Investment Guide
The Complete Guide to DST Investments
Everything you need to know about Delaware Statutory Trusts for 1031 exchanges -- from structure and benefits to risks, due diligence, and the 7 Deadly Sins.
Everything you need to know about Delaware Statutory Trusts for 1031 exchanges -- from structure and benefits to risks, due diligence, and the 7 Deadly Sins.
A Delaware Statutory Trust (DST) is a legal entity that allows multiple investors to pool their capital to purchase institutional-grade real estate. Created under Delaware law, DSTs enable investors to own a fractional interest in large commercial properties while enjoying the benefits of passive real estate ownership.
For 1031 exchange investors, DSTs are particularly valuable. The IRS issued Revenue Ruling 2004-86, which established that an interest in a DST qualifies as "like-kind" replacement property for Section 1031 exchanges. This opened the door for exchangers to complete their transactions using DST interests rather than direct property ownership.
Sell your investment property and engage a Qualified Intermediary (like Simple 1031) to hold your proceeds.
Within 45 days, identify one or more DST offerings. DSTs close quickly -- often within 3-5 business days.
Your QI transfers exchange funds to the DST sponsor. You receive beneficial ownership interests in the trust.
The DST property generates rental income, distributed to you monthly or quarterly while continuing tax deferral.
Done with tenant drama and maintenance emergencies. DSTs let you exchange into passive income without the hassle.
5-10 years from retirement and want predictable income without active management demands.
Want exposure to institutional-grade assets like medical offices or industrial warehouses.
DST interests transfer easily to heirs without forcing property sales.
DSTs close in 3-5 days -- ideal when your 45-day deadline is approaching.
Want real estate exposure with professional management and institutional-quality assets.
The IRS established seven restrictions that DSTs must follow to maintain 1031 eligibility.
Sponsors cannot ask investors for additional capital after the offering closes.
The DST cannot renegotiate existing loans or obtain new financing.
Sale proceeds cannot be reinvested -- they must be distributed to beneficial owners.
Sponsors must establish capital improvement reserves at closing.
Distributions must be pro-rata based on ownership percentage.
The trustee cannot enter new leases or materially renegotiate existing ones.
The DST cannot invest in additional properties beyond the original acquisition.
| Factor | DST | Direct Ownership | TIC |
|---|---|---|---|
| Control | None -- Sponsor manages | Full -- You decide | Shared -- Consensus needed |
| Management Burden | None | High | Moderate |
| Minimum Investment | $25K-$100K | $100K+ | $100K-$500K |
| Liquidity | Very Low (5-10 yr) | Moderate | Very Low |
| Diversification | Easy | Difficult | Limited |
| Financing | Non-recourse | Personal guarantee | Joint liability |
| 1031 Eligible | Yes | Yes | Yes |
| Closing Speed | 3-5 business days | 30-60 days | 30-60 days |
| Investor Qualification | Accredited only | Open to all | Open to all |
| Personal Liability | Limited | Full | Shared / Joint |
Monthly/quarterly distributions without property management.
Invest in multiple property types across different markets.
Professional teams handle everything. No 3 AM phone calls.
Easy transfer to heirs with stepped-up basis at death.
Access properties requiring $10-50M to acquire individually.
Capital typically locked in for 5-10 years. No secondary market.
Investment success depends heavily on sponsor expertise and integrity.
No say in management decisions. Sponsor decides everything.
Cannot obtain new financing or renegotiate loans after closing.
A DST typically owns one property. If it struggles, your entire investment is affected.
15 common questions about DST investments.
A legal entity that allows multiple investors to pool capital to own fractional interests in institutional-grade real estate. Established under Delaware law, DSTs qualify as replacement property for 1031 exchanges under IRS Revenue Ruling 2004-86.
Revenue Ruling 2004-86 established that a beneficial interest in a DST is considered "like-kind" real property for Section 1031 purposes. The DST structure must follow the "7 Deadly Sins" restrictions to maintain this qualification.
Most DST offerings require $25,000 to $100,000 minimum. You must also be an accredited investor. Consult your financial advisor to determine if you qualify.
You qualify if you meet ONE of: (1) Individual income exceeding $200K ($300K with spouse) in each of the last two years; (2) Net worth exceeding $1M excluding primary residence; (3) Hold Series 7, 65, or 82 licenses.
Multifamily apartments, industrial/warehouse, medical office buildings, net lease retail (Walgreens, Dollar General), and self-storage facilities. Each has different risk profiles and typical hold periods of 5-10 years.
DSTs are illiquid with typical 5-10 year hold periods. Your capital is returned when the sponsor sells the underlying property. There is no secondary market for DST interests.
Cash-on-cash returns typically range from 4% to 7% annually, though this varies. These are projections, not guarantees. Past performance does not guarantee future results.
Typical fees include: acquisition fees (2-4%), asset management fees (0.5-1.5% annually), property management fees (2-5% of gross income), and disposition fees (1-3%) when the property sells.
Proceeds are distributed to owners. You can: (1) pay capital gains taxes, (2) execute another 1031 exchange into a new DST or direct property, or (3) complete a 721 UPREIT exchange into a REIT.
A 721 UPREIT allows DST investors to exchange interests for REIT shares without triggering capital gains taxes. This provides continued tax deferral with greater liquidity. However, once converted, you can no longer execute 1031 exchanges.
Key risks: illiquidity, sponsor risk, lack of control, concentration risk (single property), market risk, and limited financing flexibility. You could lose your entire investment.
Evaluate by: track record, financial stability, fee structure, property quality, cash flow projections, exit strategy, communication practices, and regulatory history (check SEC filings, FINRA BrokerCheck).
Yes. DSTs typically close within 3-5 business days, making them ideal when your 45-day identification window or 180-day exchange deadline is approaching.
Simple 1031 is a Qualified Intermediary that facilitates your 1031 exchange. We hold proceeds, prepare documentation, ensure IRS compliance, and can connect you with reputable sponsors. We do not recommend specific DST investments or provide investment advice.
Review: the Private Placement Memorandum (PPM), Subscription Agreement, Trust Agreement, third-party reports (appraisal, environmental, property condition), and the sponsor's audited financial statements. Have your attorney and financial advisor review these with you.
Contact Simple 1031 to learn how we facilitate 1031 exchanges involving DST investments.
Schedule a ConsultationSimple 1031 is a Qualified Intermediary, not a broker-dealer or investment advisor. We do not provide investment advice, recommend specific DST offerings, or analyze investment suitability for individual investors.
DST investments involve significant risks, including illiquidity, loss of principal, and reliance on sponsor performance. Past performance does not guarantee future results. DSTs are only suitable for accredited investors who can afford to lose their entire investment.
This guide is for educational purposes only and does not constitute an offer to sell or solicitation of an offer to buy any security. Consult with your financial advisor, tax professional, and attorney before investing. No assurance of distributions: cash flow projections are estimates only and are not guaranteed.