For investors completing a 1031 exchange, a Delaware Statutory Trust (DST) can be an appealing replacement-property option — but it isn't right for everyone, and the honest way to evaluate one is to weigh its genuine benefits against its genuine drawbacks. On the plus side, a DST offers passive ownership (no management), instant diversification, fast and contingency-free closing that helps you meet exchange deadlines, automatic debt replacement without you personally qualifying, low minimums, and the same tax deferral and step-up-in-basis benefits as direct real estate. On the other side, a DST is illiquid with no real secondary market, gives you no control over decisions, carries fees and an upfront load, exposes you to sponsor and market risk, and pays distributions that are projections rather than guarantees. This guide lays out the pros and cons in a balanced way — passive, diversified, fast-closing benefits and debt replacement, against illiquidity, lack of control, fees, and sponsor risk — and helps you decide whether a DST fits your goals. DST interests are securities offered through a broker-dealer to accredited investors after a suitability review; Baker 1031 does not provide tax or legal advice — verify the current rules with your tax advisor.
Pros: Passive, Diversified, Fast to Close
The first set of benefits is what draws many investors to DSTs in the first place: they're passive, diversified, and fast to close. A DST is genuinely passive — the sponsor and trustee handle acquisition, management, leasing, financing, and eventual sale, so you collect distributions without dealing with tenants, maintenance, or the day-to-day burdens of property ownership. For investors tired of being landlords, or for those who want real estate exposure without a second job, this passivity is the central appeal. You own a fractional beneficial interest and let professionals run the asset.
Diversification is the second benefit. Because DSTs have relatively low minimums (often around $25,000 to $100,000), you can split a single exchange across several trusts — different sponsors, property types, and geographies — rather than concentrating everything in one replacement property. That spreads your risk in a way a single direct property purchase can't. The third benefit is speed: a DST is pre-packaged, with the property already acquired and the financing in place, so it can close quickly with no negotiation, financing contingency, or inspection delay. This is enormously valuable for meeting the strict 45-day identification and 180-day closing deadlines — DSTs are frequently used to rescue exchanges where a primary property fell through near the deadline.
So the first set of pros is that DSTs are passive (no management), diversifiable (low minimums across multiple trusts), and fast to close (helping with exchange deadlines). The first pros — DSTs being passive (the sponsor and trustee handle everything, so you collect distributions without landlord duties), diversifiable (low minimums let you spread one exchange across several trusts by sponsor, property type, and geography), and fast to close (pre-packaged, contingency-free, helping you meet the 45- and 180-day deadlines) — are the core appeal for many 1031 investors. Passivity suits those done with management; diversification spreads risk; speed rescues tight exchanges. These first benefits frame why DSTs are popular, setting up the equally important debt-replacement advantage.
A DST's speed is more than convenience — when a primary replacement property falls through with days left on the clock, a pre-packaged DST can be the difference between a completed exchange and a taxable sale.
Pros: Debt Replacement Without Qualifying
A second major advantage, and one that's easy to overlook, is debt replacement without personally qualifying for a loan. To fully defer your gain in a 1031 exchange, you generally must replace both the equity and the debt from your relinquished property — so if you sold a property with a mortgage, you typically need comparable debt on the replacement. With a direct purchase, that means applying for, qualifying for, and personally guaranteeing a new loan, which can be difficult for retirees, investors with limited income documentation, or anyone who'd rather not take on new personal liability.
A leveraged DST solves this elegantly. The trust already holds a non-recourse loan at the trust level, and your fractional beneficial interest includes a proportionate share of that existing debt — so you get the debt replacement you need without applying for, qualifying for, or guaranteeing any loan personally. The lender's recourse is to the property, not to you, so you take on no personal liability for the mortgage. This makes DSTs especially valuable for investors who have substantial equity but would struggle to obtain new financing on their own, or who simply prefer not to. For exchangers whose relinquished property had little or no debt, an all-cash DST is available instead, removing financing risk entirely.
