What is a DST in a 1031 exchange?
A Delaware Statutory Trust (DST) lets you exchange into a fractional ownership interest in large, professionally managed property instead of buying a building yourself. Under IRS Revenue Ruling 2004-86, a properly structured DST interest can be treated as a direct interest in real estate, so it can serve as 1031 replacement property.
DSTs typically hold apartment communities, net-lease retail, industrial, medical office, or self-storage. A sponsor finds, finances, and manages the property; investors receive their share of the income and, eventually, the sale proceeds.
| Direct ownership (you buy a property) | DST interest | |
|---|---|---|
| Control | You make every decision | None; the sponsor and trustee manage |
| Management work | You or your property manager | Passive |
| Minimum investment | Whatever property you can buy | Often $100,000 or less per offering |
| Speed to close | Weeks to months (inspections, financing) | Often days, once you're approved |
| Financing | You qualify for and sign the loan | Debt is in the trust; no personal loan |
| Liquidity | Sell when you choose | Illiquid; typically held until the sponsor sells, often 5–10 years |
| Who can invest | Anyone | Usually accredited investors only |
| Fees | Transaction and management costs you control | Sponsor load and ongoing fees built in |
| Upside | You capture renovation, rent growth, and timing | Limited to the sponsor's plan |
Download the free DST vs. Direct Ownership comparison chart (PDF), or read our article on direct replacement property vs. DST.
DST vs. direct ownership: which fits your exchange?
When a DST makes sense
- You're done being a landlord and want income without tenants, toilets, and repairs.
- You need a backup identification. DST interests can often close in days, which makes them a useful second or third property on your 45-day list.
- You have leftover proceeds. If your main replacement costs less than your sale, a DST can absorb the remainder so it isn't taxable "boot."
- You need to replace debt but don't want to qualify for a new loan; many DSTs carry non-recourse financing.
- You want to diversify across several properties or markets with one exchange.
When direct ownership is better
- You want control over when to sell, refinance, or renovate.
- You want to keep exchanging over time. A DST sale is on the sponsor's schedule, which may not fit your next exchange.
- You aren't an accredited investor.
- You want to live in, or eventually move into, the property later (after meeting investment holding requirements).
The limits built into every DST
To keep investors treated as real estate owners, a DST's trustee is sharply restricted. It generally can't take on new loans or renegotiate existing ones, accept new capital, make more than limited repairs, or enter new leases except in narrow cases. These limits are sometimes called the "seven deadly sins." They protect the tax treatment, but they also mean the trust can't adapt easily if the property struggles.
Using a DST as a deadline backup
The three-property rule generally lets you identify up to three replacement properties of any value. A DST is a common third choice because it can usually close faster than a building.
DST 1031 Exchange FAQ
Tell us where you are in the sale. A licensed Nevada broker responds within one business day, usually the same day. We coordinate with your QI, CPA, and attorney; we don't replace them.