The short answer
Before you subscribe, get written answers on five things: the property's trailing income and lease roll, the loan's maturity and covenants relative to the projected hold, the sponsor's full-cycle record, every fee in the PPM's compensation table in dollars, and how the trust expects to exit. FINRA requires the broker-dealer selling you the interest to have conducted its own reasonable investigation of the sponsor and the offering (Regulatory Notices 10-22 and 23-08), so ask to see what that investigation found. The 27 questions below are organized so you can work through them one section of the PPM at a time.
At a glance
| Trustee limits | Rev. Rul. 2004-86: no new capital, no refinancing, no new leases absent tenant bankruptcy |
|---|---|
| Broker-dealer duty | FINRA Notices 10-22 and 23-08: reasonable investigation; no blind reliance on the issuer |
| Form D | 15 days after first sale; Items 12, 13, 15, 16: compensation, sales, insider proceeds |
| Compensation ceilings | FINRA Rule 2310: above 10% underwriting compensation or 15% O&O presumed unfair |
| Resale | Rule 506(b) interests are restricted securities; no public market |
| Exit-cap sensitivity | $1,000,000 NOI: $20,000,000 at 5%, $16,700,000 at 6%; about a third of equity at 50% LTV |
Property questions: the last three years of income beat the first year of the projection
The trust will own this building with no power to add capital, so the property's own history and the reserve funded at closing are the only cushions it will ever have. Rev. Rul. 2004-86 permits a reasonable reserve but bars the trustee from accepting additional contributions, so a thin reserve on a building with deferred maintenance is a structural problem, not a detail.
- 1. What was net operating income in each of the last three years, and how does year one of the projection compare with the trailing twelve months?
- 2. What does the rent roll show for lease expirations inside the projected hold, and what share of rent comes from the largest tenant?
- 3. What does the property condition report estimate for capital needs over the hold, and how much reserve did the trust fund at closing to cover it?
- 4. What did the sponsor or its affiliate pay for the property, when, and how does the trust's purchase price compare?
- 5. Is there a current third-party appraisal, and does it support the price the trust is paying?
- 6. What do the Phase I environmental report and the insurance quotes say, and is any coverage excluded or capped?
Loan questions: a maturity inside the hold forces a sale because the trustee cannot refinance
The revenue ruling's trustee 'may not renegotiate the terms of the debt,' so whatever loan the trust closes with is the loan it lives with. Ask how the debt behaves in a bad year, not only what it costs in a good one (leverage and rate risk).
- 7. What is the loan-to-value at closing, and is the rate fixed or floating?
- 8. Is the loan interest-only for the whole term, and if amortization starts later, how much does that reduce distributions?
- 9. When does the loan mature relative to the projected sale window, and what happens if the sale slips past it?
- 10. What debt-service-coverage or occupancy covenants trigger a cash sweep, and how close is the year-one projection to those levels?
- 11. What are the non-recourse carve-outs, and who signs the guaranty for them?
- 12. Does the lender have consent rights over transfers of interests or over the sale of the property?
Sponsor questions: full-cycle results, affiliate roles and the record FINRA expects your broker-dealer to have checked
FINRA Regulatory Notices 10-22 and 23-08 require the broker-dealer selling you the interest to conduct a reasonable investigation of the issuer, its management, its business prospects, its assets and the use of proceeds, and say a firm 'may not rely blindly upon the issuer.' Ask to see what that investigation concluded, then ask the sponsor the same things (evaluating sponsors).
- 13. How many of the sponsor's prior DST programs have gone full cycle, and what were the realized results against the original projections?
- 14. Which affiliates serve as signatory trustee, master tenant, property manager and asset manager, and how is each one capitalized (master lease risk)?
- 15. Has the sponsor, any principal or any affiliate been subject to regulatory action, litigation or bankruptcy, as the PPM's disclosures should show?
- 16. Who are the related persons named in Form D Item 3, and what does Item 16 say they will receive from the proceeds?
- 17. What does the broker-dealer's own due-diligence report say, who paid for it, and may I read it?
Fee questions: every fee's base in dollars, because 2% of the purchase price is not 2% of your equity
The fee categories one sponsor FAQ lists run to ten: selling commissions, dealer-manager fees, placement or marketing expenses, organizational and offering expenses, acquisition fees, financing expenses, asset-management fees, property-management fees, disposition fees and other affiliate compensation. Each is measured against a different base, so convert all of them to dollars on your own investment (fees and loads).