So a key pro is that a leveraged DST provides automatic, passive debt replacement through its non-recourse trust-level loan, with no personal qualifying or liability. Debt replacement without qualifying — a leveraged DST's existing non-recourse, trust-level loan giving your beneficial interest a proportionate share of the debt, so you satisfy the 1031 requirement to replace relinquished-property debt without applying for, qualifying for, or guaranteeing a new loan personally — is a distinctive DST advantage, especially for retirees or investors with limited income documentation. The lender looks to the property, not to you. This benefit, alongside passivity, diversification, and speed, rounds out the pros; the trade-offs come next.
Cons: Illiquidity & No Control
The benefits come with real trade-offs, and the first is illiquidity. A DST interest is not something you can sell on demand — there's no meaningful secondary market for DST interests, so once you invest, you're generally committed until the sponsor sells the property at full cycle, commonly after five to seven or more years. If your circumstances change and you need your capital back, you may have no practical way to exit, or you might only be able to sell at a steep discount, if at all. This illiquidity is a defining feature of DSTs and the main reason they suit only investors who don't need access to the invested capital for the duration of the hold.
The second trade-off, closely related, is lack of control. The same passivity that makes a DST attractive also means you have no say in how the property is managed. The sponsor and trustee make every decision — leasing, capital expenditures, when to refinance (within the IRS restrictions), and when to sell. You can't vote to hold longer, sell sooner, renovate, or change the business plan. Moreover, the IRS 'seven deadly sins' restrictions limit even the trustee's flexibility, so a DST generally can't actively manage its way out of trouble the way a direct owner could. For investors who value control over their real estate, this loss of decision-making authority is a genuine drawback.
So two core cons are illiquidity (no real secondary market, a multi-year commitment) and lack of control (the sponsor and trustee decide everything, within IRS limits). Illiquidity and lack of control — a DST interest having no real secondary market, so you're committed until the sponsor sells at full cycle (often five to seven-plus years), and the sponsor and trustee making every decision while IRS restrictions limit even their flexibility — are the two trade-offs most directly opposite to the benefits of passivity and convenience. You give up access to your capital and any say in management. These cons are the price of the passive, packaged structure, and they lead into the further trade-offs of fees and sponsor risk.
The very thing that makes a DST passive — handing every decision to the sponsor — is the same thing that leaves you without control or a way out until the property sells.
Cons: Fees & Sponsor Risk
The third trade-off is fees and the upfront load. DSTs carry selling commissions, a dealer-manager fee, and organizational and offering costs at the outset, which means not all of your invested capital is deployed directly into the real estate, plus ongoing asset- and property-management fees during the hold and often a disposition fee at sale. These fees reduce your net return, and the upfront load in particular means your investment has to perform well enough to overcome that initial drag. A higher-fee DST isn't necessarily a bad investment if the sponsor and asset are strong, but fees are a real cost you should understand and weigh against the projected return.
The fourth trade-off is sponsor risk — and it's significant precisely because the sponsor controls everything. Sponsors vary widely in track record, financial strength, full-cycle history, fees, and transparency, and your outcome depends heavily on the sponsor's competence and integrity. A weak or overextended sponsor might overpay for a property, use aggressive leverage, manage poorly, or even face financial distress that affects the trust. Beyond sponsor risk, a DST carries the same market, tenant, and financing risks as any real estate: rents and occupancy can fall, property values can decline, leverage amplifies losses, and debt can be hard to refinance. And distributions are projections, not guarantees — they can be cut or suspended if the property underperforms.
So further cons are fees (an upfront load plus ongoing costs that reduce returns) and sponsor risk (your outcome depends on a sponsor who controls everything), alongside market, tenant, and financing risk and unguaranteed distributions. Fees and sponsor risk — DSTs carrying an upfront load and ongoing fees that reduce net returns, and your outcome depending heavily on a sponsor (who varies widely in quality and controls every decision), all atop ordinary market, tenant, and financing risk and distributions that are projections rather than guarantees — complete the trade-offs. Fees create a drag the investment must overcome; sponsor quality can make or break it. These cons, with illiquidity and lack of control, are what a balanced decision must weigh against the benefits.
- Pros: DSTs are passive (no management), diversifiable across multiple trusts at low minimums, and fast to close — a major help with the 45-day deadline.
