Research guide

Delaware Statutory Trust Returns: What Reinvestment Assumptions Add to a Performance Illustration

By Sequoia ResearchPublished Read as Markdown

What Is This Article About?

A DST payment and the growth earned after investing that payment elsewhere are two different results. This article shows how to separate them when reading a performance illustration. A worked cash ledger follows five annual payments through several reinvestment choices, including fees, delays, spending, and losses. It explains which records support an actual result and which inputs belong to a hypothetical plan.

Table of Contents

Separate DST Cash Payments From Later Growth

A distribution record tells you what an investment paid. It does not tell you what the investor did next. The investor may spend the payment, leave it in cash, buy another asset, or use it to pay a bill. Those choices affect the household's later wealth without changing the amount the DST originally sent.

A performance illustration can combine the first investment with a second investment. That can be useful for planning. The problem arises when the extra growth appears to come entirely from the DST, or when a chosen future rate is presented as an observed result. Readers need to see where the cash crossed from one activity to the next.

The SEC asks investors to examine performance methods, including how dividends, costs, taxes, and market assumptions are treated. It also distinguishes hypothetical targets from actual performance. Those questions apply to a chart that grows each DST payment after receipt. The chart needs a clear account of the added steps. SEC Performance Claims

Start with three separate amounts: cash paid by the DST, cash contributed to the outside investment, and growth or loss in that outside investment. The second amount may be smaller than the first. The third may be positive or negative. None should be inferred solely from a distribution percentage printed on a brochure.

For example, receiving a payment equal to 5% of an original contribution does not show that the payment can earn 5% elsewhere. It also does not show that the original contribution has grown by 5% inside the trust. The investor received cash; the later use of that cash is a separate event.

Every trust, investor, payment, rate, and account balance in the examples below is invented. The cash ledger is a teaching record, not evidence of any actual DST's history. In a real review, replace its assumed receipts with verified investor records before describing a result as actual.

Build the Distribution Record First

Consider Lena, a fictional investor who puts $200,000 into Alder Court DST at the start of a five-year period. The example supplies the following cash received at each year-end. At the end of year five, Lena also receives $210,000 from the exit. That final amount is separate from the year's $8,000 distribution.

Teaching ledger event Cash received Treatment in the base comparison
End of year one $10,000 Available after receipt
End of year two $10,000 Available after receipt
End of year three $8,000 Available after receipt
End of year four $8,000 Available after receipt
End of year five $8,000 Received on the comparison date
Exit at the end of year five $210,000 Separate net exit receipt

The five distributions total $44,000. Adding the exit gives $254,000 of nominal receipts, meaning dollars added without adjusting for when they arrive. Receipts exceed the initial contribution by $54,000, or 27% over the whole period. That is not a 27% annual return.

The supplied payments are after all deductions within this fictional DST. They are before Lena's personal taxes, account costs, and later investment choices. The example does not infer rental profit, tax character, distribution coverage, or property value from the payment amounts. Those questions would require other records.

For an actual ledger, match the issuer's notice to cash received. Keep the stated payment date, bank receipt date, amount, and purpose in separate fields when they differ. An announced payment can be delayed. A pending transaction is not the same as cleared cash that can fund a second purchase.

Separate regular distributions from sale proceeds, refunds, and corrections. If a year-end report includes the final distribution within its exit total, do not count it again. In Lena's example the two year-five amounts are expressly separate, so adding both is correct. That detail must be checked in a real record.

Do not fill a missing month by dividing an annual target by twelve. A target is an assumption; a missing payment record is missing evidence. Keep the gap visible and seek the statement or transaction that resolves it. A clean-looking schedule built from guesses cannot support an actual reinvestment history.

Define the Reinvestment Policy

Before calculating growth, state what happens to each payment. Lena's first outside-investment model places every distribution into a separate account immediately at each year-end. It assumes a constant 4% effective annual growth rate. Growth stays invested, there are no withdrawals, and the account starts with no other money.

The 4% is a chosen teaching assumption. It is not a current yield, a product quote, a prediction, or the DST's distribution rate. The base model excludes separate account fees and personal taxes. Later sections change those assumptions one at a time.

An effective annual rate describes the total growth over one full year under the model. If $10,000 earns exactly 4% for that year, it becomes $10,400. If that whole amount earns another 4%, it becomes $10,816. The second year's growth includes growth on the first year's gain.

