Research guide

Delaware Statutory Trust Returns: How to Evaluate a Portfolio of Multiple DST Positions

By Sequoia ResearchPublished Read as Markdown

What Is This Article About?

This article explains how to measure the results of several DST holdings as one investor cash record. An original three-position example shows why a simple average of return percentages can miss both the dollars invested and their timing. It also separates the return on the holdings from the result of a wider account that keeps cash between purchases. A second cash calendar shows why enough annual distributions may still leave monthly spending gaps.

Table of Contents

Choose the Portfolio You Are Measuring

Begin with a sentence naming what the report includes. It might cover every DST interest owned by one person. It might cover a household account that holds DSTs and cash. Or it might cover a selected set of completed investments. Those are different groups, even if some of the same holdings appear in each.

Also state the start and end points. A report from the first purchase through the last exit answers a lifetime question. A report for one calendar year answers a period question. A collection of each holding's lifetime results does not automatically answer what the entire portfolio earned last year.

The owner matters as well. One trust may appear in two spouses' records or in more than one account. Decide whether the report combines those interests or shows them separately. Keep the legal owner and the economic reporting group visible. The act of grouping records does not change ownership or tax treatment.

FINRA's return guidance emphasizes investment cost, income, value changes, and the period held. Those same inputs must be defined before they can be added across holdings. A company-level result or property sale headline cannot replace an investor's own cash record. FINRA: Calculating Your Investment Returns.

This article uses fictional people, trusts, payments, and outcomes. The main example ends with every holding fully paid out. It excludes personal taxes and inflation. Program costs are assumed already reflected in the supplied investor cash. A later section adds a separate outside-fee case rather than silently changing the base model.

These limits are part of the calculation. Write them before looking at the answer. Otherwise it is easy to choose a portfolio boundary that makes the result look better after the numbers are known.

Build One Cash Record With Separate Holding Labels

Use one row for each cash event and retain the holding's name. Record the investor, account, payment date, amount, source, and type of event. Purchases are cash going out. Distributions and exit proceeds are cash coming in. Corrections should retain a link to the row they replace.

Keep the original detail even when the calculation combines rows. Two distributions arriving on the same date may be added for the return formula. They should still be traceable to their separate issuers. The sum helps the math; the separate labels help someone check the evidence.

Match the receipt date to the method. A bank receipt, an issuer payment date, and a reporting-period end may differ. Do not use whichever date is easiest for each holding. Choose a consistent investor-cash convention, explain it, and retain other useful dates in separate fields.

Look for duplicates across statements. A trustee notice, a custodian entry, and a bank deposit can all describe the same payment. Counting all three would invent cash. Give each verified event a stable reference so a second import does not create a second receipt.

A combined bank deposit also needs care. Suppose two holding statements explain $2,000 and $3,000 within one $5,000 deposit. The portfolio received $5,000, not $10,000. The deposit confirms the combined receipt; the statements explain its parts. Do not treat the evidence layers as separate cash events.

Finally, retain a status for anything unresolved. An expected distribution is not a received payment. An unconfirmed amount is not zero. A complete-looking cash table built from guesses is less useful than a table that identifies the few entries still needing support.

A Worked Three-DST Portfolio

Consider Maren, a fictional investor. At the start, she puts $100,000 into Alder DST and $300,000 into Birch DST. At the end of year one, she puts another $100,000 into Cedar DST. Each year marker is exactly one annual period after the prior marker; this teaching model does not use actual calendar days.

Alder and Birch make payments at each year-end. Cedar first pays at the end of year two. All three holdings end at the end of year three, with no remaining interests, claims, holdbacks, or later obligations. The final receipts below include all cash paid at exit, plus any last regular payment.

Holding Cash invested and time End of year one received End of year two received End of year three received Total received
Alder $100,000 at start $6,000 $6,000 $116,000 $128,000
Birch $300,000 at start $12,000 $12,000 $282,000 $306,000
Cedar $100,000 at year one $0 $5,000 $110,000 $115,000
Combined $500,000 across both purchase dates $18,000 $23,000 $508,000 $549,000

Cedar's year-one zero is known: no payment occurred then. It is not a blank filled by software. Its $100,000 purchase occurs at that same year marker and is recorded separately from the receipts.