- Pro: A leveraged DST provides debt replacement through its non-recourse trust-level loan without you personally qualifying or guaranteeing it.
- Cons: DSTs are illiquid (no real secondary market, multi-year hold) and give you no control — the sponsor and trustee decide everything.
- Cons: Fees and an upfront load reduce returns, and sponsor risk is significant; distributions are projections, not guarantees.
Weighing DSTs Against the Alternatives
The pros and cons land differently depending on what you'd otherwise do. Compared with buying a direct replacement property, a DST trades control, liquidity, and the ability to actively manage or improve the asset for passivity, diversification, speed, and effortless debt replacement. If you genuinely want to be a hands-on owner — finding the deal, managing the asset, and capturing operating upside — direct ownership may suit you better. If you're done managing property and value passivity and a quick, certain close, a DST's trade-offs may be well worth it. Neither is universally superior; it depends on what you want from the investment.
Compared with simply paying the tax and investing elsewhere, a DST lets you defer the capital-gains tax (and depreciation recapture) and keep your full equity working in real estate, with a step-up in basis available to heirs if you hold until death — meaningful benefits that the illiquidity and fees must be weighed against. Compared with a REIT, a DST is 1031-eligible like-kind real property (a REIT share is not), so a DST preserves your deferral while a REIT does not, though a REIT offers liquidity a DST lacks. The right framing is not 'is a DST good?' in the abstract, but 'is a DST better than my realistic alternatives, given my goals, my desire for passivity, and my liquidity needs?'
So weighing DSTs against the alternatives — direct ownership, paying the tax, or a REIT — shows the trade-offs are situational, turning on control, liquidity, deferral, and passivity. Weighing DSTs against the alternatives — versus direct ownership (DSTs trade control and liquidity for passivity, diversification, speed, and debt replacement), versus paying the tax (DSTs defer gain and recapture and preserve a step-up, against illiquidity and fees), and versus a REIT (DSTs are 1031-eligible while REIT shares aren't, though REITs offer liquidity) — reframes the decision around your realistic options. No option is universally best. This comparison sets up the balanced conclusion: whether a DST is right for you.
Is a DST Right for You?
Pulling it together, whether a DST is right for you turns on three questions: your goals, how much you value passivity, and your liquidity needs. A DST tends to fit investors who are completing a 1031 exchange and want to defer their gain, who genuinely want passive ownership and are done managing property, who can commit capital for the full multi-year hold without needing liquidity, and who are comfortable ceding control to a sponsor they've diligenced. For these investors, the benefits — passivity, diversification, fast closing, and debt replacement without qualifying — directly address real needs, and the trade-offs are acceptable.
A DST tends to fit less well for investors who want hands-on control or the ability to actively manage and improve an asset, who may need access to their capital during the hold, who can't tolerate the illiquidity, or who aren't comfortable with the fees and the dependence on a sponsor. It's also not a fit for anyone who isn't accredited, since DST interests are securities limited to accredited investors. The honest answer for many investors is 'it depends' — which is exactly why a suitability review exists. That review weighs your financial situation, goals, time horizon, and risk tolerance to determine whether a DST is appropriate, and good due diligence on any specific offering does the rest.
So whether a DST is right for you depends on your goals, your desire for passivity, and your liquidity needs — a balanced judgment, not a one-size-fits-all answer. Whether a DST is right for you — fitting investors who want to defer gain through a 1031 exchange, value passive ownership, can commit capital for the full hold without needing liquidity, and accept ceding control to a diligenced sponsor, while fitting less well those who want control, may need their capital, or can't accept the fees and illiquidity — comes down to goals, passivity, and liquidity. It's an individual judgment confirmed by a suitability review. This balanced conclusion is the point of weighing the pros and cons: a DST is right for some investors and wrong for others, and the honest answer depends on you.
How Baker 1031 Helps You Weigh DST Pros and Cons
Baker 1031 Investments helps investors weigh the pros and cons of DSTs — the benefits of passive, diversified, fast-closing real estate and debt replacement against the trade-offs of illiquidity, lack of control, fees, and sponsor risk — so you can decide whether a DST genuinely fits your goals, passivity preferences, and liquidity needs.