Investor.gov's compound-interest calculator separates the starting amount, added contributions, time, estimated rate, and compounding frequency. These are separate inputs for a reason. The tool's existence does not validate a particular rate or a DST's ability to make its payments. Investor.gov Compound Interest Calculator

Name the destination in a real illustration. Is the money assumed to enter a bank deposit, a fund, a new private offering, or an unspecified account? Each choice can involve different costs, access, and risk. Calling all of them “reinvestment” leaves the most important input undefined.

Also name the comparison date. Here it is the moment Lena receives the year-five distribution and exit proceeds. The model gives neither amount an extra year of growth. If a chart continues beyond that date, it needs a new time period and a stated treatment for the exit cash as well.

A policy is not proof of execution. An investor may intend to reinvest every payment but later use one for a repair bill. Keep intended actions separate from completed transfers. The model should describe the plan until records establish what actually happened.

Give Each Payment Its Own Growth Period

The first $10,000 arrives at the end of year one. It has four years to grow before the end of year five. The second has three years. The three later payments have two, one, and zero years. Treating every payment as if it were available at the start would give cash growth before it existed.

For one payment, multiply its amount by the annual growth factor for each year it remains invested. At 4%, the factor is 1.04. The first payment therefore becomes $10,000 × 1.04 × 1.04 × 1.04 × 1.04. Its ending value is $11,698.59, rounded to cents.

Payment Full years of growth Modeled value at the end of year five
First $10,000 4 $11,698.59
Second $10,000 3 $11,248.64
First $8,000 2 $8,652.80
Second $8,000 1 $8,320.00
Final $8,000 0 $8,000.00
Total outside account — $47,920.03

The account contains the original $44,000 of distributions plus $3,920.03 of modeled outside growth. The DST still paid $44,000. The extra amount comes from the second activity under the chosen assumptions. Adding $44,000 again to the $47,920.03 account would count the same contributed cash twice.

The calculations retain full precision and round displayed dollar values at the end. A real account may round interest or fees each day or month. Its exact result can differ slightly. Reproduce the account's actual method when reconciling a statement rather than forcing it to match this annual teaching model.

A monthly distribution schedule needs its own timing. Do not turn an effective annual rate into a monthly rate simply by dividing it by twelve and then assume the result has the same meaning. The frequency, rate definition, and dates must agree. This article uses full annual periods so the timing is visible.

The same care applies to an irregular catch-up payment. Several months of distributions received together become investable when received, subject to any access delay. Their economic label does not make them available earlier. A corrected cash schedule can change the outside-growth figure while leaving total DST payments unchanged.

Label the Combined Wealth Figure Correctly

Under the 4% outside-growth assumption, Lena ends with $210,000 of exit cash plus the $47,920.03 outside account. Combined ending wealth is $257,920.03. It exceeds the $254,000 cash-held case by $3,920.03. This comparison assumes the cash-held case earns zero and retains every payment.

Here is the same cash ledger under four chosen outside rates. None is assigned a probability or presented as available in the market.

Assumed annual outside rate Outside account at year five Combined ending wealth
0% $44,000.00 $254,000.00
2% $45,919.60 $255,919.60
4% $47,920.03 $257,920.03
6% $50,003.73 $260,003.73

Changing the outside rate does not change Alder Court's distribution ledger or its supplied $210,000 exit receipt. It changes the combined strategy. The correct caption therefore names the DST cash schedule and the separate rate used after receipt. “DST ending value” would hide that boundary.

You could also calculate the constant annual growth rate from the initial $200,000 to combined ending wealth. For the zero-growth cash case it is about 4.90%; for the 4% reinvestment case it is about 5.22%. These figures describe the whole retained-wealth plan over five years. They are not cash-flow returns measured only at the DST boundary.

A cash-flow internal rate of return, or IRR, solves a different equation using the original contribution and the dated cash paid by the DST. That equation does not include Lena's chosen outside-account rate. Changing only that rate does not change the DST cash-flow IRR. It changes the terminal wealth produced after the cash leaves the investment.

An IRR figure also does not document a series of actual reinvestment trades. To establish those trades, inspect the outside account. Keep the metric's mathematical definition separate from a claim about what a person did with their cash. A calculation can be correct while its caption describes the wrong activity.

