The arithmetic almost never works out cleanly, and nobody warns you about it in advance.
You sell for $2.1 million. You find the replacement property you actually want, and it costs $1.82 million. Which leaves $280,000 with nowhere to go.
It is not enough to buy another building worth owning. It is too much to shrug at, because every dollar of it is boot, and boot is taxable. So you either buy something mediocre to soak it up, or you pay tax on a quarter of a million dollars you never intended to take out.
This is the most common unforced error we see in exchanges, and there is a straightforward structural answer to it.
Why real estate resists precise sizing
Buildings come in the sizes they come in. You cannot buy 87% of a retail strip, and the seller will not carve off a corner to match your proceeds.
Direct property is lumpy. Your exchange proceeds are a precise number. Those two facts fight each other in every exchange, and the mismatch is usually somewhere between five and twenty percent of the deal.
A Delaware Statutory Trust is divisible in a way a building is not. You are buying a fractional beneficial interest, so the size of your position is set by how much you invest rather than by what happens to be for sale.
What it actually takes to participate
Minimums vary by sponsor and by offering, and any specific number belongs to the offering documents rather than an article. As a general range, exchange proceeds are commonly accepted from around $25,000 to $100,000 as a minimum position, with individual offerings sitting anywhere in or outside that band.
Two consequences matter more than the exact figure:
- A leftover slice usually fits. $280,000 is comfortably above a typical minimum, so it can be placed rather than recognized as boot.
- You can hold more than one. Proceeds of $1.5 million might be spread across three or four offerings in different property types and geographies, instead of concentrated in a single building on a single street with a single tenant.
That second point is the one experienced investors care about. Direct ownership at this size usually means one asset and one tenant. Fractional ownership makes diversification a choice rather than a matter of how much money you happen to have.
The debt problem it also solves
There is a second sizing constraint people forget until it bites.
To defer fully, you generally need to replace your debt as well as your equity. Sell a property carrying $900,000 of debt and you need roughly that much new debt, or enough extra cash to substitute for it. Miss it and the shortfall is mortgage boot.
DST offerings come with non-recourse financing already arranged at a stated loan-to-value. Choosing an offering whose leverage roughly matches what you gave up satisfies the requirement without you underwriting a new loan inside 45 days. Some offerings are deliberately unlevered for exchangers who had no debt at all.
That is a real structural convenience. It is also somebody else's borrowing decision, locked at whatever rate they got, and you inherit it. We wrote about why that matters in negative leverage.
Putting the numbers together
| Take the boot | Place the remainder | |
|---|---|---|
| Sale proceeds | $2,100,000 | $2,100,000 |
| Replacement property | $1,820,000 | $1,820,000 |
| Leftover | $280,000 | $280,000 |
| Treatment | Cash boot, taxable | Placed in a DST |
| Rough federal tax at 23.8% | About $66,600 | $0 deferred |
| Working capital retained | $213,400 | $280,000 |
Illustrative only. Ignores depreciation recapture, state tax, suspended passive losses, and DST fees, all of which change the picture. Your CPA determines the actual figures.
Note the omission deliberately: if you are carrying suspended passive losses, that $280,000 of boot might have been absorbable and cost you nothing. Which is precisely why the leftover should be a decision rather than a default.
The case against, stated properly
We place DSTs, so treat the following as us arguing against our own book.
- Fees are real and layered. Acquisition, financing, ongoing management, and disposition costs all sit between the property and you. Read the fee table in the offering documents and compare it across sponsors.
- You cannot get out. There is no meaningful secondary market. If you need the money in year three, that is your problem to solve elsewhere.
- You have no control. You cannot force a sale, replace the sponsor, refinance, or influence the hold period. See the seven things a DST is forbidden to do.
- A small position still needs full diligence. Placing $280,000 does not justify skipping the work in DST sponsor due diligence. Small positions in bad deals still lose money.
- Paying the tax is sometimes correct. If the offerings available inside your 45 days are mediocre, recognizing $280,000 of boot and keeping your freedom is a legitimate answer.
DSTs are private placements offered only to accredited investors. They are illiquid, you give up control, distributions are not guaranteed, and you can lose principal. Nothing here is a recommendation or an offer.
Decide the leftover before you identify
The practical failure is one of sequencing. Most people discover the gap in week five, when they are already committed to a replacement property and are choosing between bad options under a deadline.
Model it before you identify. You know your proceeds and your debt on day one, and you can size the gap before it becomes urgent. Our exchange overview covers the mechanics, and partial exchanges covers taking cash out deliberately rather than accidentally.
Common questions about sizing and minimums
What is the minimum to invest in a DST?
It varies by offering. Exchange proceeds are commonly accepted from roughly $25,000 to $100,000 as a minimum position, but the governing number is in the offering documents, not a general figure.
Can I split my proceeds across several DSTs?
Yes, and it is a common reason to use them. Multiple positions across property types and markets is difficult to achieve with direct ownership at the same dollar amount.
Can a DST take just my leftover while I buy a building with the rest?
Yes. Combining a direct purchase with a DST for the remainder is a normal structure, and it is the specific problem this article describes.
Does the DST help me replace my debt?
It can. Offerings carry non-recourse financing at a stated loan-to-value, and your share counts toward replacing relieved debt. Unlevered offerings exist for exchangers who had no debt.
Is it too late if I already identified my properties?
Probably, and that is the point about sequencing. Identification is generally locked after day 45, so the leftover needs to be planned before that date, not after.