DST interests are securities offered through the broker-dealer, Aurora Securities, Inc. (member FINRA/SIPC), to accredited investors after a suitability review of your financial situation, goals, time horizon, and risk tolerance. We give you a balanced picture rather than a sales pitch: we explain where DSTs shine (passivity, diversification, fast closing for tight exchange deadlines, and debt replacement without personally qualifying) and where their trade-offs matter (illiquidity, no control, fees and the upfront load, sponsor risk, and distributions that are projections rather than guarantees), and we help you compare a DST against your realistic alternatives — direct ownership, paying the tax, or a REIT. Baker 1031 does not provide tax or legal advice; your CPA and attorney handle your specific tax situation, including how the exchange, deferral, and step-up apply to you. We're candid that a DST is right for some investors and wrong for others — neither yields nor returns are promised, distributions can be reduced or suspended, and past performance doesn't guarantee future results. Our role is to help you weigh the pros and cons honestly and invest only when a DST is suitable for you.
Frequently Asked Questions
What are the main pros of a DST?
The main pros of a DST are passivity, diversification, fast closing, debt replacement without qualifying, low minimums, and tax benefits. A DST is genuinely passive — the sponsor and trustee handle management, leasing, financing, and sale, so you collect distributions without landlord duties. Its low minimums (often around $25,000 to $100,000) let you diversify a single exchange across several trusts by sponsor, property type, and geography. It's pre-packaged and contingency-free, so it closes quickly — a major help with the strict 45-day and 180-day exchange deadlines. A leveraged DST provides automatic debt replacement through its non-recourse trust-level loan, without you personally qualifying or guaranteeing it. And a DST offers the same 1031 tax deferral as direct real estate, plus a step-up in basis for heirs if held until death. So the pros directly address real needs for 1031 investors who want passive, diversified real estate. These benefits, though, must be weighed against real trade-offs like illiquidity and fees.
What are the main cons of a DST?
The main cons of a DST are illiquidity, lack of control, fees, and sponsor risk, plus ordinary real estate risk. A DST is illiquid — there's no meaningful secondary market, so you're generally committed until the sponsor sells at full cycle, commonly five to seven or more years; if your circumstances change, you may have no practical way to exit. You have no control: the sponsor and trustee make every decision, and IRS restrictions limit even their flexibility, so a DST can't actively manage its way out of trouble. Fees — an upfront load plus ongoing costs — reduce your net return. Sponsor risk is significant because your outcome depends heavily on a sponsor who controls everything and whose quality varies widely. And a DST carries the same market, tenant, and financing risks as any real estate, with distributions being projections, not guarantees. So the cons are real and must be weighed honestly against the benefits before you decide.
Why are DSTs good for the 45-day deadline?
DSTs are well suited to the 45-day identification deadline because they're pre-packaged and can close quickly, removing the delays that often jeopardize an exchange. With a direct property purchase, you have to find a property, negotiate, arrange financing, complete inspections, and close — any of which can slip past the 45-day window to identify or the 180-day window to close. A DST, by contrast, is already assembled: the sponsor has acquired the property and put the financing in place, so there's no negotiation, financing contingency, or closing delay. You simply identify the DST in writing to your qualified intermediary within 45 days and fund it within 180. This speed and certainty make DSTs a common solution when a primary replacement property falls through near the deadline — they can rescue an exchange that would otherwise fail and become taxable. So a key DST advantage is that its fast, contingency-free closing directly addresses the pressure of the strict exchange deadlines, giving 1031 investors a reliable backstop.
How does a DST provide debt replacement?
A leveraged DST provides debt replacement automatically through its existing non-recourse loan at the trust level. To fully defer your gain in a 1031 exchange, you generally must replace both the equity and the debt from your relinquished property — so if you sold a property with a mortgage, you typically need comparable debt on the replacement. With a direct purchase, that means applying for, qualifying for, and personally guaranteeing a new loan. With a leveraged DST, the trust already holds the debt, and your fractional beneficial interest includes a proportionate share of it — so you satisfy the debt-replacement requirement without applying for, qualifying for, or guaranteeing any loan personally. The lender's recourse is to the property, not to you, so you take on no personal liability. This is especially valuable for retirees or investors with limited income documentation who might struggle to obtain new financing. So a leveraged DST is a passive, automatic way to handle debt replacement. If your relinquished property had little or no debt, an all-cash DST is available instead.