Test Delays and Minimum Purchase Amounts

Immediate reinvestment may be a weak assumption even when the investor wants it. Payments can sit in an account before a purchase. The chosen product may have a minimum, a limited buying window, or processing steps. An illustration should use a practical rule for when each contribution starts to earn its modeled return.

First, change only Lena's first distribution. It is still received at the end of year one, but it sits at zero growth for one year before entering the outside investment. It now earns 4% for three years rather than four. The ending value of that payment falls from $11,698.59 to $11,248.64.

The delay reduces combined ending wealth by $449.95, using unrounded values before the final rounding. The original DST payment did not change. This is the cost of the stated waiting period under the chosen rate, not evidence that an actual broker or sponsor caused a loss.

Now consider a separate minimum-purchase model. The outside investment requires at least $15,000 for each purchase. Lena holds smaller payments at zero growth until they can be pooled. Assume purchases occur immediately at a year-end when the accumulated cash meets that minimum, and each purchase earns the same 4% annual rate thereafter.

The first two $10,000 payments form a $20,000 purchase at the end of year two. It grows for three years to $22,497.28. The year-three and year-four $8,000 payments form a $16,000 purchase at the end of year four. It grows for one year to $16,640. The final $8,000 stays in cash.

At year five, the two purchases and unused cash total $47,137.28. That is $782.75 less than the immediate-reinvestment model. The calculation includes the uninvested $8,000; omitting it would overstate the effect of the minimum. No additional outside money is assumed to meet a purchase threshold.

Cash waiting for investment may itself earn a return, but its treatment must be specified. The SEC's cash-sweep bulletin describes different programs and features for uninvested account cash. A default account setting is not enough evidence to assign it the same rate as the intended later investment. SEC Cash Sweep Programs Bulletin

Include the Costs of the Second Investment

The DST's net payment may be the gross input to another transaction. A second purchase can create its own charges. That is why “net of DST fees” does not automatically mean net of the full reinvestment strategy's costs.

Use a separate simple fee branch. Every annual payment incurs a $50 outside purchase charge, taken from that payment before the rest is invested. All other base assumptions remain the same, including the 4% growth rate on the invested amount. The contributions become $9,950, $9,950, $7,950, $7,950, and $7,950.

The outside account then ends at $47,649.21. The reduction from the no-charge model is $270.82. Of that difference, $250 is the five purchase charges. The remaining $20.82 is growth those charges would have earned under the base assumption. Both figures are rounded after calculation.

A cost paid from other savings needs different treatment. If Lena pays the charges from a bank account while reinvesting each full distribution, the outside-investment balance may stay at the base amount. Her wider cash position has still paid the costs. A comparison should not hide those extra contributions just because they came from a different account.

Ongoing charges need a defined base and timing too. A fee on beginning assets, average assets, or year-end assets can produce different dollars. A quoted net growth assumption may already include some charges. Subtracting them again would understate the result, while ignoring an excluded account charge would overstate it.

For a distinct sensitivity, simply change the annual net growth assumption from 4% to 3%. The account ends at $46,909.56, or $1,010.47 less. This is a rate sensitivity, not a universal formula saying that a 1% fee always reduces a 4% gross return to exactly 3%. Actual charging terms determine the link.

The SEC's July 2025 fee bulletin distinguishes transaction and ongoing costs and explains that fees leave less money earning a return. Use the relevant product and account records to identify which costs belong in the second investment. SEC How Fees and Expenses Affect Your Investment Portfolio

Account for Spending and Tax Cash

A reinvest-all illustration describes a saving policy. It can be a poor match for an investor who bought a DST to fund living costs. Compare the intended use of cash with the model before treating its ending wealth as a personal planning result.

In a separate household branch, Lena spends $6,000 from each annual distribution as soon as it arrives. She invests only the remainder. The outside contributions are $4,000, $4,000, $2,000, $2,000, and $2,000, totaling $14,000. At the same 4% rate and year-end timing, that account ends at $15,422.09.

The ending account is much smaller because $30,000 paid for spending along the way. That spending was a use of the DST cash, not a loss in the trust or the outside investment. A review should report the consumed cash separately from wealth still held. Adding it back as though it remains available would misstate current resources.

