Residential RE vs Commercial DST

Cornflakes

Cornflakes

Active member
So, I have been comparing residential RE vs commercial 1031 DST. Ran some numbers and the DST is not making any sense to me. Am I missing something big here?

FYI - I got a historical commercial DST performance numbers and they show that avg holding period of 7 some years and following total return over hundreds of deals in past 15 years. SO, that is my benchmark. Yes, I am calculating exactly same way the total retrun in my screenshot as they do for DSTs.

Inland: Of Inland?s sixty-eight (68) full-cycle offerings, fifty-eight (58) had a Total Return greater
than 100%. Inland reported an average Total Return of 130.3% across all sixty-eight (68) offerings
(weighted based on purchase price of the properties).

Passco: Of Passco?s sixty-three (63) full-cycle offerings, fifty-three (53) had a Total Return
greater than 100%. Passco reported an average Total Return of 135.6% across all sixty-three
(63) offerings (weighted based on purchase price of the properties).

Bluerock: Of Bluerock?s forty-five (45) full-cycle offerings, thirty-nine (39) had a Total Return
greater than 100%. Bluerock reported an average Total Return of 149.7% across all forty-five
(45) offerings (weighted based on purchase price of the properties).

My questions is, why would/should I lock my money in commercial DST where risk is higher, liquidity is less, and I have zero control. It seems that bunch of lawyers, property managers, trustees and all get compensated well at the investor's dime in these DST deals.
 

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Cornflakes said:
So, I have been comparing residential RE vs commercial 1031 DST. Ran some numbers and the DST is not making any sense to me. Am I missing something big here?

FYI - I got a historical commercial DST performance numbers and they show that avg holding period of 7 some years and following total return over hundreds of deals in past 15 years. SO, that is my benchmark. Yes, I am calculating exactly same way the total retrun in my screenshot as they do for DSTs.

Inland: Of Inland?s sixty-eight (68) full-cycle offerings, fifty-eight (58) had a Total Return greater
than 100%. Inland reported an average Total Return of 130.3% across all sixty-eight (68) offerings
(weighted based on purchase price of the properties).

Passco: Of Passco?s sixty-three (63) full-cycle offerings, fifty-three (53) had a Total Return
greater than 100%. Passco reported an average Total Return of 135.6% across all sixty-three
(63) offerings (weighted based on purchase price of the properties).

Bluerock: Of Bluerock?s forty-five (45) full-cycle offerings, thirty-nine (39) had a Total Return
greater than 100%. Bluerock reported an average Total Return of 149.7% across all forty-five
(45) offerings (weighted based on purchase price of the properties).

My questions is, why would/should I lock my money in commercial DST where risk is higher, liquidity is less, and I have zero control. It seems that bunch of lawyers, property managers, trustees and all get compensated well at the investor's dime in these DST deals.
Click to expand...

It also depends on what type of commercial you are talking about.  Some things like apartments and storage might be strong, while retail and office may be stuck in a long term secular downturn.  I would always want to invest in the sector that has the most wind in its sails before evaluating managers or any other aspects of the deals. 

Commercial real estate is also heavily influenced by the rate environment, so I would be cautious depending the direction you think long term rates are heading.  'A' class real estate is seen as an alternative to bond investing, so if rates go up, bonds go down.  Likewise, cap rates will go up and building values will go down.

Residential obviously gives you the most control, but some people don't care about control.  They just want steady returns with no headaches.

Also, don't just focus on historical returns, but try to think through all the potential risks of either option and decide what level of return is needed to justify those risks
 
Cornflakes said:
So, I have been comparing residential RE vs commercial 1031 DST...
Click to expand...

Also, the Balance, Equity, and Total Return columns don't look like they are calculating correctly.  Your remaining balance after four years of amortization would be $692k and your return without appreciation would be 0%.

EDIT:  Sorry, I didn't notice that you were calculating year end 2025, so the balance is correct, but I don't understand your definition of return.
 
The DSTs add up all monthly payouts plus the final payout at the closing of the deal and divid that number by principal outlay.

I did the same calculation all monthly cash flows of $0 plus the equity remained in the hose, which will come back to the investor if the home is sold, divided by the principal outlay of 250k.

IF an investor had positive cash flows each month or the property appreciated, the total return might improve. and the opposite is also true. The same case with DSTs but more with sell price than the cashflows.
 