Are DSTs illiquid?
Yes — illiquidity is one of the defining characteristics, and one of the main drawbacks, of a DST. There's no meaningful secondary market for DST interests, so once you invest, you generally can't sell on demand. You're typically committed until the sponsor sells the property at full cycle, commonly after five to seven or more years. If your circumstances change and you need your capital back during the hold, you may have no practical way to exit, or you might only be able to sell at a steep discount, if you can find a buyer at all. This illiquidity is why DSTs suit only investors who don't need access to the invested capital for the full duration of the hold. It's a real constraint, not a technicality — you should treat money placed in a DST as committed for years. So before investing, make sure you won't need that capital during the hold, and consider how a DST's illiquidity fits alongside your other, more liquid assets. The illiquidity is the price of the passive, packaged structure.
Do I have any control over a DST?
No — you have essentially no control over a DST, and this lack of control is a key trade-off. The same passivity that makes a DST attractive means the sponsor and trustee make every decision: how the property is leased and managed, what capital is spent, when (within IRS limits) to refinance, and when to sell. As a beneficial owner, you can't vote to hold longer, sell sooner, renovate, or change the business plan. Moreover, the IRS 'seven deadly sins' restrictions limit even the trustee's flexibility — the trust generally can't raise new capital, renegotiate its debt, or actively reposition the property — so a DST can't manage its way out of trouble the way a direct owner could. For investors who value control over their real estate decisions, this is a genuine drawback. So if hands-on control matters to you, a DST may not be the right fit. The flip side is that this same lack of control is what makes the investment truly passive, which is exactly what many investors want.
What fees does a DST charge, and do they hurt returns?
A DST carries an upfront load and ongoing fees, all disclosed in the PPM, and yes, they reduce your net return. The upfront load typically includes selling commissions, a dealer-manager fee, and organizational and offering costs, which means not all of your invested capital goes directly into the real estate — so your investment has to perform well enough to overcome that initial drag. Ongoing fees commonly include asset-management and property-management fees during the hold, and there may be a disposition fee when the property is sold. These costs are a real factor in your overall return, which is why you should understand them and weigh them against the projected return and the quality of the sponsor and asset. A higher-fee DST isn't automatically a worse investment if the underlying offering is strong, but you should know exactly what you're paying and compare fees across offerings on a like-for-like basis. So fees are a genuine con of DST investing — not necessarily disqualifying, but a cost you must factor into your decision and return expectations.
What is sponsor risk in a DST?
Sponsor risk is the risk that the sponsor — the company that acquires, structures, and manages the DST — performs poorly or runs into trouble, which matters enormously because the sponsor controls every decision. Sponsors vary widely in track record, financial strength, full-cycle history, fees, and transparency, so your outcome depends heavily on the sponsor's competence and integrity. A weak or overextended sponsor might overpay for a property, use aggressive leverage, manage the asset poorly, or face financial distress that affects the trust. Because a DST is passive and you have no control, you can't correct a sponsor's mistakes — which is exactly why vetting the sponsor's track record and full-cycle history is the foundational step in DST due diligence. So sponsor risk is a significant con, and the best defense is diligence: choosing experienced, well-capitalized, transparent sponsors with a proven full-cycle record. Even so, past performance doesn't guarantee future results, so sponsor risk can be managed but never fully eliminated. Diversifying across sponsors also helps reduce it.
Are DST distributions guaranteed?
No — DST distributions are not guaranteed. They are projections based on the property's expected net rental income, and they can be reduced or suspended if the property underperforms — for example, if a tenant defaults or vacates, occupancy falls, expenses rise, or debt service increases on a floating-rate loan. The projected distribution shown in an offering is exactly that: a projection, not a promise. Actual distributions depend on how the underlying real estate performs over the hold, which is subject to market, tenant, and financing risk like any real estate. This is an important point that some investors misunderstand: a DST is a real estate investment, not a fixed-income product, so its income can vary and is not assured. So you should treat any projected distribution as an estimate, size your investment with that uncertainty in mind, and not rely on a DST for income you can't afford to see reduced. Reviewing the durability of the income behind the projection — the tenants, leases, and market — is part of sound due diligence.
