At our December DIG Philly meeting, Fred Hubler revealed two critical insights about DST investing: First, some DSTs hold diversified portfolios of essential-income properties that didn't miss a single payment even during COVID. Second, DSTs can solve the "leftover equity" problem that kills countless 1031 exchanges—even with as little as $50,000.
During the pandemic, commercial real estate experienced unprecedented disruption. Restaurants even in the most busteling cities like Rittenouse Square closed, retail struggled, offices emptied. But some properties never missed a beat.
"All triple net lease, all essential income, didn't miss one penny, one day, even during COVID," Hubler explains. "'Cause it's a grocery store, blood dialysis center, Hobby Lobby—things that never closed even during COVID."
These essential service properties include:
When tenants are providing essential services, lease payments remain consistent regardless of economic conditions. These aren't glamorous properties, but they're reliable income generators.
What makes Hubler's example particularly notable is the diversification within a single DST: "So that's rare? It's rare for a DST to have more than one thing in it—to have like 18 assets within one."
Most DSTs are single-asset investments: one apartment building, one industrial warehouse, one office complex. You know exactly what you own, but you're concentrated in that single property.
But some DSTs hold portfolios of multiple properties—sometimes a dozen or more assets across different essential-income categories. This structure provides:
Diversification within the DST itself
Income stability
COVID-proof resilience
This structure is "rare" because it requires significant scale and expertise to assemble and manage such a portfolio within a DST framework.
Here's a problem every real estate agent and investor encounters: You're doing a 1031 exchange, you find the perfect replacement property, but it's not quite big enough to absorb all your equity.
Hubler describes the scenario: "Let's say you are a realtor and you have someone buying another property that you set him up with, but there's something left over. And if he doesn't place that leftover equity, 'cause your building wasn't big enough or he didn't wanna buy another building..."
The Problem:
One mistake—$50,000 of unreinvested equity—can cost you tens of thousands in taxes and technically violate your 1031 exchange requirements.
The DST Solution:"You could use it as long as the investor is accredited, you can use a DST for a $50,000 equity that keeps the whole 1031 tax free."
That $50,000 leftover gets invested into a DST, completing your 1031 exchange requirements. Your entire transaction remains tax-free, and you now own:
This flexibility makes DSTs invaluable for completing 1031 exchanges where the numbers don't perfectly align.
Here's where it gets restrictive. To invest in DSTs at all—even with just $25,000—you must be an accredited investor.
For Individuals:
For Trusts:
As Hubler frames it: "Even if you're only putting $25,000 in a DST, the government says, 'Are you rich?' And if the answer is no, I'm like, 'Well then you don't—you're not even allowed to know what Fred does.'"
This isn't Fred being elitist. It's SEC regulation designed to protect investors from illiquid investments they can't afford to lose.
The accreditation requirement exists for one primary reason: illiquidity.
"One of the reasons is because once you make that investment—very illiquid. As Fred's saying, you're not getting off that plane, turning it around. Like you're there for the duration until that goes full cycle."
DSTs typically have 5-7 year hold periods. There's no secondary market. You can't sell your interest easily. You're locked in until the property sells.
The government's logic: "They're protecting the consumer that that's their last $50,000 and they all of a sudden wanna get off the plane. And they can't."
If someone invests their last $50,000 and then faces an emergency—medical bills, job loss, unexpected expenses—they can't access that capital. For someone who isn't wealthy, this could be devastating.
This protection creates situations where Hubler has to turn people away: "And if it is [their last $50,000], I'd be like, 'Pay your taxes, 'cause you're not investing.' Like I, yet again, we will do what's right."
Even if someone technically qualifies as accredited, if their DST investment represents their emergency fund or last liquid capital, ethical advisors will refuse the business.
The Right Reason to Invest in DSTs:
The Wrong Reason to Invest in DSTs:
For investors who ARE appropriately qualified, essential-income DSTs offer something valuable: downside protection through necessity.
During Economic Booms:Essential services properties might not appreciate as much as speculative real estate.
During Economic Busts:Essential services properties hold value because their tenants provide services people can't live without.
This makes them particularly attractive for:
Putting it all together, DSTs work in three distinct scenarios:
Deploy $500,000+ into diversified essential-income DST portfolios, seeking stable passive income with downside protection.
Use $25,000-$100,000 DST investments to mop up excess equity in 1031 exchanges, keeping the entire transaction tax-free.
Allocate a portion of 1031 exchange proceeds to DSTs while purchasing direct property with the remainder, balancing passive and active ownership.
Each use case requires accredited investor status and long-term capital commitment, but solves different investor needs.
The pandemic taught us that "essential" isn't just a category—it's a moat. Properties serving essential functions maintained operations and income when everything else shut down.
That grocery store DST that seemed boring in 2019? It was worth its weight in gold in 2020 when it never missed a payment while restaurants, hotels, and retail centers hemorrhaged money.
"Didn't miss one penny, one day, even during COVID."
For investors who remember that stress, essential-income DSTs offer something money can't buy: peace of mind.
DSTs serve two critical functions in sophisticated real estate investing:
1. Essential Income Portfolios: Rare diversified DSTs holding multiple essential-service properties that generate reliable income regardless of economic conditions.
2. 1031 Exchange Completion: The ability to invest as little as $50,000 to complete 1031 exchanges where leftover equity would otherwise become taxable.
But access requires accredited investor status—not as arbitrary gatekeeping, but as protection from illiquidity that could devastate investors who can't afford to lock up capital for 5-7 years.
For those who qualify and understand the constraints, DSTs offer something valuable: a way to complete tax-deferred exchanges perfectly while investing in properties that proved their resilience when the world shut down.
Sometimes boring and essential beats exciting and volatile. The grocery stores, dialysis centers, and dollar stores that kept operating through COVID proved that point definitively.
Delaware Statutory Trusts require accredited investor status and have minimum investment thresholds. DSTs are illiquid investments with typical hold periods of 5-7 years. This article is for educational purposes only. Always consult with qualified tax, legal, and financial professionals before making investment decisions.