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Are you considering investing in a DST or an UPREIT via a 1031 exchange but are having a hard time giving up control?

In this two-part series, I will attempt to navigate the very real feelings associated with passive investing. I will explain why it’s something to consider, how it benefits your heirs, and discuss some of the psychological roadblocks many people encounter.

Real Estate Investments Can Just be Exhausting

I find many investors may not have a strong desire to invest in a DST, and I have wondered why this is. Sometimes a major life event has to occur for them to make a big decision like this.

I know this feeling from first-hand experience with my father who has purchased, fixed, renovated, leased, maintained, evicted, and operated his real estate portfolio for 40 years. When he was 40 to 50, he had much more energy and the desire to own rental property and handle everything that comes with it. In fact, he thought it was fun. But at some point, it wasn’t as fun for him anymore.

He’s not alone in this feeling either. As we age, we have different wants and needs, and our priorities begin to change. We begin to think about our health and overall mortality and the legacy we wish to give. We place more importance on spending time with family, enjoying grandkids, simplifying life, traveling, etc., and we want to continue on this evolving journey without the worries that go along with owning investment real estate.

One of my clients owned a bank building in New York City that had been in his family for years that was leased by a major financial institution.

He said, “I really have no rights to the building, but I like not having to think about it and the liability that comes along with being a landlord.”

As a rental property owner your rentals stay on your mind – when is the tenant going to call with a problem, why didn’t they pay the rent, when are they going to move, when do I have to muster the energy and money to prepare the unit for the next tenant? It’s exhausting!

And in some states such as California, it seems more and more laws are passed regularly in favor of the tenant making rentals more restrictive and putting the burden on the landlord (i.e. rent control, eviction rules, pets, etc.)

Your Legacy

As we get older, we consider our family and what we plan to leave them in our absence.

Thoughts like, “When I die is my spouse going to know how to execute leases, fix toilets, maintain our rental investment, etc. And do I really want to leave that responsibility to my survivors? Are my kids going to want to deal with it, or are they better with money? Will they be interested in hands-on real estate investing?”

Perhaps an option is to consider using a passive real estate investment that could potentially provide your heirs income along with the benefit of not having to directly manage properties. Instead, they could be able to enjoy the passive income potential of professionally managed real estate without, literally, having to get their hands dirty.

Estate Planning

Heirs may not want the maintenance/management, etc., of a rental investment. They may prefer (or need!) money instead but don’t want 40% less of an inheritance after taxes. Often we find many real estate investors sell their property without truly understanding the implications and potential tax liability without learning what solutions may be available to them and their heirs. While this is best handled by your CPA, I can help guide this conversation and provide a tax estimate. By planning your estate well in advance, you have a greater opportunity to strategize your legacy and set up your estate as you wish. If you don’t, the government or someone else will do it for you.

I help a lot of families navigate that often confusing and daunting route. It’s very important to make sure the next generation is comfortable handling the wealth they are about to inherit. Parents have been managing their wealth for over 20, 30, or 40 years; in an inheritance situation, the heirs may have less than a year to figure everything out. You should be sure they are engaged and informed before they need to be.

Your Options

Perhaps you purchase a smaller property that’s less management intensive, but aren’t you just kicking the can down the road? At some point, there is a good chance you may be forced to make a change.

Or – and this is where the DST comes in – you exchange and buy another property that may be easier for everyone to handle while still collecting potential revenue.

In the next article, you will learn some considerations when deciding to transition from active investing to passive investing.

Diversified Investment Strategies represents a team of experienced and trusted professionals specializing in real estate investment and services – including buying, selling, leasing, retirement planning, and wealth growth and management through strategic, informed investment choices and a meticulous real estate investment analysis. As knowledgeable replacement property professionals, they help clients build a customized strategy that identifies suitable investments pursuing successful completion of a 1031 Tax-Deferred Exchange.  Contact us or call 949-379-2080.


Individual results will vary and are not guaranteed.
Because investor situations and objectives vary this information is not intended to indicate that an investment is appropriate for or is being recommended to any individual investor.

This is for informational purposes only, does not constitute individual investment advice, and should not be relied upon as tax or legal advice. Please consult the appropriate professional regarding your individual circumstances.
Potential cash flows/returns/appreciation are not guaranteed and could be lower than anticipated. Diversification does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk.
There are material risks associated with investing in private placements, Delaware Statutory Trusts (“DSTs”) and real estate securities including the potential loss of the entire investment principal, illiquidity, tenant vacancies impacting income and revenue, general and real estate market conditions, lack of operating history, interest rate risks, competition, including the risk of new supply coming to market and softening rental rates, general risks of owning/operating commercial and multifamily properties, short term leases associated with multi-family properties, financing risks, potentially adverse tax consequences, general economic risks, development risks, long hold periods, and investors should read the PPM carefully before investing paying special attention to the risk section.
DST 1031 properties are only available to accredited investors (typically defined as having a $1 million net worth excluding primary residence or $200,000 income individually/$300,000 jointly of the last two years; or have an active Series 7, Series 82, or Series 65).  Individuals holding a Series 66 do not fall under this definition) and accredited entities only.  If you are unsure if you are an accredited investor and/or an accredited entity, please verify with your CPA and Attorney.
Securities offered through Concorde Investment Services, LLC (CIS), member FINRA/SIPC. Diversified 1031 is independent of CIS.