How does a DST compare to buying property directly?
A DST and direct ownership offer very different experiences, and the right choice depends on what you want. With a DST, you invest passively — the sponsor and trustee handle everything — and you gain diversification across multiple properties, a fast and contingency-free close that helps with exchange deadlines, and automatic debt replacement without personally qualifying. But you give up control, liquidity, and the ability to actively manage or improve the asset, and you pay fees. With direct ownership, you have hands-on control, the ability to manage and reposition the property and capture operating upside, and potentially lower ongoing fees — but you take on active management, illiquidity, concentration in one property, and the need to personally qualify for financing. So a DST trades control and active upside for passivity, diversification, speed, and easy debt replacement. If you genuinely want to be a hands-on owner, direct ownership may suit you better; if you're done managing property and value passivity, a DST's trade-offs may be worth it. Neither is universally superior.
How does a DST compare to a REIT?
The most important difference between a DST and a REIT is 1031 eligibility. A DST interest is treated as a direct interest in like-kind real property, so it qualifies as replacement property in a 1031 exchange and preserves your tax deferral. A REIT share is a security, not real property, so it is not 1031-eligible — you can't exchange directly into a REIT and defer your gain. That single distinction often decides the matter for an investor with a property sale and capital-gains tax to consider. Beyond that, a REIT (if publicly traded) offers daily liquidity that a DST lacks, and a REIT typically holds a large, diversified portfolio, while a DST holds a specific property or small portfolio. So if your goal is to defer gain from a sale, a DST works and a REIT generally doesn't; if you want liquidity and don't need 1031 treatment, a REIT may suit you. Some investors eventually move from a DST into a REIT via a 721 exchange, combining deferral with later liquidity. The two serve different purposes.
Is a DST a good investment?
Whether a DST is a good investment depends entirely on your situation — there's no universal answer. A DST can be a good investment for an accredited investor completing a 1031 exchange who wants to defer their gain, genuinely values passive ownership, can commit capital for the full multi-year hold without needing liquidity, and is comfortable ceding control to a diligenced sponsor. For that investor, the benefits — passivity, diversification, fast closing, and debt replacement without qualifying — directly address real needs, and the trade-offs of illiquidity, fees, and lack of control are acceptable. A DST is a poor fit for someone who wants hands-on control, may need access to their capital, can't tolerate illiquidity, isn't comfortable with the fees and sponsor dependence, or isn't accredited. So rather than asking whether a DST is good in the abstract, ask whether it's better than your realistic alternatives given your goals, your desire for passivity, and your liquidity needs. A suitability review and good due diligence on the specific offering help answer that for your situation.
Who should consider a DST?
A DST is worth considering for accredited investors completing a 1031 exchange who fit a particular profile. It tends to suit those who want to defer capital-gains tax on a property sale, who genuinely want passive ownership and are done with the burdens of being a landlord, who can commit their capital for the full multi-year hold without needing liquidity, who want to diversify across multiple properties rather than concentrate in one, and who are comfortable letting a diligenced sponsor make the decisions. It's also useful for investors who need debt replacement but would rather not personally qualify for a new loan, and for those facing a tight exchange deadline who need a fast, certain close. It fits less well for investors who want control, may need their capital during the hold, can't accept illiquidity or fees, or aren't accredited. So consider a DST if you value passivity, deferral, and diversification and can accept the trade-offs — and confirm the fit through a suitability review. The honest answer for many investors is that it depends on their specific goals and needs.
Do the pros of a DST outweigh the cons?
