Research guide

Best DST Investments (2026): How Insurance and Property Taxes Affect the Income Case

By Sequoia ResearchPublished Read as Markdown

What Is This Article About?

This article examines how insurance and property taxes can change the income case for a Delaware statutory trust investment. It compares selected expense disclosures in two 2026 offering documents, with clear limits on what those records prove. It then uses original examples to show how renewal dates, tax values, lease terms and cash reserves affect the result. You will learn which records to request before relying on a projected payment.

Table of Contents

Why These Two Costs Deserve a Separate Review

A useful search for the best DST investments looks past the first projected payment. It asks how much cash the property could retain if major costs change. Insurance and property taxes deserve their own review because a smooth rent forecast can hide a sharp reset in either bill.

Start with the amount, period and source for each cost. Then find the party that must pay it. Finally, trace the effect through the lease and the trust's cash budget. A large increase at the property may reach the trust in full, in part, or through a later settlement. The contract determines that route.

A tax estimate can rest on an old bill, an assessed value, a planned appeal or a consultant's forecast. Those are different kinds of evidence. An insurance estimate can rest on a paid policy, a renewal quote or a budget assumption. A decimal in a spreadsheet does not tell you which one was used.

Nor does a low budget establish a bargain. A smaller premium may come with a larger deductible or different coverage. A low tax amount may cover fewer months. It might also rely on a benefit that needs further review. The task is to explain the difference before treating it as an income advantage.

Keep property costs separate from the investor's personal income taxes. This article addresses the bills tied to the building and its operations. It does not calculate an investor's tax return, exchange result or deductible losses.

The practical output is a short, sourced expense file. It should show what the current model assumes, what evidence supports it, what remains open and how a stated change affects cash. That gives a reviewer a claim they can check. It is more useful than calling an expense forecast conservative without explaining why.

What Two 2026 DST Offering Documents Show

We reviewed selected disclosures in NewStar 17 Sweetwater Springs DST and Passco Allure DST offering documents available for inspection on October 16, 2026. This is a bounded document comparison. It does not establish that either offering still has capacity, that no later amendment exists, or that one is the best investment.

Selected document Expense assumption shown Supporting disclosure and open question
NewStar 17 Sweetwater Springs DST, February 9, 2026 PPM Exhibit E, PDF page 258, shows 2026 taxes of $286,108 and insurance of $0. The 2027 columns show $338,005 and $85,164. The initial column is labeled 11 months. Printed page 54 says investors bear specified uncontrollable costs above the forecast through reduced additional or supplemental rent. Reconcile the initial zero insurance line with policy and payment records.
Passco Allure DST, May 1, 2026 PPM; projection dated May 4 The May 2026–April 2027 projection shows taxes of $763,313 and insurance of $137,071. The next period shows $846,455 and $143,925. PDF pages 250–251 use 5% yearly insurance growth. A footnote attributes ten years of tax forecasts to a third-party consultant. Printed page 79 assigns specified taxes and insurance to the trust. Obtain the underlying support.

Sources: NewStar PPM, Exhibit E and printed page 54; Passco Allure PPM, printed page 79 and projection pages 250–251.

These figures should stay in their original columns. Comparing the initial dollar totals would mix different properties, sizes and periods. A per-unit figure would fix only the size denominator. It would still leave different coverage, buildings, tax rules and dates.

The zero line above does not establish that a property lacks insurance. It also does not establish that coverage is free. Prepayment, a separate funding source or the model's timing might explain such a line, but those are questions until the records show the answer. Do not choose an explanation because it makes the forecast look tidy.

The research set did not include a complete current policy package, paid premium trail and parcel-level tax support for both offerings. It therefore supports a comparison of disclosed assumptions and responsibility, rather than a verified finding that either future cost is adequate. An attribution to a consultant identifies a source to request; it does not replace the source.

That is a useful distinction for current DST research. A published model can be clear about its numbers while the reader still lacks the records needed to test them. Keep those two findings together. Neither praise nor blame should fill the missing evidence.

How to Check a Property-Tax Assumption

Build the tax review around the property and tax year. Match the parcel numbers to the land and buildings in the offering. If the property spans several parcels, check that the model includes all of them. A bill for the main address may not describe every taxable piece.