Tax cash can create another funding need. Do not assume every dollar distributed is the investor's taxable income, or that putting a payment into another account removes any tax due. The described grantor-trust treatment in Revenue Ruling 2004-86 attributes the relevant income, deductions, and credits to the owners. Actual tax character and amounts require the applicable records. IRS Revenue Ruling 2004-86

For a separate budget example, assume Lena needs to pay a supplied $2,000 tax cash amount from each annual payment. This amount is an invented planning input, not a tax calculation or a rate applied to the distribution. The remaining contributions are $8,000, $8,000, $6,000, $6,000, and $6,000.

At 4%, those contributions produce $37,087.38 in the outside account. The $10,832.65 difference from the base reflects $10,000 directed to the assumed tax payments plus the growth it no longer earns. This branch replaces the spending branch; it is not added to it. Taxes on the outside account and final exit remain excluded.

If a presentation assumes those bills are paid from other resources, it should say so. Keeping every DST payment invested may require separate household funding. The plan's extra ending wealth should not be credited to reinvestment without disclosing the extra resources that make the plan possible.

Test Changing Rates and Reinvestment Losses

A constant positive rate makes a smooth chart. A real second investment can have changing results, costs, and values. Even a sensible long-run assumption does not establish the rate earned during the exact years when each payment is invested.

A simple downside branch applies negative 2% annual growth to the same five contributions. The outside account ends at $42,158.80. That is $1,841.20 below the $44,000 contributed. Combined with the unchanged $210,000 exit cash, ending wealth is $252,158.80. The loss belongs to the stated outside scenario; the DST cash record is unchanged.

The order of changing returns can also matter when new money enters. Consider a separate three-payment example with $10,000 received at each of three year-ends. The first payment arrives before the two growth periods being compared. The second enters between them, and the third enters at the end with no growth period left.

In path A, the existing outside balance grows 20% during year two and then loses 10% during year three. Before the second contribution, the first $10,000 becomes $12,000. Adding $10,000 makes $22,000. A 10% loss leaves $19,800, and the final $10,000 brings ending wealth to $29,800.

In path B, the order is reversed: negative 10% in year two, then positive 20% in year three. The first balance falls to $9,000. The second payment brings it to $19,000, which grows to $22,800. The last payment produces $32,800 of ending wealth.

The first contribution earns the same two-period factor in both paths: 1.20 × 0.90 equals 1.08. The difference comes from the second contribution, which faces different later growth. Thus, the same pair of returns can produce different account outcomes when cash is added between them.

This is an arithmetic example, not a suggested risky reinvestment strategy. It shows why a summary average cannot replace the cash dates and return path. The second asset needs its own risk review, and its losses should not disappear behind the original DST's payment label.

Distinguish Investor Reinvestment From Trust Powers

The word “reinvest” can refer to different owners and actions. A trustee using trust cash, an investor buying another asset with received cash, and an investor completing a later property exchange are different transactions. A review should state which one its model assumes.

Revenue Ruling 2004-86 describes a trust whose powers are limited. Its analysis discusses permitted short-term holdings and why the trustee cannot vary the investment under the stated facts. It does not authorize every DST to buy new properties with its cash or to accept fresh contributions whenever an investor wants to compound a payment. IRS Revenue Ruling 2004-86

Lena's model assumes that cash has left the trust and is available to her for a separate purchase. It does not increase her ownership in Alder Court. It also does not assume that Alder Court offers a distribution reinvestment plan or that the outside asset qualifies for a particular tax treatment.

A new private offering may have its own minimum, eligibility checks, costs, and closing conditions. The old DST's distribution schedule does not establish that a new opportunity will be available on each payment date. A model that assumes repeated purchases should identify the practical limits of that assumption.

The SEC's private-placement bulletin also notes resale restrictions and difficulty finding buyers. Moving money into a second private investment can change access to that money. A higher modeled ending balance does not by itself establish that cash will be available when a household needs it. SEC Private Placements Bulletin

Do not treat repeated investments as automatic diversification either. The new purchase might share a sponsor, tenant, lender, or property market with the first holding. The amount invested elsewhere identifies a transfer of cash; it does not establish how much new risk exposure has been added or reduced.

Compare Two Cash Schedules on the Same Terms

Reinvestment assumptions can affect a ranking even when total investment receipts match. To see why, compare Alder Court's five payments with a separate invented investment that pays the entire $44,000 at the end of year five. Assume both start with the same $200,000 contribution and return the same separate $210,000 exit cash then.

