What is a DST in real estate?

If you're in a 1031 exchange, a DST is one way to hold an interest in replacement real estate without being the landlord. When you're ready to see what's open, you can view listings.

What a Delaware Statutory Trust is

The short definition

A DST is a legal trust. The trust holds title to the real estate. Investors own beneficial interests in the trust, sized to what each person puts in. A sponsor puts the deal together. A trustee, often affiliated with the sponsor, makes the decisions under the trust agreement.

Your interest gives you a share of the trust's economics. You don't sign leases, fix roofs or deal with tenants. You also give up any say in how the property is run, which is covered below. For what's inside the trust and what your interest covers, see what a DST actually owns.

What "DST" stands for

In real estate, DST stands for Delaware Statutory Trust. The letters mean other things in other fields. On a 1031 page, this is the meaning that matters.

How DST interests are sold

A DST interest is usually sold as a private placement. Each offering comes with a private placement memorandum, subscription documents and investor qualification steps. DST sponsors generally require investors to be accredited. A 1031 exchange doesn't change any of that.

The private placement memorandum is the document that controls. Read it before you identify an offering. For how offerings are shown and compared, see how DST listings work.

How a DST works in a 1031 exchange

Why the IRS treats it like real estate

In Revenue Ruling 2004-86, the IRS said a beneficial interest in a properly structured DST can be treated as a direct interest in real estate for Section 1031. That's why a DST interest can qualify as like-kind replacement property.

"Properly structured" carries a lot of weight in that sentence. The trust has to stay within limits on what it can do. Your CPA should confirm the offering fits your exchange before you count on it.

The clocks still apply

You have 45 days from the sale of your old property to identify replacement property in writing. You have up to 180 days to close, or until your tax-filing due date for that year (including extensions) if it comes first. A DST doesn't pause either clock.

This page won't rebuild the whole process. For that, see how a 1031 exchange into a DST works. For the identification rules, see the 45-day identification guide.

A DST is a replacement option inside a 1031

Some people hear "DST" and think it's a separate way to defer tax, so they ask whether they should do a DST or a 1031. That's a mix-up. A DST is one type of replacement property you can buy inside a 1031 exchange, alongside buying a whole property yourself.

The same exchange rules apply when your replacement is a DST interest. So do the 45-day window and the closing deadline. Talk to your CPA about how a DST would fit your exchange.

DST vs TIC

Both structures let several investors put money into one property. In a tenancy-in-common (TIC), each investor holds a share of title directly. Major decisions often need everyone to agree, and one holdout can stall a refinance or a sale.

In a DST, the trust holds title and the trustee makes the decisions. Investors don't vote on leasing, financing or a sale. That's the structural difference. Whether it suits you depends on how much control you want to keep.

What you give up: control, liquidity and certainty

A DST trades control for not having to run the property. Before you put one on your 45-day list, be clear on what that means:

• Illiquidity. Plan to hold until the sponsor sells the property. Selling your interest early may not be possible.
• No control. You don't vote on leases, loans or the timing of a sale.
• Sponsor and tenant risk. Results depend on the sponsor's decisions, the tenants and the local market.
• Debt risk. If the DST uses a loan, interest rates, the loan's maturity and any refinance add risk.
• No promised distributions. Projections are estimates. You can lose principal.

Your property type and debt details are in each offering's private placement memorandum. Read the risk factors with your CPA and attorney. For more on the real estate inside a DST and what you control, see what a DST actually owns.

Who invests in DSTs

DST sponsors generally require investors to be accredited. The Investor.gov accredited investor bulletin explains the tests. Check your status with your advisors before you spend identification-window time on offerings you can't buy.

Each offering sets its own minimum. 1031 Specialist works with investors who have at least $100,000 to place.

FAQ

What is a DST in real estate?

A DST, or Delaware Statutory Trust, is a trust formed under Delaware law that holds title to investment real estate, often commercial property. Investors buy beneficial interests in the trust instead of owning a building outright. A sponsor or its affiliate manages the property, so investors have no day-to-day landlord duties.

Can a DST be used in a 1031 exchange?

It can. Under IRS Revenue Ruling 2004-86, a beneficial interest in a properly structured DST can be treated as a direct interest in real estate, so it can qualify as like-kind replacement property. You still have to identify it within 45 days and close within the exchange deadline. Confirm your situation with your CPA.

Is a DST an alternative to a 1031 exchange?

No. A DST is one type of replacement property you can buy inside a 1031 exchange, alongside buying a whole property yourself. The 1031 rules still apply. You identify within 45 days, then close within 180 days or by your tax-filing due date (including extensions), whichever comes first.

What's the difference between a DST and a TIC?

Both let several investors put money into one property. In a tenancy-in-common (TIC), each investor holds a share of title, and major decisions often need everyone's agreement, which can stall a property. In a DST, the trust holds title and the trustee makes decisions. Investors don't vote on leasing, financing or a sale.

Who can invest in a DST?

DST interests are usually sold as private placements, and DST sponsors generally require investors to be accredited. Each offering sets its own minimum. 1031 Specialist works with investors who have at least $100,000 to place. Check your status with your advisors before you spend identification-window time on offerings you can't buy.

What are the main risks of a DST?

DST interests are illiquid, so plan to hold until the sponsor sells the property. You have no control over leasing, financing or the timing of a sale. Results depend on the sponsor, tenants, the market and any debt. Distributions aren't promised and you can lose principal. Read the risk factors in the private placement memorandum with your advisors.

Next step

If you're inside your 45-day window, see what's open and read the offering documents before you identify anything. More questions? See the FAQ.