Here is what I concluded from reading a few PPMs.

1. Upfront cost is 6-10% that goes into acquisition of the property and setting up DST.  e.g. If the property was purchased for $93, you'd be asked to put $100 for 100% stake in the property.
2. Being a commercial property, the financing is at higher rate. I have seen second liens as high as 8%.
3. The management costs are neglible. Most of the rents collected (over 99%) go towards the mortgage or distribution to investors.
4. Seeling costs must be similar to buying. I have not seen it but just an assumption.

A big unknown at the exit time is what price will one get. Pretty decent chance, much more than residential RE, that commercial property may sell for less than the acquisition price.
 
Cornflakes said:
So, I have been comparing residential RE vs commercial 1031 DST. Ran some numbers and the DST is not making any sense to me. Am I missing something big here?

FYI - I got a historical commercial DST performance numbers and they show that avg holding period of 7 some years and following total return over hundreds of deals in past 15 years. SO, that is my benchmark. Yes, I am calculating exactly same way the total retrun in my screenshot as they do for DSTs.

Inland: Of Inland?s sixty-eight (68) full-cycle offerings, fifty-eight (58) had a Total Return greater
than 100%. Inland reported an average Total Return of 130.3% across all sixty-eight (68) offerings
(weighted based on purchase price of the properties).

Passco: Of Passco?s sixty-three (63) full-cycle offerings, fifty-three (53) had a Total Return
greater than 100%. Passco reported an average Total Return of 135.6% across all sixty-three
(63) offerings (weighted based on purchase price of the properties).

Bluerock: Of Bluerock?s forty-five (45) full-cycle offerings, thirty-nine (39) had a Total Return
greater than 100%. Bluerock reported an average Total Return of 149.7% across all forty-five
(45) offerings (weighted based on purchase price of the properties).

My questions is, why would/should I lock my money in commercial DST where risk is higher, liquidity is less, and I have zero control. It seems that bunch of lawyers, property managers, trustees and all get compensated well at the investor's dime in these DST deals.
Click to expand...


Its an apples vs oranges comparison in my opinion.  It seems you are looking purely at returns and if so, I do not think that is the best way to compare residential to CRE. 

Id be interested to see what type of CRE you looked at.  There are some types of CRE that have had piss poor returns but others that are hotter than residential market right now. 
 
I have a $1 to invest and I want to maximize my returens.

My choices are:
stocks
bonds
residential RE
CRE

They are all apples. Some are sour and others are sweet and juicy. Some are red and others are yellow.

They are all apples.

Oranges would be:
Luxurycars
Yatch
expensive wines/whiskies...
 
Cornflakes said:
I have a $1 to invest and I want to maximize my returens.

My choices are:
stocks
bonds
residential RE
CRE

They are all apples. Some are sour and others are sweet and juicy. Some are red and others are yellow.

They are all apples.

Oranges would be:
Luxurycars
Yatch
expensive wines/whiskies...
Click to expand...

Again if all you are looking at is returns, then you may think its an apples to apples comparison.  If you are considering everything, then its an apples to oranges comparison. Speak to a commercial broker and maybe she/he can break it down for you.  CRE is nothing like residential properties.

 
kpatnps said:
Cornflakes said:
I have a $1 to invest and I want to maximize my returens.

My choices are:
stocks
bonds
residential RE
CRE

They are all apples. Some are sour and others are sweet and juicy. Some are red and others are yellow.

They are all apples.

Oranges would be:
Luxurycars
Yatch
expensive wines/whiskies...
Click to expand...

Again if all you are looking at is returns, then you may think its an apples to apples comparison.  If you are considering everything, then its an apples to oranges comparison. Speak to a commercial broker and maybe she/he can break it down for you.  CRE is nothing like residential properties.
Click to expand...

+1  I used to finance commercial real estate and construction loans in my former life so I know for a fact that it's night and day investing in commercial real estate vs. residential real estate.  Even multi-unit residential is a lot different than one unit residential.
 
Cornflakes said:
I have a $1 to invest and I want to maximize my returens.

My choices are:
stocks
bonds
residential RE
CRE

They are all apples. Some are sour and others are sweet and juicy. Some are red and others are yellow.

They are all apples.

Oranges would be:
Luxurycars
Yatch
expensive wines/whiskies...
Click to expand...

:eek: That?s not right
 
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