Next identify the type of record. A notice of value, final bill, payment receipt and appeal decision answer different questions. One describes the tax base. Another states an amount due. Another shows a payment. A fourth may change the amount, subject to its terms and effective date.

Gwinnett County's May 15, 2026 notice explains this distinction directly: the annual assessment notice reports property value and relevant adjustments; it is not the tax bill. The county also says that appeal deadlines appear on the notice. That is local guidance, not a deadline rule for every DST property. Gwinnett County 2026 assessment notice.

Separate the taxable value from the tax rate

A falling rate does not always mean a falling bill. The value to which the rate applies can rise at the same time.

For context, Gwinnett County describes assessed value as 40% of fair market value. It defines a mill as one dollar of tax for each thousand dollars of assessed value. The county's explanation also distinguishes county, school and municipal rates. Its home-exemption examples should not be carried into an investment-property model without support. Gwinnett County property-tax explanation.

Here is an invented example using that value-and-rate structure. The property values and rates are chosen teaching inputs, not actual assessments for either named DST. Assume no exemptions or separate charges.

Step Original case Changed case
Fair market value used in the example $30,000,000 $32,000,000
Assessed value at 40% $12,000,000 $12,800,000
Assumed combined rate 30 mills 29.5 mills
Calculated tax $360,000 $377,600

The rate falls, yet the bill rises by $17,600, or about 4.89%. A review that records only the lower rate misses the result. A review that applies the rate to the full property value would use the wrong base for this example.

For a real property, record the source for each component. Show the value, assessment rule, rate, exemptions and special charges separately. An all-in percentage copied from a past bill may hide changes in those parts.

Keep an appeal separate from a paid reduction

Suppose a fictional budget assumes a $400,000 bill. The owner seeks a $50,000 reduction, but the appeal remains open. Keep $400,000 in the stated payable case unless the actual rules or records support a different amount due. Show $350,000 as a separate favorable case, clearly tied to the unresolved appeal.

If a consultant's assumed fee is 20% of a successful $50,000 saving, that fee is $10,000. The first-year benefit would be $40,000 before any other costs. This is an invented fee arrangement, not a common market rate. A model that counts all $50,000 while omitting its own assumed fee overstates the benefit.

Also ask whether relief changes one year or several. A refund for a prior year is different from a lower recurring bill. Record the expected payment date only as a forecast until it is supported. An appeal win after a cash deadline cannot be treated as money already available before it.

How to Review the Insurance Budget

An insurance review starts with the actual policy scope, not just the premium. Ask which buildings, entities and risks are covered. Then check the term, limits, deductibles, exclusions and any changes made by endorsements. An endorsement is a document that changes the policy's terms.

The NAIC explains that business property coverage can use replacement cost or actual cash value, which reflects depreciation. It also distinguishes types of covered losses. Those general concepts help frame the review, but they do not establish what a particular DST policy will pay. NAIC small-business insurance guide.

For a multi-property policy, ask how the amount charged to this property was assigned. A portfolio-wide invoice and a property-level budget need a bridge between them. Also ask whether a shared limit can be used by claims at other covered locations. The answer must come from the policy and a qualified review of its terms.

Compare renewal evidence on the same basis

Keep a renewal quote apart from a bound policy. A quote can be useful evidence of a possible price, but a comparison needs its conditions and expiration date. A policy schedule can establish a coverage period, while payment records help show what was paid and when.

Consider two invented renewal proposals. One costs $120,000 with a stated $100,000 deductible. Another costs $105,000 with a stated $250,000 deductible. Assume all other terms match solely for this teaching case.

The cheaper premium saves $15,000 for the year. The deductible is $150,000 larger. That does not make the first proposal universally better. It shows that the lower premium changes the share of a covered loss the owner must pay. A probability or expected-loss estimate would require more inputs; this comparison supplies none.

A real comparison might be harder because the policies also differ in limits or excluded risks. Do not collapse several changes into the sentence “insurance cost fell.” Describe what changed in the coverage and what changed in the cash budget.