Maren's gross purchase cash totals $500,000. Her receipts total $549,000, leaving a $49,000 nominal cash gain. That gain is 9.8% of gross cash invested across the three purchases. This is a cumulative cash ratio, not an annual rate or a measure of buying power after inflation.

All cash in the table belongs to Maren's stated interests. It does not include whole-property proceeds or another owner's share. The short holding periods and chosen payouts are teaching assumptions, not normal DST terms or a prediction of available investments.

Before calculating a rate, reconcile the table both ways. The three holding totals add to $549,000. The three annual receipt totals also add to $549,000. If those checks fail, a return formula will not repair the underlying record.

Why a Simple Average Misstates This Cash Result

Alder produces a $28,000 gain on $100,000, or 28%. Birch produces $6,000 on $300,000, or 2%. Cedar produces $15,000 on $100,000, or 15%. These are each holding's cumulative cash gains over its own stated life.

A simple average of 28%, 2%, and 15% is 15%. That average gives every holding the same weight. It does not describe Maren's dollar result because Birch took three times as much purchase cash as either other holding.

For this specific cumulative ratio, weights based on gross purchase cash recover the combined answer. Alder and Cedar each have a 20% weight; Birch has a 60% weight. The calculation is:

20% × 28% + 60% × 2% + 20% × 15% = 9.8%.

This works because every component ratio divides a holding's gain by its own invested amount. Weighting by that same invested amount cancels those separate bases and produces total gain divided by total purchase cash. It is an arithmetic identity for the defined cash ratio.

It does not mean these weights can combine every metric. A distribution rate, an annual IRR, a current-value change, and a lifetime cash gain have different meanings. Weighting a mixed set of percentages does not make them comparable.

Nor does the 9.8% calculation correct for Cedar's shorter life. It says how much cash the chosen purchases gained in total relative to gross cash paid. Time remains a separate issue. A useful report can show that cumulative ratio and an annual cash-flow return, with each named correctly.

This distinction also protects the smaller holdings from being lost in the total. Keep their individual results beside the combined record. A portfolio gain can coexist with a poor outcome in one position, and a large position can dominate the whole result even if its percentage looks modest.

Combine the Cash Before Calculating an Annual Return

To measure the annual result of the combined holdings, first combine their cash at each year marker. At the start, Maren pays $400,000. At year one, she receives $18,000 and pays $100,000 for Cedar. The net flow at that point is negative $82,000. Year two brings $23,000, and year three brings $508,000.

Time Purchases Receipts Net investor flow
Start $400,000 $0 −$400,000
Year one $100,000 $18,000 −$82,000
Year two $0 $23,000 $23,000
Year three $0 $508,000 $508,000

The annual internal rate of return, or IRR, for these equal-period flows is about 3.53%. IRR finds the annual rate that balances the timed outflows and inflows in the calculation. It is a result for this entire cash path, not the average of the rates for the three holdings.

The separate annual IRRs are about 9.05% for Alder, 0.69% for Birch, and 7.41% for Cedar. Their simple average is about 5.72%. Weighting the unrounded rates by 20%, 60%, and 20% gives about 3.71%. Neither equals the combined 3.53% cash-flow result.

That is why the cash should be combined before solving for the rate. The separate rates compress different amounts and timing into three numbers. Those three numbers alone do not preserve all the detail needed to rebuild the portfolio rate.

For actual dated flows, use a method suited to those dates. Microsoft's XIRR documentation describes irregular cash schedules, a 365-day year, and the link to a zero net present value. Its date rules should not be confused with the equal-year convention used above. Microsoft: XIRR Function.

Do not force a rate from a failed or unsuitable calculation. Check the signs, dates, missing values, and method. A rate that describes cash timing also does not, by itself, measure a sponsor's skill or settle whether the investor should have accepted the risk.

Keep Waiting Cash Inside or Outside the Stated Scope

The 3.53% figure measures Maren's DST investment flows. It starts Cedar's capital clock when she buys Cedar at year one. It does not measure what that $100,000 did before the purchase. That earlier cash is outside this first calculation.

