How To Create a Diversified DST Portfolio The idea of diversification is to create a real estate portfolio that includes multiple types of assets and geographic regions. Learn how DST 1031 properties can potentially create a diversified portfolio.
By Jason Salmon, Senior Vice President & Managing Director of Real Estate Analytics
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iversification* 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.
$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.
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 his/her 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 within 3-5 days.
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
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
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
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1031 DST Digest