Read the base for a percentage deductible

A deductible stated as a percentage needs its own denominator. In an invented policy, assume the contract sets a deductible at 2% of a $20 million insured building value. The deductible is $400,000. It is not $20,000 merely because a particular loss is $1 million.

For that teaching loss, assume the full $1 million is covered, the deductible applies once, and there are no other limits or adjustments. The remaining amount after the deductible is $600,000. Actual claim payments depend on the contract and claim review; this arithmetic does not establish coverage.

The difference matters to the reserve discussion. A model can include every annual premium and still omit the cash needed after a covered event. The deductible case belongs beside the annual budget, with its separate assumptions. It should not be presented as an expense certain to occur every year.

Separate Annual Expense From Cash Funding

The cost assigned to a period can differ from the cash paid during that period. That is central when a premium is prepaid or a lender collects tax funds ahead of a bill. The SEC's financial-statement guide explains why income and cash flow require separate attention. SEC guide to financial statements.

Use a simple fictional insurance term to see the distinction. A $120,000 policy runs from July 2026 through June 2027 and was paid in July 2026. The replacement policy costs $156,000, runs from July 2027 through June 2028 and is paid in July 2027.

Assume the review allocates each premium evenly over its twelve covered months. This is a chosen teaching method, not a formal accounting opinion. The 2027 service-period cost is:

  • Six months of the old term: $60,000.
  • Six months of the new term: $78,000.
  • Total assigned to calendar 2027: $138,000.

The premium cash paid in 2027 is $156,000. Both figures can be correct because they answer different questions. The first measures the assumed cost of coverage used during that calendar year. The second measures the payment made in that year.

A table that shows one figure needs a label. If a comparison uses $138,000 for one property and a full renewal payment for another, the difference may come from timing rather than price. Do not fix that by dividing every number by twelve without checking the term.

Trace escrow deposits without counting the bill twice

An escrow is money held for a specified purpose, often under a lender's control. In this separate invented example, a tax escrow starts with $100,000. The property deposits $10,000 per month for twelve months. The escrow pays a $144,000 bill.

The ending balance is $76,000: $100,000 plus $120,000 of deposits minus $144,000. The operating account sent $120,000 into escrow. It did not also send a second $144,000 outside the property if the escrow paid that bill.

When the cash view includes both accounts, the internal deposits cancel out and the outside payment remains $144,000. When the view covers only the operating account, the deposits are cash outflows from that account. Label the account scope before adding the lines.

That distinction prevents two common errors: treating a reserve transfer as new income and deducting a bill twice. It also explains why a lender's proposed increase in monthly deposits can reduce available operating cash before the next tax bill changes. The reserve balance and the recurring expense are related, but they are not the same measure.

Find Out Who Bears a Cost Increase

The master tenant is the entity that leases the property from the trust and, where the structure provides, collects rent from the property's occupants. A master lease can allocate costs between that entity and the trust. Read the exact clauses and related schedules before assigning a cost change to investor cash.

A party that sends a payment may be acting on behalf of another party. Payment routing alone does not establish who bears the cost. Likewise, a fixed rent amount does not settle every question about reimbursement, exceptions or future adjustments.

Create three separate fields: legal responsibility, payment route and final economic burden. A single “tenant pays” label can conceal an exception that matters when costs exceed the budget.

Model the actual sharing rule

Use a new fictional lease case. Annual taxes rise by $60,000. Its invented contract makes the tenant absorb the first $25,000 of that increase and the trust absorb the rest. The tenant bears $25,000 and the trust bears $35,000.

Now assume a separate $36,000 insurance increase falls entirely on the trust under this fictional agreement. The property-wide increase is $96,000, but the trust's direct assigned increase is $71,000. These figures reflect the stated rule, not a rule for all DSTs or either named offering.

The tenant's share still deserves attention. If its cash margin is weak, an obligation on paper may put pressure on rent payments. That requires a separate review of the tenant's resources. Do not quietly assume the tenant can absorb every increase or quietly move its share back to the trust.

A reimbursement also needs a timing check. Suppose a different fictional arrangement lets the owner recover half of a $60,000 tax increase. If the full $30,000 recovery arrives the following year, the current-year cash burden remains $60,000. A statement that recognizes a receivable may show a different period result. The cash forecast needs the actual receipt assumption.

