A Delaware Statutory Trust (DST) lets you complete a 1031 exchange into a professionally managed, fractional interest in larger real estate — without directly managing a property. This guide compares DSTs against buying replacement property outright so you can frame the decision with your CPA and a securities-licensed advisor.
General information only — not tax, legal, or financial advice. A 1031 exchange has strict, unforgiving deadlines and significant tax consequences. Work with a CPA and a qualified intermediary (QI) before you act. A REALTOR® cannot serve as your QI. Verify current IRS and California FTB rules with a licensed tax professional.
What is a DST?
A Delaware Statutory Trust holds title to one or more income properties and sells beneficial interests to multiple investors. The IRS has long recognized a properly structured DST interest as like-kind real property eligible for 1031 treatment, so you can exchange relinquished property into a DST interest. A sponsor handles acquisition, financing, and management.
Because DST interests are securities, they are offered through registered representatives. They are not sold by a REALTOR®.
Side-by-side comparison
| Factor | DST | Direct ownership |
|---|---|---|
| Management | Passive — sponsor manages | Active — you manage or hire |
| Control | Limited; no operating decisions | Full control |
| Diversification | Can split across multiple DSTs | Concentrated in one asset |
| Minimum investment | Often fractional, lower entry | Whole-property cost |
| Financing | Non-recourse, arranged by sponsor | You arrange your own loan |
| Refinance / improve | Generally not permitted | Flexible |
| Liquidity | Illiquid; hold to sponsor exit | You control sale timing |
| Fees | Sponsor and offering costs | Transaction and management costs |
When a DST may make sense
- You want to exit hands-on landlording but keep deferring gain.
- You need to place exchange funds quickly to meet the 45-day deadline.
- You want to diversify across asset types or geographies.
- You want to match leftover equity precisely to avoid boot.
When direct ownership may make sense
- You want full control over operations, improvements, and sale timing.
- You plan to refinance or run a cost-segregation study.
- You prefer a tangible, single asset you can see and manage.
- You want to keep options open for a future drop-and-swap or estate plan.
Using a DST as a backup
Some exchangers identify a DST as a backup property within their 45-day identification so that, if a direct purchase falls through, exchange funds still have a compliant landing spot. This can prevent a failed exchange, but it commits you to a security — review suitability first.
How Brian helps
Brian helps you weigh the active-versus-passive trade-off, and on the direct-ownership side he sources and negotiates California or out-of-state replacement property. For DST interests he refers you to appropriately licensed professionals, since those are securities a REALTOR® cannot sell.
Frequently Asked Questions
Is a DST eligible for a 1031 exchange?
A properly structured DST interest has long been treated as like-kind real property, so it can serve as 1031 replacement. Confirm the specific offering with your tax and securities advisors.
Can my REALTOR sell me a DST?
No. DST interests are securities and must be offered through a licensed representative. A REALTOR can help with direct property but not securities.
Can I refinance a DST interest?
Generally no. DST structures typically prohibit additional financing or capital contributions, which is a key difference from direct ownership.
Is a DST liquid?
No. DST interests are illiquid and are usually held until the sponsor sells the underlying property. Plan for a multi-year hold.
Can I use a DST to soak up leftover equity?
Often yes — a DST can absorb a precise amount of equity to help avoid boot, which is one reason exchangers use them as backups.
Is this investment advice?
No. This is general educational information. DST suitability must be assessed by a licensed financial professional and your CPA.
