Investor Alert: Risks of 1031 DST Private Placements and the Duties of Your Broker | Goodman & Nekvasil, P.A.
1031 DST investments have grown in popularity among investors seeking to defer capital gains taxes after selling real estate. These investments can appear attractive on the surface, offering access to institutional-grade properties and passive income. However, Delaware Statutory Trust (DST) private placements are complex, high-risk, and illiquid, and may be unsuitable for many retail investors.
If you were recommended a 1031 DST by your broker or financial advisor and suffered financial losses, you may have legal rights to recover your investment. The law firm of Goodman & Nekvasil, P.A. represents investors nationwide in claims against brokerage firms that sell unsuitable or improperly disclosed investment products—including 1031 DSTs.
Goodman & Nekvasil, P.A. is a nationally recognized securities law firm representing investors harmed by misconduct, negligence, and fraud. We are currently investigating claims against brokerage firms and advisors who improperly sold DST private placements.
Call 800-500-4442 if you think that you have received unsuitable investment recommendations from your adviser.
What Is a 1031 DST Private Placement?
A 1031 Exchange (under Section 1031 of the Internal Revenue Code) allows investors to defer capital gains taxes when they reinvest proceeds from the sale of real estate into a “like-kind” property. A Delaware Statutory Trust (DST) is one such vehicle that qualifies for 1031 exchange treatment.
DSTs are offered as private placement securities, typically sold through broker-dealers and investment advisers, often under Regulation D exemptions. Investors do not own real property directly but instead hold beneficial interests in the trust.
Risks of DST Private Placements
Investors may be unaware that DSTs carry substantial risks, including:
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Illiquidity – No secondary market exists; your capital may be tied up for 5-10 years or longer.
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Loss of principal – If the property underperforms or fails, you could lose part—or all—of your investment.
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High fees and commissions – Hidden selling commissions and fees can erode returns.
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Lack of control – Investors cannot vote or manage the property.
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Cash flow disruptions – Income is not guaranteed and depends entirely on property performance.
These characteristics often make DSTs unsuitable for conservative or income-focused investors, retirees, or those with limited investment experience.
Broker-Dealer Responsibilities Under FINRA Rules
Brokers and investment advisers who recommend 1031 DSTs have a legal and regulatory duty to act in their clients’ best interests. Under FINRA Rule 2111 (Suitability Rule) and Regulation Best Interest (Reg BI), they must:
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Conduct a reasonable basis suitability analysis of the DST investment itself
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Understand the customer’s financial profile, investment objectives, and risk tolerance
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Ensure the investment is suitable and in the client’s best interest
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Disclose material risks and fees
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Avoid conflicts of interest, including selling high-commission products for personal gain
Broker-dealers that fail in these duties can be held liable through FINRA arbitration.
Goodman & Nekvasil, P.A. has recovered more than $400 million on behalf of victimized investors. If you lost money on investments in unsuitable investments and would like your case evaluated by a securities attorney, please contact us.
Some of the information in this blog post was obtained from the SEC and FINRA on 7/29/25. If you believe this information was reported incorrectly, please contact our firm: 1-800-500-4442