--- title: How to Avoid the Top Five Mistakes Investors Make When Selecting DSTs description: A review of the top mistakes investors make with 1031 exchanges and DSTs. image: https://blog.fgg1031.com/hubfs/DST%20Rep.png --- [info@firstguardiangroup.com](mailto:) [(866)398-1031](tel:(866)398-1031) [![fgg](https://blog.fgg1031.com/hubfs/FirstGuardianGroup_2022/fgg.png)](https://brokercheck.finra.org/individual/summary/6470002) [![fgg-871923](https://blog.fgg1031.com/hubfs/FirstGuardianGroup_2023/fgg-871923.png)](https://www.bbb.org/us/ca/san-jose/profile/commercial-real-estate/first-guardian-group-1216-887513) [![logo](https://blog.fgg1031.com/hs-fs/hubfs/FirstGuardianGroup_2022/logo.png?width=175&height=56&name=logo.png "logo")](http://fgg1031.com) - [Home](https://fgg1031.com/) - [About Us](https://fgg1031.com/about-us/) - [Current Offerings](https://fgg1031.com/property-listings-directory/) - [Resource Center](https://fgg1031.com/resource-center/) - [Glossary](https://fgg1031.com/glossary/) - [Accommodators](https://fgg1031.com/accommodators/) - [FAQ](https://fgg1031.com/faqs/) - [Tax eBook](https://pages.fgg1031.com/resources/real-estate-tax-deferral-strategies-ebook) - [Real Estate eBook](https://pages.fgg1031.com/real-estate-investing-in-the-new-era2) - [QI eBook](https://pages.fgg1031.com/resources/qualifiedintermediary/ebook) - [Tax Calculator](https://fgg1031.com/tax-calculator/) - [Newsroom](https://fgg1031.com/newsroom/) - [Blog](https://blog.fgg1031.com/blog) - [Events](https://fgg1031.com/events/) - [Contact Us](https://fgg1031.com/contact/) ![search-interface-symbol](https://blog.fgg1031.com/hubfs/FirstGuardianGroup_2022/search-interface-symbol.png) ![loader](https://f.hubspotusercontent-eu1.net/hubfs/24949188/Business%20and%20Finance/global/22.gif) ![close](https://blog.fgg1031.com/hubfs/FirstGuardianGroup_2022/close.png) From Pages From Blog Pages Load More Load More **Sorry, we couldn't find a match for  "".** Check your spelling or try a related search term. 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Each of these errors can meaningfully reduce returns or expose investors to risks that are potentially largely able to be mitigated with the right preparation. The process of selecting DSTs is substantially different than investing in traditional income properties, and unwary investors often take on greater risk than necessary due to a lack of familiarity with the key differences. The following sections break down each mistake and what prudent investors should do instead. #### **What Should You Look for in a DST Professional?** Most investors considering DST investments are working against a tight timeline. IRS rules require replacement properties to be identified within 45 days of the close of sale on a prior rental property, which leaves little room for error or prolonged evaluation. Given the volume of information involved, the guidance of a competent, experienced advisor can be indispensable. The right advisor does not just hold a real estate license — they bring verifiable, hands-on management and ownership experience in the specific asset classes an investor is targeting. Real estate sales volume is not a reliable proxy for the expertise needed to evaluate DSTs. Closing millions or billions of dollars in transactions does not necessarily translate into the analytical skill required to assess financial projections, market trends, or asset-level risk. What matters more is how many units an advisor has directly managed or owned, and whether they have genuine operational knowledge of rental properties. Ask prospective professionals directly for this information before proceeding. When possible, meet with a professional in person at their office. This gives you the opportunity to evaluate not just the individual, but the depth of their support team and their capacity to assist you beyond the initial transaction. A strong support structure is a meaningful signal of long-term reliability. **Key Point:** Deep real estate management experience — not sales volume — is the most important qualifier when selecting a DST professional. #### **Which Asset Classes Have Historically Held Up Best When the Economy Turns?