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Mastering Due Diligence Before Investing in DSTs
by Paulo Aguilar, CFA, CAIA on Jul 19, 2025
Delaware Statutory Trusts (DSTs) have become a popular vehicle for investors seeking passive real estate exposure with tax deferral benefits through 1031 exchanges. But as with any investment, success starts with understanding what you’re getting into, and that means performing thorough due diligence.
Why DST Due Diligence Matters
While DSTs offer unique advantages, including access to institutional-grade properties and hands-off ownership, they are not without risks. Each offering has its own structure, property types, and investment terms. Due diligence helps you uncover not only the potential return but also the underlying risks.
Key Areas to Evaluate
When evaluating a DST investment, investors should carefully review the sponsor’s track record, the property’s performance potential, and the legal structure of the trust.
Sponsor History and Experience
A trustworthy sponsor should have a transparent operating history, experience with similar DSTs, and clear communication practices.
Property Details
Consider location, tenant mix, lease terms, and industry sector. Is the property recession-resistant? Are leases long-term and with creditworthy tenants?
Financial Projections
Scrutinize cash flow projections and assumptions. Are they realistic given the market? How have similar DSTs performed in past downturns?
Exit Strategy
DSTs are illiquid, so understand how and when the investment is expected to conclude, and what factors could impact your exit options.
Questions to Ask Before You Invest
Due diligence goes beyond reading documents, it means asking the right questions. Examples include:
- What is the leverage on the property, and how might that impact returns?
- What are the upfront fees or ongoing management costs?
- Are there any conflicts of interest between the sponsor and the trust?
These questions help you uncover any red flags and ensure the offering aligns with your financial goals and risk tolerance.
The Role of Professional Guidance
DSTs are complex. Partnering with a financial advisor, CPA, or real estate attorney familiar with DST structures can provide clarity and peace of mind. Their insights can help validate assumptions, compare options, and ensure compliance with IRS rules for 1031 eligibility.
Make Informed DST Decisions
DSTs can be a smart solution for passive real estate investing and tax deferral, but only if the investment is aligned with your goals. With the right due diligence, investors can move forward with confidence—knowing the opportunity is well understood and thoroughly vetted.
General Disclosure
This material is provided for informational and educational purposes only and is based on information from sources we believe to be reliable. However, its accuracy is not guaranteed, and it is not intended to be the sole basis for investment decisions or to meet specific investment needs.
Wealthstone Group does not offer tax or legal advice. This content should not replace professional advice tailored to your individual situation.
Not an offer to buy, nor a solicitation to sell securities. All investing involves risk of loss of some or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing. Any information provided is for informational purposes only. Securities offered through Arkadios Capital, member FINRA/SIPC. Advisory Services offered through Arkadios Wealth. Wealthstone Group and Arkadios are not affiliated through any ownership.