THE RIA MODEL REDUCES THE
INVESTOR’S MONTHLY INCOME POTENTIAL BY APPROXIMATELY 20%.
THE COMPOUNDING EFFECT OVER TYPICAL DST TIMELINES
Beyond total fees, there is a very real and immediate impact that investors often overlook: monthly income. Why do investors choose DSTs in a 1031 exchange? To defer capital gains taxes, to eliminate management headaches, and to generate consistent monthly passive income via ACH direct deposit. The RIA Fee Structure Problem: RIAs commonly structure their 1% AUM fee by having the DST sponsor pay them out of the property’s cash flow before the investor receives distributions. Hypothetical Example: For a $1,000,000 DST investment with a 6% annual yield, the traditional DST structure would generate $60,000 annually ($5,000/month). Under the RIA AUM model, after the $10,000 annual fee, the investor receives $50,000 annually (~$4,167/month). This is a difference of $10,000 less per year and roughly $833 less per month. HOW RIA FEES DESTROY MONTHLY CASH FLOW FOR 1031 INVESTORS Consider typical DST hold periods: At 5 years, a 1% annual RIA fee totals 5%, which is comparable to the traditional one-time fee of roughly 5%. At 10 years, the RIA fee totals 10%, 2x more expensive. At 15 years, it totals 15%, 3x more expensive. Conclusion: The longer the hold period, the more the RIA’s “fiduciary” AUM model works against the investor.
Traditional DST generates: $60,000 annually
=
A $10,000 annual difference
$1,000,000 DST investment
RIA AUM Model Generates: $50,000 annually
Impact: The RIA model reduces the investor’s monthly income potential by approximately 20%. This raises a fair question: How is this a fiduciary approach to 1031 exchanges?
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