Risk-Off Real Estate: Why Lower Returns Are Actually the Point

At our December DIG Philly meeting, Fred Hubler made a confession that surprises many investors: "I'm not going to beat what Rob does with his real estate. I will never beat, because he's taking all the responsibility and all the risk, and he should get way more return than a risk-off 'I wanna play golf for a living and go to Florida.'"

This isn't a limitation. It's the entire value proposition.

It's Not About Rent, It's About Profit

Before diving into risk-adjusted returns, Hubler makes a fundamental point about institutional real estate operations:

"When you buy a building, it's not what's your rent, it's what's your profit. So if you can't bump rents up any higher, spend less money."

Traditional real estate thinking:

• Focus on increasing rent
• Accept expense structure as given
• Net operating income = whatever results

Institutional real estate thinking:

• Optimize both revenue AND expenses
• Reduce costs by 25% through scale
• Engineer net operating income through operational strategy

This mindset shift is critical. Individual investors obsess over rent growth because it's the only lever they can pull effectively. Institutional operators work both sides of the equation—and often create more value through expense reduction than revenue increase.

Example:$10 million property, 100 units at $2,000/month average rent

Scenario 1: Increase rent 5%

• Revenue increase: $120,000 annually
• Expenses unchanged
• NOI increase: $120,000

Scenario 2: Cut expenses 20%

• If expenses are $1.5M, that's $300,000 saved
• Revenue unchanged
• NOI increase: $300,000

The expense lever can be more powerful than the rent lever—but only if you have institutional scale to pull it.

The Risk-Off Value Proposition

Now we get to the heart of DST investing philosophy:

"Institutional is really the thing—it's a risk-off."

What "risk-off" means:

Not "risk-free" (nothing is risk-free)

Instead: Significantly reduced risk through:

• Professional management
• Institutional sponsors
• Diversification
• Passive structure
• Regulated oversight
• Proven track records

You're accepting lower potential returns in exchange for removing multiple layers of risk.

The Honest Return Expectation

"I'm not going to beat what Rob does with his real estate. I will never beat." This refreshingly honest assessment acknowledges that active investors who manage properties themselves, take on all responsibility, handle all problems, make all decisions, and bear all risk should absolutely earn higher returns than passive DST investors. The lower DST returns aren't a failure—they're the expected outcome of eliminating work, risk, and stress from the equation.

Why You Should Want Lower Returns

Here's the counterintuitive insight: If DSTs were producing 25% annual returns, something would be wrong.

High returns come from:

• Taking significant risks
• Working hard
• Timing markets perfectly
• Finding inefficiencies
• Adding value personally

DSTs aren't designed to do any of those things.

DSTs are designed to:

• Preserve capital
• Generate steady income
• Defer taxes
• Operate passively
• Reduce risk

If you wanted maximum returns, you wouldn't use DSTs. You'd do what Rob does—buy properties yourself, add value personally, take all the risk and responsibility.

Sponsor Selection: The Critical Filter

"There's hundreds [of DSTs] out there, there's about 30 that we trust."

This is perhaps the most important point in the entire presentation.

The DST landscape:

• Hundreds of DST offerings available at any time
• Dozens of different sponsors
• Wide variation in quality, track records, and integrity
• Not all DSTs are created equal

Hubler's filter:

• Only 30 sponsors out of hundreds meet his trust criteria
• He's the "travel agent" who must trust the "airline"
• His reputation depends on sponsor performance

When Risk-Off Makes Sense

DSTs as "risk-off" investments are optimal for investors approaching or in retirement, those who've sold a business and are managing wealth, or anyone transitioning from active to passive income. They appeal to personalities that value certainty over maximum upside, prefer peace of mind to potential extra returns, and recognize they're not real estate experts. Financially, the ideal DST investor focuses more on preserving wealth than maximizing gains, benefits significantly from tax deferral, and prioritizes diversification across asset classes. If you're checking multiple boxes across life stage, personality, and financial position, DSTs likely align better with your priorities than active real estate investing.

When Risk-On (Active Investing) Makes Sense

Active real estate investing still wins for those in the wealth accumulation phase with time and energy to be hands-on, a long horizon to recover from mistakes, and desire to learn real estate as a skill. Personality-wise, it suits investors who genuinely enjoy property management challenges, want control over every decision, feel comfortable with uncertainty and risk, and willingly trade time for money. Financially, active investing makes sense when you need higher returns to reach your goals, have more time than capital, can afford to learn through trial and error, and want to build real estate expertise. If this profile matches yours, the extra returns from active investing justify the responsibility and risk.

The Honest Framework

Hubler's framework is refreshingly honest:

He will NOT beat active investors - Because he's not trying to

DSTs are risk-off by design - Lower returns, lower risk, zero time

Sponsor selection is critical - Only 30 out of hundreds meet standards

Diversification requires specificity - One essential retail DST out of hundreds

Returns should be lower - That's proof the risk reduction is working

This clarity helps investors self-select appropriately rather than having false expectations.

The Bottom Line

If you want to maximize returns, be an active real estate investor like Rob. Work hard, take risk, add value personally, earn your premium returns.

If you want to "play golf for a living and go to Florida," use DSTs. Accept lower returns, eliminate risk and responsibility, preserve wealth passively.

Neither strategy is superior universally. They serve different investors at different life stages with different priorities.

But here's what you cannot do: Expect active-investor returns with passive-investor effort.

Risk-off means accepting that you're not going to beat Rob's returns. And that's perfectly fine—because you're also not taking Rob's risks, doing Rob's work, or handling Rob's stress.

You're playing a different game entirely. And in that game, 12% returns with zero effort and minimal risk might be exactly what winning looks like.

Especially when you're teeing off in Florida on a Tuesday morning while Rob is dealing with a tenant emergency.

Delaware Statutory Trusts require accredited investor status and have minimum investment thresholds. Expected returns are not guaranteed and past sponsor performance does not predict future results. "Risk-off" does not mean "risk-free"—all investments carry risk. This article is for educational purposes only. Always consult with qualified tax, legal, and financial professionals before making investment decisions.

Image by Nattanan Kanchanaprat from Pixabay