Now define a separate wider account. Assume Maren places the full $500,000 into that account at the start. It buys Alder and Birch for $400,000 and holds the remaining $100,000 at zero interest until Cedar is purchased at year one. There are no fees on that cash and no other account activity.

The $100,000 Cedar purchase is now internal to the account. It does not require a new household deposit at year one. Assume the account sends the $18,000 year-one receipts to Maren, then sends $23,000 in year two and all $508,000 in year three.

The account's outside flows are therefore negative $500,000 at the start, then positive $18,000, $23,000, and $508,000. Its annual IRR is about 3.29%. The total nominal gain is still $49,000, but more cash was inside this measurement for the first year.

Both rates can be correct. They answer different questions. The 3.53% result covers the timed purchases and payments of the DST holdings. The 3.29% result includes a specified period of idle cash within a wider account. Presenting either as the other would mislead the reader.

The zero-interest assumption is chosen for teaching. An actual account could earn interest or pay costs, which belong in its record. This example does not authorize any use of exchange funds or assume the investor could access restricted money. It simply makes the reporting boundary explicit.

Save both ledgers if both questions matter. Do not switch between them only when one gives the more attractive rate. A portfolio label should tell the reader whether cash awaiting investment is included.

Do Not Count Internal Transfers as New Wealth

Reusing money creates another boundary problem. A payment from one DST may fund another investment. It is a receipt for the first holding and a purchase for the next. Within a wider account, the movement may never leave the account at all.

Use a separate invented example. An account starts with $100,000 and buys Position One. At the end of year one, Position One pays $110,000 in final cash. The account immediately uses $100,000 to buy Position Two and keeps $10,000 in cash at zero interest.

At the end of year two, Position Two pays $105,000 in final cash. The account now has $115,000: the $105,000 payment plus the $10,000 already held. Assume nothing else remains and the account pays that entire amount to its owner.

For the whole account, the outside flows are negative $100,000 at the start and positive $115,000 two years later. The annual IRR is about 7.24%. There was no outside year-one receipt or deposit in this account version.

The underlying transaction ledger still shows the $110,000 sale receipt and $100,000 new purchase. Those are useful records. They must not be counted as additional household wealth while the same retained money also appears in the final $115,000.

If the owner had withdrawn the $10,000 at year one, the cash path would be different. Record that actual withdrawal rather than assuming it stayed inside. The first step is identifying which boundary the money crossed; only then should the calculation decide how to treat it.

Review the Distribution Calendar Alongside the Return

An annual return does not show whether payments arrive before the bills. Even a portfolio with enough full-year cash can need an opening cash buffer. Use a monthly schedule for that question, separate from the return calculation.

In another original example, three holdings pay a combined $12,000 during a year. One pays $300 every month, totaling $3,600. Another pays $1,200 at each quarter-end, totaling $4,800. The third pays $3,600 only in December. Assume all payments occur as stated before that month's spending.

The household plans to spend $1,000 each month, also totaling $12,000. Start the calendar with zero cash to identify the required buffer. Ignore interest and all other household activity.

Month Received that month Monthly spending Running balance with no opening buffer
January $300 $1,000 −$700
February $300 $1,000 −$1,400
March $1,500 $1,000 −$900
November $300 $1,000 −$4,100
December $5,100 $1,000 $0

The table shows selected months; the running balance includes every intervening month's receipts and spending. The deepest gap is $4,100 at the end of November. An opening $4,100 buffer would keep the modeled balance from falling below zero. It would still be present after the year's equal receipts and spending net out.

That amount is not a recommended emergency reserve. It is the exact funding need for this chosen schedule. Late payments, extra costs, or different within-month timing could change it. An actual plan should keep expected receipts distinct from confirmed cash.

A portfolio return and a cash calendar therefore belong beside each other. One describes investment outcomes. The other tests the path of available money. Owning several DSTs does not guarantee smooth monthly cash simply because their full-year payments add to the desired amount.

Separate a Holding’s Size From Its Contribution to Gain

Return to Maren's completed three-DST example. Birch represents 60% of the $500,000 gross purchase cash, but contributes only $6,000 of the $49,000 nominal gain. That is about 12.24% of the total gain. Alder uses 20% of purchase cash and contributes $28,000, or about 57.14% of the gain.