Whether the pros outweigh the cons depends entirely on the individual investor — there's no universal verdict, which is exactly why a balanced view matters. For an accredited 1031 investor who wants to defer their gain, genuinely values passive ownership, can leave capital committed for the full multi-year hold, and is comfortable ceding control to a well-diligenced sponsor, the pros — passivity, diversification, fast closing, and debt replacement without qualifying — directly address real needs, and the cons of illiquidity, fees, and lack of control are acceptable trade-offs. For an investor who wants hands-on control, may need access to their capital, can't tolerate illiquidity or the fee drag, or isn't accredited, the cons can outweigh the benefits. The honest way to decide is to compare a DST against your realistic alternatives — direct ownership, paying the tax, or a REIT — in light of your goals, your desire for passivity, and your liquidity needs. So the pros outweigh the cons for some investors and not for others. A suitability review and due diligence on the specific offering help you reach the right answer for your situation.
How does Baker 1031 help me weigh DST pros and cons?
We help investors weigh the pros and cons of DSTs — the benefits of passive, diversified, fast-closing real estate and debt replacement against the trade-offs of illiquidity, lack of control, fees, and sponsor risk — so you can decide whether a DST genuinely fits your goals, passivity preferences, and liquidity needs. DST interests are securities offered through the broker-dealer, Aurora Securities, Inc. (member FINRA/SIPC), to accredited investors after a suitability review of your financial situation, goals, time horizon, and risk tolerance. We give you a balanced picture, not a sales pitch: where DSTs shine and where their trade-offs matter, and how a DST compares to your realistic alternatives — direct ownership, paying the tax, or a REIT. Baker 1031 does not provide tax or legal advice; your CPA and attorney handle your specific tax situation, including deferral and step-up. We're candid that a DST is right for some investors and wrong for others — neither yields nor returns are promised, distributions can be reduced or suspended, and past performance doesn't guarantee future results. Our role is to help you decide honestly.
Glossary
- Delaware Statutory Trust (DST)
- A trust holding income-producing real estate, with 1031-eligible beneficial interests.
- Passive Ownership
- Holding real estate without managing it, as in a DST.
- Diversification
- Spreading an exchange across multiple DSTs to reduce risk.
- Low Minimum
- A DST's typical entry point, often around $25,000 to $100,000.
- Fast Closing
- A DST's pre-packaged, contingency-free ability to close quickly.
- Debt Replacement
- Satisfying 1031 debt requirements via the DST's trust-level loan.
- Non-Recourse Loan
- Trust-level debt for which investors aren't personally liable.
- Illiquidity
- The inability to readily sell a DST interest before full cycle.
- Lack of Control
- Investors' inability to make a DST's management decisions.
- Seven Deadly Sins
- IRS restrictions limiting what a DST trustee may do.
- Load
- The upfront fees and commissions on a DST offering.
- Sponsor Risk
- The risk that the controlling sponsor performs poorly.
- Distribution
- Your share of the DST's net rental income (a projection).
- Full Cycle
- When the sponsor sells the DST property, ending the investment.
- Step-Up in Basis
- The basis reset to fair market value for heirs at death.
- Suitability Review
- Assessing whether a DST fits the investor's situation.
Sources & References
- IRS. Revenue Ruling 2004-86 (Delaware Statutory Trusts)
- FINRA. Real Estate Investments
- Cornell Legal Information Institute. 26 U.S. Code § 1031 — Exchange of real property held for productive use or investment
- U.S. Securities and Exchange Commission. Investor.gov — Updated Investor Bulletin: Accredited Investors
Disclosures
This article is published by Baker 1031 Investments, LLC for general educational purposes for accredited investors and is not an offer to sell or a solicitation of an offer to buy any security, nor is it tax, legal, accounting, or investment advice or a recommendation. Any securities offering is made solely through a sponsor’s private placement memorandum (PPM) following a suitability determination. Securities offered through Aurora Securities, Inc. (ASI), member FINRA / SIPC; Baker 1031 Investments is independent of ASI.
Oil & gas mineral and royalty interests and DST programs are speculative, illiquid securities sold only to verified accredited investors and involve substantial risk, including possible loss of principal, commodity-price and production-decline risk, lack of control, and the risk that an intended 1031 exchange fails to qualify for tax deferral. Whether a particular interest qualifies as like-kind real property is a fact-specific legal determination that varies by state and by the terms of the instrument. Tax results depend on your individual circumstances. Consult your own CPA and attorney before acting. Past performance does not guarantee future results.