Ask about caps, exclusions, billing dates and collection evidence. A reimbursement clause can define a right without showing that the cash has arrived. Reviewers should preserve that distinction in both their notes and any cash model.

Stress Both Costs in the Income Model

A combined test shows how ordinary cost changes can have a larger percentage effect on the smaller cash amount left for owners. The following Maple Court example is entirely fictional. It is unrelated to the named offerings and does not forecast their payments.

Assume a full calendar year of collected property cash receipts of $2.4 million. Other property operating payments total $900,000, excluding taxes and insurance. Taxes are $400,000 and insurance is $120,000. The remaining operating cash is $980,000.

For this case, subtract $680,000 of loan payments, $40,000 of other trust payments and $60,000 retained for future needs. The loan amount excludes tax and insurance escrow deposits; the budget contains no duplicate escrow line. Assume all expenses are paid in this year, no starting cash is released and no other cash flows occur. The model leaves $200,000 available for owner payments under these chosen conditions.

Maple Court annual case Base Insurance +30% Taxes +15% Both changes
Collected property receipts $2,400,000 $2,400,000 $2,400,000 $2,400,000
Other operating payments $900,000 $900,000 $900,000 $900,000
Taxes $400,000 $400,000 $460,000 $460,000
Insurance $120,000 $156,000 $120,000 $156,000
Operating cash remaining $980,000 $944,000 $920,000 $884,000
Loan, other trust payments and retained cash $780,000 $780,000 $780,000 $780,000
Modeled owner-payment amount $200,000 $164,000 $140,000 $104,000

The combined cost increase is $96,000. The modeled owner-payment amount falls by 48%, from $200,000 to $104,000. The property receipts did not decline. The large percentage change occurs because the extra cost comes out of a much smaller remaining amount.

For a hypothetical 2% ownership share, those amounts are $4,000 and $2,080. The difference is $1,920. That share calculation assumes equal proportional allocation and no further investor-level charges. It is not an investment yield, a promised payout or a personal return calculation.

Keep the stress assumptions visible

The 30% and 15% changes are selected tests, not market forecasts or likely outcomes. The table also assumes the trust bears both increases in full. It therefore uses a different cost-sharing rule from the preceding lease example. Do not combine the two cases.

Each single-change column is an alternative to the base. The final column applies both changes once. Adding all three reductions would count the same costs twice.

Receipts remain fixed to isolate the expense effect. If a real lease permits additional collections, show them in a separate supported version, with their timing. If increased rents are merely hoped for, the forecast should identify that assumption rather than treat the offset as earned cash.

Finally, retained cash is a policy choice in this example. Reducing the $60,000 retention could support a larger current payment, but it would leave less for later needs. It would not reverse the expense increase. Show the reserve change openly rather than making the original payment appear unchanged at no cost.

Test Renewal and Claim Timing

A yearly total can hide a difficult month. Place the tax due date and insurance renewal date beside the expected cash balance before each payment. Use dates from the actual records where available. When a date is unknown, keep it unknown instead of choosing a convenient month.

Return to the separate July insurance example. If the renewal becomes $180,000 rather than $156,000, the calendar 2027 service-period cost rises from $138,000 to $150,000 under the stated monthly allocation. That is a $12,000 difference for the year. Yet the July cash payment rises by the full $24,000.

A twelve-month expense chart would not show that payment jump by itself. A monthly cash chart would. Both belong in the review when a premium is due in one installment.

Keep claim cash distinct from premium cash

Business-interruption coverage may help with defined lost income after a covered event. It does not make every interruption payable. The NAIC's June 25, 2026 overview stresses that policy wording and covered events matter. Its small-business discussion is background, not confirmation of any DST's coverage. NAIC business-interruption overview.

For a separate fictional timing test, assume an owner has $250,000 of cash available for repairs. A contractor requires $500,000 before the expected claim payment arrives. The immediate gap is $250,000. A later expected receipt does not fill that earlier gap unless a documented funding source bridges it.

This example does not calculate the insurance award. It asks only whether the stated cash is available at the stated time. Review the need for temporary funding, its cost and its approval separately. Do not assume a trust can borrow whenever a shortfall appears.

