AN EVEN BIGGER CONCERN: PERPETUAL NON-TRADED REIT STRUCTURES Many RIAs are not only recommending DSTs with annual recurring fees. They are also positioning clients into DSTs that include mandatory UPREIT structures converting into perpetual-life non-traded REITs. Key Risks of Perpetual REITs: They often have no defined liquidity event, can last 20+ years or longer, and continue charging approximately 1% annually. The Math Over 20 Years: 20 years × 1% = 20% in total fees (potentially more over longer timeframes). This creates a situation where the RIA continues earning fees indefinitely while the investor continues paying fees indefinitely.
A FAIR QUESTION ABOUT FIDUCIARY ADVICE
RIAs often emphasize their fiduciary duty—acting in the client's best interest. Investors should ask this simple question: "How is it in my best interest to pay 10%, 15%, or even 20%+ in total fees over time while also receiving less monthly income, when comparable DST investments are available with a one-time fee structure?" The answer: The math is simple. The RIA model of charging DST investors 1% per year is typically the more costly fee structure for investors and lowers their monthly cash flow by typically 20%.
THE BOTTOM LINE: WHAT 1031 INVESTORS MUST FOCUS ON
• Total cost over expected hold period (not just upfront cost), • How fees accumulate over time (1% compounds significantly), • Impact on monthly cash flow (RIA fees reduce income by ~20%), and • Defined exit vs. perpetual structure (perpetual REITs have no liquidity event). When evaluating DST investments in a 1031 exchange, investors must focus on
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