** Well-positioned apartment investments in larger, growing urban markets have historically outperformed other asset classes during economic downturns. When household budgets contract, housing expenditure is typically the last to be cut. During the 2008 recession, apartments not only outperformed other asset classes — they were among the first to recover once conditions improved. Regardless of an investor's prior experience in other property types, DST options should be evaluated with fresh criteria and a focus on worst-case scenarios. Over a 16-year period, we have observed many asset classes come under significant stress during difficult economic cycles. That experience consistently points back to well-located multifamily as the most potentially resilient choice for DST investors prioritizing capital preservation. **Key Point:** Urban apartment investments in growing markets have demonstrated the strongest historical resilience across multiple economic downturns. #### **Why Shouldn't You Choose a DST Based on Targeted Yield Alone?** Too many investors treat targeted cash flow as their primary selection criterion — and that is a mistake. A higher targeted yield often reflects elevated risk, not superior opportunity. Newer apartment DSTs in strong urban markets typically target higher cash flows than older properties or those in secondary and tertiary markets. While those higher yields are possible, the added risk — unanticipated maintenance costs, local economic softening, deferred capital needs — can erode overall returns below what a lower-yielding, higher-quality asset would have delivered. The principle is straightforward: greater return targets reflect greater underlying risk. Prudent DST investors evaluate yield in context, not in isolation. **Key Point:** A higher targeted yield is not a signal of better performance — it is a signal of higher risk that requires deeper scrutiny. #### **What Should Investors Know Before Selecting a DST Portfolio Offering?** As a general principle, dividing DST investments across multiple properties is preferable to concentrating all proceeds into a single asset. A single DST investment in a diversified portfolio can provide meaningful asset allocation and reduce the administrative burden of managing multiple separate holdings. That said, portfolio structures carry specific risks that investors should examine carefully before committing. Some DST sponsors claim that portfolio offerings are likely to sell at a premium to large buyers at a future date. We have investigated these claims and have not found sufficient evidence to support them — and in some cases, the opposite may be true. Retail and storage portfolio DSTs are common, and many carry cross-collateralized loans, meaning all properties are tied to the same debt structure and cannot be sold individually. These portfolios may also span multiple states, which complicates exit scenarios. Retail portfolio DSTs carry an additional layer of risk tied to declining lease terms on common tenants: Drug stores Dollar stores Tractor supply retailers As lease terms shrink, exit valuations become less predictable and more exposed to tenant renewal risk. When evaluating portfolio offerings, favor properties with individual loans or no debt, and avoid those with declining lease structures. **Key Point:** Cross-collateralized loans and declining lease terms in retail portfolio DSTs can meaningfully reduce exit value relative to the original investment. #### **How Do You Evaluate a DST Sponsor's Track Record?** There are approximately 30 active DST sponsors in the market today, and more firms are entering regularly. The history of fractional ownership investments includes many companies that no longer exist and that failed to deliver on the expectations set with their investors. That history is worth taking seriously when evaluating newer entrants to the space. Some newer sponsors are now offering products directly to investors via the internet, bypassing the additional scrutiny that a broker intermediary would typically apply. To attract capital, these sponsors often advertise higher targeted returns or offer other inducements. With rare exceptions, investors are better served by sponsors with established longevity and documented performance histories. The top sponsors will publish a comprehensive track record in their offering materials, showing actual versus targeted performance for each prior offering over a defined time period. The absence of that track record — or the absence of any track record at all — is a material red flag. **Key Point:** A published track record comparing actual versus targeted performance is the clearest indicator of a DST sponsor's credibility. #### Key Takeaways Verify professional experience through direct ownership and management history Consider prioritizing apartment assets in growing urban markets for potential downside protection Evaluate targeted yield in context of risk, not as a standalone selection criterion Scrutinize cross-collateralized and retail portfolio DSTs carefully before investing Require a documented, comparable track record from any DST sponsor under consideration #### **FAQ** **Q1: What is a DST (Delaware Statutory Trust) and how does it work?