These are different weights. Purchase-cash weight answers how much was put into the holding. Gain contribution answers how much of the chosen dollar outcome came from it. Neither is a current market-value weight, and neither is a recommended future allocation.

Contribution analysis can identify where a result is coming from. It cannot explain the cause without more evidence. A large gain could reflect rent, sale value, timing, or other terms. The cash table does not isolate those drivers.

Use a separate downside branch to test the combined dollars. Suppose Birch's year-three receipt is $40,000 lower, with all other cash unchanged. Combined receipts fall from $549,000 to $509,000. The portfolio gain falls to $9,000, or 1.8% of gross purchase cash. That branch is not the base outcome or an assigned probability.

The other holdings' gains partly absorb the changed Birch outcome in this arithmetic. That does not prove their risks are independent. Multiple holdings may face the same tenant, property market, lender condition, or sale environment. A three-line cash table is not a full diversification review.

The SEC warns that private placements can be difficult to resell and may require long holding periods. Combining several such interests does not, by itself, create an assured exit. Keep liquidity and shared-risk questions visible even when the portfolio's historical gain is positive. SEC: Private Placements Under Regulation D.

Keep Portfolio Fees on the Correct Side of the Calculation

First identify charges already reflected in each holding's reported cash. Then look for fees paid outside those records. An account-level charge may apply across several holdings. The portfolio should count that charge once even if an internal report assigns parts of it to different positions.

For a separate variation of Maren's investment-only record, suppose a $1,500 outside review charge is paid at year two. It was not included in any supplied DST payment. The combined year-two net flow becomes $21,500 instead of $23,000. The nominal gain falls from $49,000 to $47,500.

If the reporting policy allocates that charge by gross purchase cash, the holding amounts would be $300 for Alder, $900 for Birch, and $300 for Cedar. Their sum is the one $1,500 charge. This allocation is a chosen reporting method, not evidence of what each issuer charged.

Do not subtract all three allocated amounts and then subtract another $1,500 at the portfolio level. That would count the same cost twice. Also do not apply this fee variation to the earlier rates without recalculating them. The 3.53% base rate describes the record before this new outside charge.

The SEC's fee bulletin identifies transaction and ongoing charges and points readers to relevant disclosure and account records. Use those sources to establish actual amounts and dates. The $1,500 fee here is invented; it is not a typical market charge. SEC: How Fees and Expenses Affect Your Investment Portfolio.

Personal taxes need their own scope. An aggregate before-tax cash return should not be renamed after-tax because one holding supplied a tax estimate. Tax inputs can vary by owner and year. This article calculates no personal tax liability, basis, or exchange result.

Handle Holdings That Have Not Reached an Exit

Maren's base case ends with all three positions settled. A real portfolio may mix completed holdings with interests still owned. In that case, adding only received cash would omit the value of what remains.

Use a common review cutoff for the ongoing interests. Identify the ending value's source, effective date, ownership amount, included costs, and whether it is before or after a nearby distribution. A value before selling costs and one after those costs need different labels. Neither label establishes the owner's tax basis.

Keep a supplied estimate distinct from realized sale cash. The combined result may be an estimated interim return rather than a completed cash result. That can still be useful when the label is clear and the values fit the stated review.

If a required ending value is missing, do not replace it with zero or silently omit the position. Report the known cash and the missing input. A return for the valued subset should not be labeled the result of the whole portfolio.

Also keep ended positions in a lifetime report. Removing a sold holding because it no longer appears on the latest statement can erase part of the history. A report of current holdings and a report of all investments made are different populations.

The same caution applies to ownership changes. If an interest moved between accounts within the reporting group, it may be an internal transfer. If it entered from outside, the opening measurement needs a stated treatment. Obtain the needed value and transfer records rather than treating a missing purchase payment as free profit.

Compare Periods and Benchmarks on Matching Terms

A portfolio rate is only as useful as the comparison placed beside it. Match the period, included cash, costs, and treatment of unsold holdings. A lifetime cash result should not be compared directly with one year's quoted income rate as though they measure the same thing.