Both investments pay $254,000 in nominal dollars. Under a zero-growth cash-retention policy, both leave that amount at the comparison date. Under the chosen 4% immediate-reinvestment policy, Alder Court's earlier payments produce $3,920.03 of extra outside growth. The late-payment case has no time to earn it before the comparison ends.

That difference explains the value of earlier cash under this particular policy. It does not prove that Alder Court is a better real investment. The invented comparison holds everything else constant and says nothing about risk, cost completeness, tax, or the reliability of the payment schedules.

Apply the same policy to each alternative before comparing the combined figures. Giving one investment a reinvest-all assumption and treating another's payments as spent mixes two decisions. Likewise, using a higher outside rate for the preferred option builds part of the answer into the model.

When actual histories differ, preserve those differences. One owner may have reinvested and another may have spent the cash. Their personal outcomes can both be accurate while failing to isolate the performance of the original investments. State whether the comparison concerns investment cash flows, investor behavior, or both.

Turn an Illustration Into a Checkable Claim

A useful performance caption states the source cash, outside assumptions, and measurement date. For Lena, it would say that the invented ledger pays $44,000 over five year-ends plus $210,000 at exit. It would then identify the separate 4% outside-growth assumption and the $257,920.03 combined ending amount.

The caption should also say that all payments remain invested after receipt, costs and personal taxes are excluded, and the rate is hypothetical. The chart can then support a narrow claim about that model. It cannot support a claim that the DST itself paid or earned the extra $3,920.03.

For an actual combined history, collect both sides of the transfer. The DST ledger supports the outgoing payment. Bank and outside-account records support receipt, purchase dates, charges, holdings, later sales, and withdrawals. A balance screenshot alone may include other money and cannot establish the entire chain.

Reconcile outside contributions before measuring growth. Exclude unrelated deposits or list them as additional capital. Track withdrawals and transfers between accounts so they are not mistaken for investment losses or fresh returns. If a holding remains unsold, label its ending value as a valuation rather than cash received.

If evidence is missing, retain an actual-only cash summary and a separate hypothetical overlay. State which dates or fees remain unknown. That gives the reader a usable starting point without turning an estimate into a completed investment history.

FAQ

Does reinvesting a DST distribution raise the DST's own return?

It can change the investor's later wealth, but the original payment does not change. Keep the DST's cash flows separate from gains or losses earned after receipt. A combined illustration needs both sets of assumptions and a clear description of the second investment.

Can I use the DST's distribution rate as the reinvestment rate?

Only as a clearly labeled hypothetical input, not as evidence of an available return elsewhere. The distribution percentage and the outside asset's growth rate measure different things. Identify the second asset, its timing, costs, and risk before presenting a practical plan.

Why does the last payment earn no growth in the main example?

It arrives on the chosen comparison date at the end of year five. There is no remaining period in that model. Giving it another year of growth would extend the horizon. The same timing rule applies to the separate exit cash received that day.

Is the ending outside balance added to every distribution again?

No. The outside balance already contains the money contributed from those distributions plus any growth or loss. Adding those contributions again counts the same cash twice. In the base example, $47,920.03 includes the full $44,000 of distributions.

Does an IRR calculation prove the payments were reinvested?

No. It uses a specified cash-flow schedule to solve a rate equation. It is not a record of later account trades. A claim that payments were actually reinvested requires the separate transaction records, including dates, costs, and any money added or withdrawn.

What if I use distributions for living expenses?

Model that use directly. Money spent is no longer in the reinvestment account, but spending is not the same as an investment loss. Report cash consumed and wealth still held separately. Do not compare a spend-some plan with a reinvest-all chart as though their cash uses match.

What should a fair reinvestment illustration disclose?

It should identify payment amounts and dates, the outside asset or assumption, growth rate, fees, taxes, delays, withdrawals, and ending date. Separate observed facts from hypothetical choices. A useful comparison also includes a case with lower growth or losses and explains which risks the model leaves out.

About Sequoia Research

Sequoia Research, LLC provides independent research on DSTs and other real estate investment offerings. This educational library explains how to examine investment claims, trace cash flows, and recognize the limits of a performance illustration.

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