** A1: A Delaware Statutory Trust is a legal entity that allows multiple investors to hold fractional ownership in institutional-grade real estate. DSTs are commonly used in 1031 exchanges as replacement properties, allowing investors to defer capital gains taxes while maintaining real estate exposure without direct property management responsibilities. **Q2: How long do investors have to identify a DST replacement property in a 1031 exchange?** A2: IRS rules require investors to identify replacement properties within 45 days of closing the sale of their relinquished property. The full exchange must be completed within 180 days. These deadlines are strict, which makes advance planning and advisor selection particularly important. **Q3: What made urban apartment DSTs more historically resilient than other asset classes during recessions?** A3: Housing is typically the last expenditure households reduce during financial stress. Urban apartments in growing markets benefit from sustained demand, and this was evident during the 2008 recession when multifamily assets not only outperformed but recovered faster than most other commercial real estate categories. **Q4: What are cross-collateralized loans and why do they matter in DST portfolio investing?** A4: A cross-collateralized loan is a single debt structure that ties multiple properties together as shared collateral. This means no individual property within the portfolio can be sold independently, which limits exit flexibility and can complicate or delay the liquidation of an investment. **Q5: What should a DST sponsor's track record include?** A5: A credible track record should show actual versus targeted performance for each prior offering over a defined historical period. It should be published within the sponsor's offering materials and be specific enough to allow comparison across individual assets. A track record that is vague, incomplete, or absent entirely is a significant warning sign. For more information, please feel free to schedule a call with a member of the FGG1031 team. ### [Paul Getty](https://blog.fgg1031.com/blog/author/paul-getty) Paul M. Getty is one of the most experienced 1031 exchange specialists in the United States, with a career in real estate that spans over 35 years and more than $5 billion in commercial transactions across every major asset class. His work covers single-family rentals, apartments, retail, office, multifamily, and student and senior housing, giving him a practical understanding of how different property types perform across market cycles and how investors can move between them using tax-deferred exchange strategies. As President and CEO of FGG1031 | First Guardian Group, Paul advises investors through the full 1031 exchange process, from identifying qualifying replacement properties to structuring acquisitions through Delaware Statutory Trusts (DSTs) and wholly owned real estate. His guidance covers both the compliance requirements of a valid exchange and the investment decisions that determine long-term portfolio outcomes – a combination that is difficult to find in a single advisor. Paul holds a California and Texas real estate broker license and carries Series 22, 62, 63, and 82 securities licenses as a registered representative with Emerson Equity LLC, member FINRA /SIPC. He has represented buyers and sellers across complex commercial transactions, sourced and structured debt and equity, and worked alongside nationally recognized firms including Marcus Millichap, CBRE, JP Morgan, and Morgan Stanley. Before founding FGG1031, he co-founded Venture Navigation, a boutique investment banking firm whose M&A and IPO activity generated over $700 million in investor returns. Paul holds an MBA in Finance from the University of Michigan and a bachelor’s degree in chemistry from Wayne State University. He has also completed coursework in artificial intelligence at Stanford University. He is the author of four books on real estate investing and tax deferral strategy, including Tax Deferral Strategies Utilizing the Delaware Statutory Trust (DST) and Real Estate Investing in the New Era, both available on Amazon. A frequent speaker on 1031 exchanges, DST investing, and real estate tax strategy, Paul Getty is a recognized voice for investors and advisors seeking guidance on capital preservation through tax-deferred real estate investment. ## Your Comments : This is a search field with an auto-suggest feature attached. - There