How To Create a Diversified DST Portfolio

By Jason Salmon, Senior Vice President and the Kay Properties & Investments Team 

Diversification* is one of the basic building blocks to any investment portfolio strategy. It’s the simple concept of not wanting to put all of your eggs in one basket. Diversification across asset types helps to avoid concentration risk – and potentially a basket full of broken eggs. Diversification also has the potential to create other positives, such as achieving a potentially higher overall blended return for a portfolio and smoothing out the natural cyclical ups and down that can occur within sectors.

Before reading on, brush up on 1031 exchange basics so you invest like a professional.

Real estate is an alternative asset that is often used to diversify investment portfolios. Investors also can create diversification within those real estate allocations to achieve some of the same positive results. DSTs are ideally suited to build portfolio diversification. For example, if an investor has $1 million to invest in a 1031 Exchange, it can be difficult to find even one property to buy at that price, let alone multiple properties. In comparison, the fractional ownership structure of DSTs gives investors a variety of choices to diversify that $1 million into multiple investment properties. Because DSTs are a passive investment structure with no day-to-day management responsibilities, an individual can easily build a diverse portfolio that contains multiple DSTs without adding any additional work or time commitment.

Regardless of whether an investor has $200,000 or $25 million to invest in DSTs, it is very easy to build a diverse DST portfolio. An investor with $200,000 could split that investment into four DSTs at $50,000 each. Even for an investor who only wants to invest in NNN properties, he or she can still choose assets with vastly different characteristics. For example, that investor could  invest in a Walgreen’s, a FedEx distribution center,  a portfolio of Tractor Supply stores or a portfolio of Amazon distribution facilities. The fractional ownership structure allows the investor to stretch their dollars across multiple assets. In addition, DSTs offer an efficient closing process that makes it easy to execute their 1031 Exchange, even across multiple investments, all within the allowed time period and often much sooner as DSTs can typically be closed on within 3-5 days.

The majority of individuals who are investing in DSTs are buying multiple DSTs. That being said, everyone is unique in how they choose to diversify investment holdings, and there are many different ways to achieve diversification and a balanced potential income stream. Some examples include:

  • Property type: Kay Properties offers investors a variety of property types on the marketplace with options that include apartments, multifamily, industrial, manufactured housing, self-storage and NNN assets.
  • Geographic: DST properties are available across the country in different regions and markets, including primary, secondary and tertiary cities.
  • Resilient or “recessionary resistant” types of uses.  Think industrial e-commerce distribution facilities or essential dialysis treatment centers.
  • Single asset versus portfolio deals: Portfolio deals are not necessarily better or worse than a single asset DST, but a portfolio DST does offer an additional layer of diversification.
  • Credit quality of the tenant(s), including investment grade and non-rated tenants.

There is no one single solution or strategy for creating a balanced DST portfolio and avoiding some of the pitfalls associated with concentration risk. Every investor is different. Some do like to keep things simple with fewer holdings or investing only in one type of property. However, one of the qualities that attract investors to DSTs in the first place is the ability to easily invest across multiple DSTs – even if they don’t have a large amount of capital to invest. It is important for investors to work with their Kay Properties team members to find deals that make sense for their unique situation and build a diversified portfolio that aligns with their overall investment goals, risk tolerances and objectives.

*Diversification does not guarantee profits or protect against losses.

About Kay Properties and

Kay Properties is a national Delaware Statutory Trust (DST) investment firm. The platform provides access to the marketplace of DSTs from over 25 different sponsor companies, custom DSTs only available to Kay clients, independent advice on DST sponsor companies, full due diligence and vetting on each DST (typically 20-40 DSTs) and a DST secondary market.  Kay Properties team members collectively have over 115 years of real estate experience, are licensed in all 50 states, and have participated in over 21 Billion of DST 1031 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 read the entire Memorandum paying special attention to the risk section prior investing.  IRC Section 1031, IRC Section 1033 and IRC Section 721 are complex tax codes therefore you should consult your tax or legal professional for details regarding your situation.  There are material risks associated with investing in real estate securities including illiquidity, vacancies, general market conditions and competition, lack of operating history, interest rate risks, general risks of owning/operating commercial and multifamily properties, financing risks, potential adverse tax consequences, general economic risks, development risks and long hold periods. There is a risk of loss of the entire investment principal. Past performance is not a guarantee of future results. Potential cash flow, potential returns and potential appreciation are not guaranteed.

Nothing contained on this website constitutes tax, legal, insurance or investment advice, nor does it constitute a solicitation or an offer to buy or sell any security or other financial instrument. Securities offered through Growth Capital Services, member FINRASIPC, Office of Supervisory Jurisdiction located at 2093 Philadelphia Pike Suite 4196 Claymont, DE 19703.

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