A combined model should also avoid counting the same damage twice. If a repair budget already includes a selected loss, adding that full loss again as a separate shock overstates costs. If the model subtracts repair cash and adds an expected claim receipt, label both dates and amounts. The insurance payment should not be treated as ordinary rent growth.

Do not turn a one-time charge into a growth rate

A special assessment, catch-up payment or one-time policy adjustment needs its own line. Suppose an invented recurring tax budget is $400,000 and a separate one-time charge is $80,000. The selected year's total is $480,000. Carrying $480,000 forward as the recurring base would assume the extra charge repeats.

The reverse mistake is also possible. Removing a cost from later years is justified only if the support shows why it ends. Ask the reviewer to explain the recurrence assumption, not merely to label the first year unusual.

Write a Useful Expense Review Conclusion

The final note should answer a small set of concrete questions. Which periods were compared? Which costs are supported by current records? Which costs still depend on projections? Who bears a change, and where does it appear in the cash model?

A useful conclusion might read: “The budget uses a paid policy through June and a stated estimate after renewal. The second-half premium remains unconfirmed. The tax model includes the current value notice but awaits the final bill. The cash test shows the effect of the stated cost changes under the selected lease rule.”

That conclusion distinguishes evidence from forecasts without pretending to know a future bill. It also gives the next reviewer a clear task. They can replace the open item when the new record arrives and see which result changes.

Keep the old version when you update the model. Record the new source date and explain whether the change affects the base amount, the growth rate, the payment date or the responsible party. A revised premium might change several fields; it might also change only one.

For several DST candidates, use the same review fields while preserving each property's own facts. Do not force a common tax growth rate merely to make the table look consistent. Consistency means applying the same questions, not imposing identical answers on different properties.

The strongest expense review is specific about its limits. It can say that a projection is traceable, that a bill matches a stated parcel or that a chosen shock reduces cash by a defined amount. It should not turn those findings into a general ranking of investment quality. Debt, rents, operations, fees and investor needs still require their own review.

FAQ

Are lower insurance costs a reason to choose one DST over another?

They are a reason to inspect the coverage and period. Compare limits, deductibles, exclusions, insured properties and payment dates before calling a lower premium an advantage. A smaller premium can shift more of a future loss to the owner. The documents determine whether the coverage is comparable.

Does a zero insurance line mean the property is uninsured?

No. A zero line alone cannot establish coverage or its absence. Ask whether premiums were prepaid, funded elsewhere or assigned to another period, and obtain the records that support the explanation. Keep the question unresolved until the policy and cash trail fit the model.

Can property taxes rise even when the tax rate falls?

Yes, when the taxable value or another part of the calculation changes enough. The invented value-and-rate example above produces a higher bill despite a lower millage rate. Check the actual jurisdiction, parcel, year and applicable adjustments. Do not apply a home exemption to an investment property without support.

Does a master lease protect investors from every expense increase?

That conclusion requires the actual lease terms and evidence of performance. A lease may assign costs, set thresholds or require later reimbursement. Identify the responsible party and the cash route separately. A promise by a tenant also leaves the question of whether that party can pay.

Should an escrow deposit be counted as a second property-tax expense?

No, not when it funds the same bill already included in the chosen expense total. Track deposits, payments and the remaining balance by account. An operating-account cash view differs from a view that includes the escrow. State which one the model uses before adding the outflows.

What if a tax appeal is expected to reduce the bill?

Keep the assumed reduction separate from a confirmed result. Check the appeal record, any payment obligation during the appeal, potential fees and the expected timing. A favorable future result can be a scenario, but it is not cash already received. Local rules and the specific record control the real case.

How often should the insurance and tax review be updated?

Update it when a material source changes: a new policy, renewal quote, tax notice, final bill, appeal result or lease amendment. Also revisit it when cash reports no longer match the forecast. Keep dated versions so a reviewer can tell what changed and which assumptions still lack support.

About Sequoia Research

Sequoia Research, LLC provides independent research on DSTs and other real estate investment offerings. This educational library helps readers trace offering claims to sources, test stated assumptions and prepare focused questions for their advisers.

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