are no suggestions because the search field is empty. - Latest Posts - Popular Posts [Partial 1031 Exchange: How It Works, What Gets Taxed, and When It May Make Sense](https://blog.fgg1031.com/blog/partial-1031-exchange-how-it-works) [ 1031 Exchange](https://blog.fgg1031.com/blog/topic/1031-exchange) [721 UPREIT Options in DST Programs (Part 3)](https://blog.fgg1031.com/blog/721-upreit-options-in-dst-programs) [ Real Estate Investors](https://blog.fgg1031.com/blog/topic/real-estate-investors) [ DST](https://blog.fgg1031.com/blog/topic/dst) [ 721 Exchange](https://blog.fgg1031.com/blog/topic/721-exchange) [ UPREIT](https://blog.fgg1031.com/blog/topic/upreit) [ New featured](https://blog.fgg1031.com/blog/topic/new-featured) [Can a 9% Taxable Return Beat a 4.5% Tax Advantaged DST?](https://blog.fgg1031.com/blog/can-a-9-taxable-return-beat-a-4.5-tax-advantaged-dst) [ Real Estate Investors](https://blog.fgg1031.com/blog/topic/real-estate-investors) [ DST](https://blog.fgg1031.com/blog/topic/dst) [ New featured](https://blog.fgg1031.com/blog/topic/new-featured) ### Categories - [1031 Exchange (143)](https://blog.fgg1031.com/blog/tag/1031-exchange) - [DST (59)](https://blog.fgg1031.com/blog/tag/dst) - [Real Estate Investors (43)](https://blog.fgg1031.com/blog/tag/real-estate-investors) - [Blog (41)](https://blog.fgg1031.com/blog/tag/blog) - [New featured (36)](https://blog.fgg1031.com/blog/tag/new-featured) - [Taxes (18)](https://blog.fgg1031.com/blog/tag/taxes) - [Estate Planning (10)](https://blog.fgg1031.com/blog/tag/estate-planning) - [Investor (8)](https://blog.fgg1031.com/blog/tag/investor) - [REIT (7)](https://blog.fgg1031.com/blog/tag/reit) - [Capital Gains (6)](https://blog.fgg1031.com/blog/tag/capital-gains) - [Qualified Intermediary (6)](https://blog.fgg1031.com/blog/tag/qualified-intermediary) - [721 Exchange (4)](https://blog.fgg1031.com/blog/tag/721-exchange) - [Featured (4)](https://blog.fgg1031.com/blog/tag/featured) - [Opportunity Zones (4)](https://blog.fgg1031.com/blog/tag/opportunity-zones) - [1031 Exchange Funds (3)](https://blog.fgg1031.com/blog/tag/1031-exchange-funds) - [Inflation (3)](https://blog.fgg1031.com/blog/tag/inflation) - [Retirement Planning (3)](https://blog.fgg1031.com/blog/tag/retirement-planning) - [Reverse 1031 Exchange (3)](https://blog.fgg1031.com/blog/tag/reverse-1031-exchange) - [TIC (3)](https://blog.fgg1031.com/blog/tag/tic) - [Apartment Market (2)](https://blog.fgg1031.com/blog/tag/apartment-market) - [Boot (2)](https://blog.fgg1031.com/blog/tag/boot) - [CA Landlords (2)](https://blog.fgg1031.com/blog/tag/ca-landlords) - [Covid-19 (2)](https://blog.fgg1031.com/blog/tag/covid-19) - [Depreciation (2)](https://blog.fgg1031.com/blog/tag/depreciation) - [Depreciation Recapture (2)](https://blog.fgg1031.com/blog/tag/depreciation-recapture) - [IRS (2)](https://blog.fgg1031.com/blog/tag/irs) - [NNN (2)](https://blog.fgg1031.com/blog/tag/nnn) - [UPREIT (2)](https://blog.fgg1031.com/blog/tag/upreit) - [1033 Exchange (1)](https://blog.fgg1031.com/blog/tag/1033-exchange) - [1099A (1)](https://blog.fgg1031.com/blog/tag/1099a) - [AB1771 (1)](https://blog.fgg1031.com/blog/tag/ab1771) - [CPA (1)](https://blog.fgg1031.com/blog/tag/cpa) - [Cost Segregation (1)](https://blog.fgg1031.com/blog/tag/cost-segregation) - [Mortgage (1)](https://blog.fgg1031.com/blog/tag/mortgage) - [PPM (1)](https://blog.fgg1031.com/blog/tag/ppm) - [Rent Relief (1)](https://blog.fgg1031.com/blog/tag/rent-relief) - [Retail (1)](https://blog.fgg1031.com/blog/tag/retail) - [The Tax Cuts and Jobs Act (1)](https://blog.fgg1031.com/blog/tag/the-tax-cuts-and-jobs-act) see all ### Read more of what you like. ## [721 UPREIT Options in DST Programs (Part 3)](https://blog.fgg1031.com/blog/721-upreit-options-in-dst-programs) ## [Can a 9% Taxable Return Beat a 4.5% Tax Advantaged DST?](https://blog.fgg1031.com/blog/can-a-9-taxable-return-beat-a-4.5-tax-advantaged-dst) ## [Accelerated Depreciation in Real Estate](https://blog.fgg1031.com/blog/accelerated-depreciation-in-real-estate) [![FGG_Footer_White](https://blog.fgg1031.com/hs-fs/hubfs/FirstGuardianGroup_2022/FGG_Footer_White.png?width=300&height=95&name=FGG_Footer_White.png "FGG_Footer_White")](http://fgg1031.com) 97 East Brokaw Road, Suite 350, San Jose, CA 95112 [(866) 398 1031](tel:(866)%20398%201031) [info@firstguardiangroup.com](mailto:info@firstguardiangroup.com) ## Recent Blogs - [Investing in Senior Housing October 20, 2022](https://blog.fgg1031.com/blog/investing-in-senior-housing) - [A Closer Look at the 7 Deadly Sins October 20, 2022](https://blog.fgg1031.com/blog/a-closer-look-at-the-seven-deadly-sins) - [What