- 18. What is the total up-front load as a percentage of my equity, and how close is it to FINRA Rule 2310's presumptions of unfairness above 10% of underwriting compensation and 15% of organization and offering expenses?
- 19. Which ongoing fees are charged on gross rents, on property value or on equity, and what do they total in year one in dollars?
- 20. What is the disposition fee at sale, and does the sponsor share in sale proceeds above a hurdle?
- 21. Are any fees paid to affiliates for financing, insurance or leasing, and are they at market rates?
- 22. Are unused reserves returned to investors at sale or retained by the sponsor?
Stress-test and exit questions: which assumption breaks the distribution, and who controls the way out
Hypothetical: a property with $1,000,000 of net operating income is worth $20,000,000 at a 5% exit cap rate and $16,700,000 at 6%; with 50% leverage that one-point move cuts investor equity by about a third. Ask the sponsor to show the projection with the exit cap one point higher, occupancy five points lower and rent growth at zero.
- 23. In year one, are distributions funded from property operations or from reserves, and what yield does operating cash alone support?
- 24. At what occupancy or rent level does the distribution fall below the projected rate, and at what level does it stop?
- 25. What exit cap rate does the projection assume, and how does it compare with the going-in cap rate the trust is paying?
- 26. Is there a 721 roll-up option, and is exercising it the sponsor's choice or mine (DST to 721)?
- 27. What is the projected hold, what events would cause an earlier sale, and what happens to investors who cannot exchange on that timetable?
Walk-away signals: seven answers that end the conversation
Work the list with a broker who will answer in writing, and have your CPA and attorney read the PPM sections the answers point to before you subscribe.
- Distributions in the first years funded from reserves rather than operations.
- A projected exit cap rate below the going-in cap rate with no explanation.
- A loan maturity earlier than the projected sale window.
- A sponsor with no completed full-cycle programs or with unanswered regulatory disclosures.
- An affiliate purchase at a markup with no third-party appraisal the sponsor will share.
- Compensation at or above FINRA's 10% and 15% presumptions.
- Pressure to sign before day 45 without written answers; one commentator's warning that 'a rushed DST purchase is still a long-term commitment' is the right frame.
Related questions
Can I demand the broker-dealer's due-diligence file on the offering?
You can ask; the firm must keep the documents showing the basis of its suitability determination under Rule 2310(b)(2)(B)(ii) and must have done a reasonable investigation, but the rules do not force it to hand you the file. A refusal is itself information.
How do I read the Form D for a DST on EDGAR?
Search the trust's name on EDGAR; Item 13 shows the amount sold and remaining, Item 14 the number of investors, Item 15 estimated sales commissions and Item 16 payments to insiders, and the notice is due within 15 days of the first sale (PPM and Form D).
What if the sponsor declines to answer a question?
Treat silence as the answer. Sponsors that have gone full cycle and priced fairly answer these questions routinely, because the same questions come from broker-dealer due-diligence teams.
Can this be done inside the 45-day window?
Not if you start on day 30. Begin reviewing offerings before your sale closes, so the identification list on day 45 names trusts you have already worked through rather than ones you must still investigate.
Does a clean checklist mean the DST is safe?
No. It means the risks are the ones you chose: the property, the loan and the sponsor, held without liquidity for the term. Distributions can be reduced or suspended, and your equity is at risk.
Sources
Checked against these publications on September 19, 2026. Rules and figures change; confirm the current version with your CPA or attorney before you act. This page is general information, not tax or legal advice.
- Rev. Rul. 2004-86
- FINRA Regulatory Notice 10-22, Regulation D Offerings
- FINRA Regulatory Notice 23-08, Private Placements
- FINRA Rule 2310, Direct Participation Programs
- SEC Form D and instructions
- SEC, Private placements under Rule 506(b)
- DST News, DST investor FAQs (fee categories)
- Start1031, 1031 Exchange Delaware Statutory Trust (questions to ask)
- 1031 DST Hub FAQ (hold periods and exit paths)
- Silverman, Delaware Statutory Trusts outline (load and lender provisions)