What is the minimum investment for a zero cash flow DST?

The offering sets the minimum; the debt you paid off sets the size

Our cash out DSTs are high-leverage trusts holding triple-net leased property with investment-grade tenants, where all operating income services the debt. Their stated purpose includes solving debt requirements using only a small portion of proceeds and freeing the rest for low-leverage investments.

That purpose tells you how to size one. A zero is not meant to hold your whole exchange. It is meant to hold the debt your sale retired, with as little of your cash as possible, so the minimum subscription is a floor to clear rather than a target to hit.

The traditional DSTs we place typically have minimums between $100,000 and $250,000 per trust. Zeros are separate offerings with their own terms, so read the minimum in the specific memorandum.

At leverage L, a dollar of debt needs (1 − L) ÷ L of equity

Reg. section 1.1031(d)-2 treats the mortgage paid off at your sale as money received, and Reg. section 1.1031(b)-1(c) lets debt you take on with the replacement offset it. In a DST, the debt you take on is your pro-rata share of the trust's loan, as our answer on DST loans as replacement debt explains.

Turn that around to size a zero. If the trust is leveraged at L, each dollar of your equity buys a share carrying L ÷ (1 − L) of debt, so each dollar of debt you need costs (1 − L) ÷ L of equity: 25 cents at 80%, about 18 cents at 85% and about 11 cents at 90%.

Overshooting is safe for the exchange, since taking on more debt than you retired is not boot. It does add phantom income and tenant risk, so the aim is a slice close to the debt figure, not well above it.

Hypothetical: a $900,000 mortgage paid off on a $2,000,000 sale

Round numbers, hypothetical. You sell for $2,000,000, the closing pays off a $900,000 mortgage, and $1,100,000 goes to your intermediary. To defer everything, you must buy at least $2,000,000 of property and take on at least $900,000 of debt or add that much cash.

At 85% leverage, about $159,000 of equity buys a share of roughly $1,059,000 of property carrying $900,000 of debt. The remaining $941,000 can go into debt-free trusts, for total purchases of about $2,000,000 and $900,000 of debt. At 80% leverage the zero slice would be $225,000; at 90%, $100,000.

If the offering's minimum is above the slice you need, subscribing at the minimum simply replaces more debt than required. If it is below, you have flexibility. Run your own numbers with your CPA, and see our DST minimums and sizing page for multi-trust allocation.

Eligibility is a second minimum: accredited investor status

DST interests are private placements, not publicly traded securities. Private offerings of this kind are commonly limited to accredited investors, defined in Regulation D, 17 CFR section 230.501(a).

For individuals the main tests are net worth over $1,000,000, alone or with a spouse or spousal equivalent, with the primary residence excluded as an asset; or income over $200,000 individually, or $300,000 jointly, in each of the two most recent years with a reasonable expectation of the same this year. Our page on DST accredited investor rules covers the other categories.

If you do not qualify, the leverage problem still has answers: buying a financed property directly, or adding cash to cover the debt you paid off.

Decide the zero's size before you identify, and keep it small

The order of decisions matters, because identification is due on day 45 and each identified trust should already be sized.

• Get the exact payoff figure from your closing statement; that is your debt target.
• Ask for the leverage, minimum subscription and loan schedule of each zero on offer.
• Divide the debt target by L ÷ (1 − L) to get the equity slice, then compare it with the minimum.
• Allocate the rest to trusts or property that fit your income needs.
• Have your CPA confirm total purchases and total debt both clear your sale figures.