is a Springing LLC? October 20, 2022](https://blog.fgg1031.com/blog/what-is-a-springing-llc) ## Useful Links - Home - About Us - Blogs - Testimonials from Past Customers - Resource Center - Current Offerings Disclaimer: There is no guarantee that any strategy will be successful or achieve investment objectives. All real estate investments have the potential to lose value during the life of the investments. This material does not constitute an offer to sell nor a solicitation of an offer to buy any security. Such offers can be made only by the confidential Private Placement Memorandum (the “Memorandum”). Please be aware that this material cannot and does not replace the Memorandum and is qualified in its entirety by the Memorandum. This material is not intended as tax or legal advice so please do speak with your attorney and CPA prior to considering an investment. This material contains information that has been obtained from sources believed to be reliable. However, FGG1031, First Guardian Group, LightPath Capital, Inc., and their representatives do not guarantee the accuracy and validity of the information herein. Investors should perform their own investigations before considering any investment. There are material risks associated with investing in real estate, Delaware Statutory Trust (DST) and 1031 Exchange properties. These include, but are not limited to, tenant vacancies, declining market values, potential loss of entire investment principal. Past performance is not a guarantee of future results: potential cash flow, potential returns, and potential appreciation are not guaranteed in any way and adverse tax consequences can take effect.  The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities. All financed real estate investments have a potential for foreclosure. Delaware Statutory Trust (DST) investments are commonly offered through private placement offerings and are illiquid securities. There is no secondary market for these investments. Like any investment in real estate, if a property unexpectedly loses tenants or sustains substantial damage, there is potential for suspension of cash flow distributions. Costs associated with the transaction may impact investors’ returns and may outweigh the tax benefits. IRC Section 1031, IRC Section 1033, and IRC Section 721 are complex tax codes; therefore, you should consult your tax and legal professional for details regarding your situation. DST 1031 properties are only available to accredited investors (generally described as having a net worth of over one million dollars exclusive of primary residence) and accredited entities only (generally described as an entity owned entirely by accredited individuals and/or an entity with gross assets of greater than five million dollars). If you are unsure if you are an accredited investor and/or an accredited entity, please verify with your CPA and Attorney prior to considering an investment. Securities offered through registered representatives of [LightPath Capital, Inc.](http://www.lightpathcapital.com/) Member [FINRA](http://www.finra.org/) / [SIPC](https://www.sipc.org/). FGG1031, First Guardian Group, and LightPath Capital, Inc. are separate entities. Copyright 2022, All Rights Reserved, FGG1031 [![FGG_Footer_White](https://blog.fgg1031.com/hs-fs/hubfs/FirstGuardianGroup_2022/FGG_Footer_White.png?width=300&height=95&name=FGG_Footer_White.png "FGG_Footer_White")](http://fgg1031.com) 97 East Brokaw Road, Suite 350, San Jose, CA 95112 [(866) 398 1031](tel:(866)%20398%201031) [info@firstguardiangroup.com](mailto:) [![Bitmap](https://blog.fgg1031.com/hubfs/FirstGuardianGroup_2023/Bitmap.png)](https://brokercheck.finra.org/individual/summary/6470002) ## Recent Blogs - [Understanding the Difference Between Inheritance and Estate Tax August 3, 2023](https://blog.fgg1031.com/blog/understanding-the-difference-between-inheritance-and-estate-tax) - [Public or Private Real Estate? Your Investment Portfolio May Need Both July 27, 2023](https://blog.fgg1031.com/blog/public-or-private-real-estate-your-investment-portfolio-may-need-both) - [How to Use 1031 Exchange Funds to Improve Your Replacement Property July 20, 2023](https://blog.fgg1031.com/blog/how-to-use-1031-exchange-finds-to-improve-your-replacement-property) ## Useful Links - [Home](http://fgg1031.com/) - [About Us](https://fgg1031.com/about-us/) - [Blogs](https://blog.fgg1031.com/blog) - Testimonials from Past Customers - [Resource Center](https://fgg1031.com/resource-center/) - [Current Offerings](https://fgg1031.com/property-listings-directory/) FGG1031 | First Guardian Group and Emerson Equity LLC do not provide legal or tax advice. Securities offered through [Emerson Equity LLC](http://www.emersonequity.com/) Member [FINRA/SIPC](http://finra.org/) and MSRB registered. Emerson Equity LLC is unaffiliated with any entity herein. 