with my tax strategy
4. What risks am I accepting for this outcome

Return is evaluated relative to objectives, not in isolation.

The Role of Risk in Return Projections

Higher projected returns generally reflect higher assumptions.

Risk often shows up through:

• Shorter lease terms
• Tenant concentration
• Higher leverage
• Aggressive exit assumptions

In DSTs, higher projected returns usually reflect higher assumptions, not free upside.

Understanding what drives the number matters more than the number itself.

Common Investor Misunderstandings

DST disappointment usually comes from expectation mismatch.

• Treating projections as outcomes
• Expecting equity-like growth with bond-like stability
• Assuming all DSTs should be evaluated the same way

DSTs are tools, not benchmarks.

Conclusion

There is no single rate of return for a Delaware Statutory Trust. There is only a pattern of cash flow and an eventual exit, shaped by structure, assumptions, and execution.

DSTs are best evaluated by how well they serve a specific role within a broader portfolio, not by how their projected returns compare on a spreadsheet.

A structured planning discussion can help align return expectations with portfolio objectives and risk tolerance before numbers alone drive decisions.

General Disclosure