--- title: Why Many Investors Prefer DSTs Over Triple Net (NNN) Properties description: Triple Net Lease properties can provide a good option for investors who are seeking mostly passive income and who wish to avoid the burdens of more active management. image: https://blog.fgg1031.com/hubfs/NNN%20(1).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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They can provide a good option for investors who are seeking mostly passive income and who wish to avoid the burdens of more active management. Popular examples of NNN properties would include single tenant retail, fast food, and service providers such as Walgreens, CVS, Dollar Stores, Taco Bell, Burger King, and Jiffy Lube among many others.  While the overall annual sales volume of single tenant NNN properties is currently higher than DST properties (roughly $50+ billion for NNN versus about $10 billion for DSTs), a growing number of our clients who have previously been NNN investors are switching to DSTs. We’ll explore the reasons for this shift in preferences in this blog post. ##### **The Appeal of NNN Properties** First and foremost, NNN leased properties have been around a long time and are well known to real estate investors and the real estate brokerage community. They are considered to be a type of traditional real estate which allows licensed real estate brokers and agents to receive sales commissions – so they are actively marketed and promoted to investors by a large number of intermediaries as a first choice when considering passive real estate investments.  The benefits of investing in NNN properties can be compelling and typically include:  - *Long term stable income per lease terms which can typically range from 5 to 20 years (plus options) in duration* - *Reduced management stress and work required from the investor since the tenant is largely responsible for paying rent and expenses* - *Security of income subject to the credit rating of the tenant who is often required to guarantee the performance of all lease terms* ##### **Potential Disadvantages of NNN Properties** Our firm has managed many [NNN properties](https://fgg1031.com/property-listings-directory/) on behalf of our clients and while the investment benefits can be attractive, these investments can also be subject to risks that prudent investors should consider including the following:  - NNN leases generally have a limitation on the amount of annual rent increases that can be passed onto tenants. This limitation is typically based on past historical increases of the Consumer Price Index (CPI) which, until recently has been in the range of ~2%. The recent spike in reported inflation to annualized price increases above 5% has raised justifiable concerns among many of our clients over whether the income from NNN properties can keep pace with ongoing elevated inflation rates. Income properties that fail to keep pace with rising price levels can be subject to added risks that may impact overall returns.  - While a NNN tenant is obligated to perform maintenance and upkeep of the property, the investor/owner is ultimately responsible for any failure to the tenant to meet its lease obligations. As a practical matter, no matter how strong the tenant may appear to be, we advise all our NNN investors to have periodic engineering studies completed to ensure that their tenants are fully living up to their responsibilities. In our experience, it is rare that a comprehensive engineering study will not find at least several items that need to be addressed by the tenant. Even minor items such as delaying the timely replacement of a grease trap can lead to costly repairs and perhaps even contentious and expensive litigation. - As the term of the lease declines, there are added risks to consider including negotiating favorable renewable terms plus the possibility that a tenant may not renew and leave the investor stuck with an empty building and burdened with unanticipated costs to find a new tenant. Even tenants who are doing well in one location may decide to move to a new nearby building – or leverage that possibility to negotiate less favorable renewal terms including lower rents and improvement allowances that may negatively impact overall returns.  Ironically, added renewal risks can raise the current cash yields on NNN properties with limited remaining lease term and cause unsuspecting investors who are solely looking at yield to be motivated to make poor investment decisions. NNN investors who are chasing current cash yields are wise to understand that higher current returns are often accompanied by higher risks. Investors should be wary that an above market cash yield can be a signal of a desperate seller who is trying to unload a problem property.  ##### **Comparing DSTs to NNN Properties ** Like NNN properties, properties structured as [Delaware Statutory Trusts (DSTs)](https://blog.fgg1031.com/blog/questions-to-ask-about-dsts)appeal to investors who are seeking passive income and who may also be considering investments that would qualify as like-kind replacement properties when completing a 1031 exchange. Here are some of the most cited reasons provided from our clients who have shifted from NNN properties to DSTs. - While DSTs can include NNN properties, they are also available in asset classes such as apartments and storage where owners have greater flexibility to raise rents to keep up with changing market conditions and price levels. Unlike commercial and retail properties which are subject to fixed term leases that decline year by year, apartments are perpetually leased as tenants come and go.  - Finding attractive NNN properties is especially challenging in today’s frothy market. Investors must compete to outbid other investors to secure desirable properties and time is very limited to win suitable properties if they are doing 1031 exchanges. By contrast, there is no price competition among DST investors – all who invest in a particular DST are offered their interests at the same price. - The risk of not being able to close on an identified property is also far less with a DST than a NNN property. The DST is already owned and being managed by the DST sponsor who is reselling their interests to investors. Provided DST interests remain available, and the investor qualifies to purchase interests, they have a high likelihood of closing and no risk of losing out by being outbid by another investor.    ##### **Summary** While NNN properties currently remain more popular than DSTs, the large increase in DST investments in recent years is being fueled in part by investors who are switching from NNN investments to DSTs. Should current elevated inflation levels persist into the longer term, we would expect investor preferences for DSTs over NNN options to accelerate as investors look to reposition equity from retail and commercial assets into more inflation resilient investments such as apartments, storage, and other.  If you wish to further explore the full range of both NNN and DST investments offered by our firm, please contact us at [info@FGG1031.com](mailto:info@FGG1031.com) or call us toll free at 866 398-1031. You can also schedule a free one on one consultation with me [here](https://meetings.hubspot.com/pgetty).  --- ##### **Help Save 1031 Exchanges** Write to your Member of Congress and Senators urging them to oppose restricting Section 1031 like-kind exchanges. As part of the American Families Plan, the Biden Administration has proposed eliminating the application of Section 1031 for gains greater than $500,000. Like-kind exchanges have been part of the U.S. tax code since 1921 and are one of the tax code’s most powerful economic tools. It is critical that we all vigorously and visibly oppose this proposal. Make your voice heard with a pre-filled letter, which you can customize to add personal anecdotes or powerful client stories to highlight the positive impact of Section 1031 like-kind exchanges. Take action today by clicking [HERE](https://p2a.co/XLBiUYT)[**.**](https://p2a.co/XLBiUYT) **[![](https://no-cache.hubspot.com/cta/default/5468919/interactive-183026367846.png)](https://blog.fgg1031.com/hs/cta/wi/redirect?encryptedPayload=AVxigLJds5H2LZvXUiqB393sX6P6IvNynPCihimiPIiF3Rz9nljNApdt96o7%2F9hnAo920Riols2THQZDlAXKauVC5FPWsrx0WcxuMy8qhVs6NBMax%2FTCiIiH3ixoFe8wHeuom7Y0mS3KjuvGzR%2FgtQr7npIkYbL36zUxJPEoJy6X8PiVdcVN46I%2FkQgR%2FRxnjIajC6k3kmRd1HPXR%2B8QWs5tiIVIjSjEDasISUn4CsbAGJ0j&webInteractiveContentId=183026367846&portalId=5468919)** --- 1 [https://www.stanjohnsonco.com/trends-insights/research-library/marketsnapshot-q4-2021](https://www.stanjohnsonco.com/trends-insights/research-library/marketsnapshot-q4-2021) and [https://thediwire.com/securitized-1031-exchanges-now-on-pace-to-raise-a-record-6-billion-in-2021/](https://thediwire.com/securitized-1031-exchanges-now-on-pace-to-raise-a-record-6-billion-in-2021/)  2 DST investors must be accredited i.e., have a net worth > $ 1million exclusive of equity in their personal residence or// annual income of $200K if single or $300K if married.  ### [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 - 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[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