1031 Risk Disclosure: - There is no guarantee that any strategy will be successful or achieve investment objectives; - Potential for property value loss – All real estate investments have the potential to lose value during the life of the investments; - Change of tax status – The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities; - Potential for foreclosure – All financed real estate investments have potential for foreclosure; ·Illiquidity – Because 1031 exchanges are commonly offered through private placement offerings and are illiquid securities. There is no secondary market for these investments; - Reduction or Elimination of Monthly Cash Flow Distributions – Like any investment in real estate, if a property unexpectedly loses tenants or sustains substantial damage, there is potential for suspension of cash flow distributions; - Impact of fees/expenses – Costs associated with the transaction may impact investors’ returns and may outweigh the tax benefits No offer to buy or sell securities is being made. Such offers may only be made to qualified accredited investors via private placement memorandum. Risks detailed in a private placement memorandum should be carefully reviewed, understood and considered before making such an investment. Prospective strategies and products used in any tax advantaged investment planning should be reviewed independently with your tax and legal advisors. Changes to the tax code and other regulatory revisions could have a negative impact upon strategies developed and recommendations made. Past performance and/or forward looking statements are never an assurance of future results. Many of the investments offered will be only available to those investors meeting the definition of an Accredited Investor under SEC Rule 501(A) and offered as Regulation D private placement securities via a Private Placement Memorandum (“PPM”). Prospective investors must receive, read and understand all of the risks associated with buying private placement securities. Investments are not guaranteed or [FDIC](http://fdic.org/) insured and risks may include but are not limited to illiquidity, no guarantee of income or guarantee that all tax advantages or objectives will be met and complete loss of principal investment could occur. **Risk Disclosure:** Alternative investment products, including real estate investments, notes & debentures, hedge funds and private equity, involve a high degree of risk, often engage in leveraging and other speculative investment practices that may increase the risk of investment loss, can be highly illiquid, are not required to provide periodic pricing or valuation information to investors, may involve complex tax structures and delays in distributing important tax information, are not subject to the same regulatory requirements as mutual funds, often charge high fees which may offset any trading profits, and in many cases the underlying investments are not transparent and are known only to the investment manager. Alternative investment performance can be volatile. An investor could lose all or a substantial amount of his or her investment. Often, alternative investment fund and account managers have total trading authority over their funds or accounts; the use of a single advisor applying generally similar trading programs could mean lack of diversification and, consequently, higher risk. There is often no secondary market for an investor's interest in alternative investments, and none is expected to develop. There may be restrictions on transferring interests in any alternative investment. Alternative investment products often execute a substantial portion of their trades on non-U.S. exchanges. Investing in foreign markets may entail risks that differ from those associated with investments in U.S. markets. Additionally, alternative investments often entail commodity trading, which involves substantial risk of loss. NO OFFER OR SOLICITATION: The contents of this website: (i) do not constitute an offer of securities or a solicitation of an offer to buy of securities, and (ii) may not be relied upon in making an investment decision related to any investment offering by FGG1031 | First Guardian Group, Emerson Equity LLC, or any affiliate, or partner thereof. FGG1031 | First Guardian Group does not warrant the accuracy or completeness of the information contained herein. Copyright 2026, All Rights Reserved, FGG1031