A Delaware Statutory Trust (DST) is a powerful tool for real estate investors seeking passive income, portfolio diversification, and tax deferral through a 1031 exchange. Recognized by the IRS as a qualified replacement property, a DST allows multiple investors to co-own fractional interests in large institutional-grade real estate assets — without the headaches of active management.

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Why Investors Choose DSTs

DSTs have emerged as a preferred 1031 exchange solution for accredited investors because they offer a unique blend of tax efficiency, income stability, and professional management. Here’s why they stand out:

✅ 1031 Exchange Eligible

DSTs are fully compliant with IRS Revenue Ruling 2004-86, meaning they qualify as “like-kind” property under Section 1031. This enables investors to defer capital gains taxes when selling appreciated real estate.

✅ Truly Passive Ownership

No tenants to deal with. No toilets to fix. Investors receive monthly income from high-quality, income-producing properties — typically managed by seasoned institutional sponsors with nationwide portfolios.

✅ Institutional-Grade Real Estate

DST portfolios often include Class A apartments, grocery-anchored shopping centers, medical office buildings, and industrial logistics centers — assets typically out of reach for individual investors.

✅ Pre-Packaged, Turnkey Solution

No need to rush into a replacement property. DSTs are pre-acquired, pre-financed, and cash-flowing on day one. They offer investors a seamless, time-efficient path to complete a 1031 exchange, often in as little as 3–5 days.

✅ Diversification Across Markets and Sectors

With minimums as low as $50,000, DSTs allow investors to spread their capital across multiple geographic markets and property types, reducing portfolio concentration risk.

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What Are the Key Features of a DST?

• No Management Responsibility – 100% passive.

• Fixed Hold Period – Typically 5–10 years.

• Non-recourse Financing – Debt is held at the trust level, with no personal liability to investors.

• Monthly Distributions – From rental income, net of expenses.

• Minimum Investment – Usually $100,000, though some offerings go as low as $25,000–$50,000.

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Who Should Consider a DST?

DSTs are ideal for:

• Landlords tired of active management

• Investors with highly appreciated property seeking to defer capital gains

• Estate planners looking to pass on stepped-up basis assets to heirs

• Retirees seeking passive income

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What Are the Risks?

As with any investment, DSTs carry risks, including:

• Illiquidity — most DSTs are not tradable or redeemable during the hold period.

• Market risk — property values and income are subject to economic conditions.

• Sponsor risk — performance depends on the capabilities of the managing sponsor.

• Interest rate risk — rising rates can affect property values and refinancing outcomes.

That’s why it’s crucial to evaluate each DST sponsor, property portfolio, and financing structure carefully.

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DSTs vs. Other 1031 Options

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Conclusion

A Delaware Statutory Trust is not just a tax deferral vehicle — it’s a gateway to owning institutional-quality real estate with zero management headaches. For many accredited investors, it offers an ideal blend of wealth preservation, cash flow, and estate planning efficiency.

But DSTs are not one-size-fits-all. Every deal is different — and due diligence is essential.

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Considering a DST for your next 1031 exchange? Let’s discuss available offerings that align with your investment goals.

FAQ’s

1. How do I evaluate whether a specific DST offering is right for my investment goals?

Start by aligning the DST’s core features with your personal priorities — whether that’s income stability, capital preservation, or long-term appreciation. Key evaluation factors include:

• Sponsor Track Record: Choose sponsors with a long history of successful DST exits and full-cycle experience.

• Property Quality: Look at tenant creditworthiness, lease terms, and asset class (e.g., medical, industrial, multifamily).

• Market Fundamentals: Evaluate population trends, job growth, and economic drivers in the property’s location.

• Debt Structure: Prefer non-recourse, fixed-rate financing with conservative loan-to-value ratios (typically under 60%).

• Projected Cash Flow: Review annualized distribution rates and how they align with your income needs.

Your advisor should provide detailed due diligence materials for each offering — don’t rely on marketing alone.

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2. What happens at the end of the DST’s hold period, and how does that impact my ability to do another 1031 exchange?

At the end of the typical 5–10 year hold period, the DST’s managing sponsor will market and sell the property. When the asset sells:

• Proceeds flow to investors according to their fractional ownership.

• The IRS treats it as a sale, just like any other 1031 relinquished property.

• You’ll have 45 days to identify and 180 days to close on a new like-kind replacement property to complete another 1031 exchange — including into another DST, a single-tenant NNN deal, or other eligible real estate.

Many sponsors offer “DST-to-DST” rollover services, making this transition smoother and more tax-efficient.

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3. Are DSTs suitable if I’m looking for income today versus long-term appreciation?

DSTs are generally income-focused investments, making them ideal for those seeking passive monthly cash flow. Most sponsors target 5%–6% annualized distributions, paid monthly or quarterly, derived from net rental income.

While appreciation is possible upon asset sale, DSTs are structured for stable income, not aggressive growth. That said, institutional-quality real estate in strong markets may still appreciate over time, adding a back-end upside.

If your goal is income now — especially in retirement or during a tax deferral window — DSTs are an excellent fit.