Maren's Cedar investment lasts two annual periods, while Alder and Birch last three. Their separate lifetime IRRs describe those different cash histories. They do not identify which holding performed best during one shared calendar year. That narrower question would need the appropriate opening and ending values and cash within that year.

A benchmark comparison also needs a defined method. If the question is what the same investor cash schedule would have earned elsewhere, use a comparison that preserves those cash dates and amounts. Do not compare a staged-purchase result with a fully invested starting balance without disclosing the difference.

The SEC's performance bulletin advises readers to inspect what a performance calculation includes, excludes, and assumes. It also cautions against selecting only favorable periods or investments. Those concerns apply to a personally assembled report as well as a marketing presentation. SEC: Performance Claims.

No benchmark outcome is calculated here. The article also does not rate a manager or claim that a historical annual rate will repeat. Those questions require more than a correct aggregation of cash.

Build a Portfolio Report That Can Be Checked

The first page should name the investor group, included holdings, start and cutoff, cost treatment, and cash boundary. State whether every position ended or whether any ending values are estimates. Put an incomplete status next to missing inputs that affect the result.

For Maren, the base summary is $500,000 of gross purchases, $549,000 received, $49,000 nominal gain, a 9.8% cumulative cash ratio, and about 3.53% annual IRR for the combined investment flows. Cedar begins one year later. Personal taxes, inflation, and earlier waiting cash are excluded.

Attach the detailed events and the same-date totals. Keep source references sufficient to trace each amount. Add the alternative wider-account calculation only if its different boundary is clearly stated. Keep the monthly spending model in a separate section rather than mixing its invented payments into Maren's ledger.

When a correction arrives, update the affected event and rerun the combined result. Preserve the prior version and the reason for the change. An extra decimal place cannot compensate for a duplicate payment, missing holding, wrong owner, or wrong date.

A useful portfolio report makes the dollars and timing visible. It should let the reader move from a headline result back to the individual cash records without guessing what was left out.

FAQ

Can I average the returns of my DST investments?

A simple average describes an equal-weighted set of numbers. It may not describe your dollar outcome. In the example, the simple average cumulative gain is 15%, while total gain divided by gross purchase cash is 9.8%. Annual IRRs require the combined timed cash flows, not an average of individual rates.

Why does weighting each IRR by invested cash still give the wrong portfolio rate?

Each IRR summarizes a separate cash path. Multiplying those rates by purchase weights does not retain every payment's timing. Maren's weighted average is about 3.71%, while her combined cash-flow IRR is about 3.53%. Combine the cash events first and solve the rate for that record.

Should money waiting for a DST purchase count in portfolio performance?

It depends on the stated scope. A holdings-only report starts with the actual investment flows. A wider account report can include cash waiting inside that account, its earnings, and its costs. In the separate zero-interest example, including waiting cash changes the annual result to 3.29%. Label the boundary rather than choosing whichever rate looks better.

Are distributions reinvested into another DST counted twice?

They are recorded as a receipt for one holding and a purchase for the next. At the wider-account level, they may be internal movements with no outside cash flow. Preserve both holding records, but do not count the same retained money as a withdrawal and again as ending account wealth.

Does enough annual distribution income mean my monthly spending is covered?

No. Payment dates matter. The separate $12,000 annual cash schedule needs a $4,100 opening buffer to cover $1,000 monthly spending without a negative balance under the stated timing. That is a model result, not a recommended reserve. Late or reduced payments would require a new check.

What if one holding has no current ending value?

Keep the unknown value visible. You can report known cash and explain the gap, but a full interim economic return needs the remaining interests to be measured on the stated basis. Do not silently use zero or call a return for selected valued holdings the whole portfolio result.

Does a positive combined result show the portfolio was well diversified?

It shows the result of the included cash and value assumptions. It does not prove that risks were independent or that the holdings fit the investor's needs. Review shared exposures, access to cash, and the causes of gains and losses separately. Historical return arithmetic does not establish a future outcome.

About Sequoia Research

Sequoia Research, LLC provides independent research on DSTs and other real estate investment offerings. This educational library helps readers trace investment claims to records, compare calculations, and state the limits of the evidence.

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