The DST-to-721 strategy — reaching REIT ownership tax-deferred from direct property via a DST — is a journey that unfolds over time, with distinct phases and milestones. Understanding the full timeline, from your initial property sale through eventually holding (and potentially converting) REIT OP units, helps you set realistic expectations and plan. The journey includes the deadline-bound 1031 sale and DST exchange (45/180 days), a period of holding the DST, the 721 exit when the DST is acquired by a REIT, a lock-up period on the OP units, and eventually the conversion (or continued holding) of the units. This guide walks through the DST-to-721 timeline chronologically, phase by phase, so you understand what happens when across the full journey from exchange to REIT units.
The full journey overview
The DST-to-721 journey spans several phases from your property sale to holding REIT OP units. In overview: you sell your property and do a 1031 exchange into a DST (Phase 1, deadline-bound), hold the DST (Phase 2), the DST is acquired by a REIT in the 721 exit (Phase 3), you hold the OP units through a lock-up (Phase 4), and eventually you convert or continue holding the units (Phase 5). So the journey runs from the 1031 sale through the 721 exit into ongoing OP unit ownership.
The total timeline varies — the deadline-bound 1031 step is fast (within 180 days), but the DST holding period and the 721 exit timing are open-ended (the 721 exit happens on the DST/REIT's schedule, potentially years later), and the OP unit holding is indefinite. So the journey can span years, with some phases time-bound (the 1031) and others open-ended (the DST hold, the 721 exit, the OP unit hold).
Understanding the full journey's phases and their timing helps you set realistic expectations for reaching and holding REIT units. So the overview frames the chronological walkthrough that follows. The full journey overview — the 1031 sale and DST exchange (Phase 1), holding the DST (Phase 2), the 721 exit (Phase 3), the OP unit lock-up (Phase 4), and conversion or holding (Phase 5) — spans the path from property sale to REIT units, over a timeline that can run years. The journey has time-bound and open-ended phases. Understanding the overview sets up the phase-by-phase walkthrough. The DST-to-721 journey runs through distinct phases over a multi-year timeline, from the deadline-bound 1031 to ongoing OP unit ownership.
Phase 1: The 1031 sale and DST exchange
Phase 1 is the deadline-bound 1031 exchange into a DST, the journey's start. You sell your relinquished property, and within the 1031 deadlines — 45 days to identify the DST (and any backups), 180 days to close — you exchange into a DST structured for a 721 exit. This phase is time-pressured (the 45/180-day deadlines apply), but the DST's speed and certainty make meeting them manageable.
So Phase 1 involves engaging a qualified intermediary before selling, selling the relinquished property, identifying the DST within 45 days, and closing on the DST within 180 days. The gain is deferred under Section 1031, and you transition from your property into a passive DST interest. The DST should be one structured for a 721/UPREIT exit (so Phase 3 can happen).
Phase 1 is the only deadline-bound phase of the journey — once you're in the DST, the subsequent phases (holding, the 721 exit) aren't deadline-pressured. So Phase 1 is the time-critical start, completed within 180 days. Phase 1: the 1031 sale and DST exchange — selling your property and exchanging into a DST (structured for a 721 exit) within the 45/180-day deadlines, deferring the gain under Section 1031 — is the deadline-bound start of the journey. It's the only time-pressured phase. Understanding Phase 1 shows the journey's start. Phase 1 is the deadline-bound 1031 exchange into the DST (within 45/180 days), the time-critical start of the DST-to-721 journey.
Phase 1 — the 1031 sale and exchange into a DST — is the only deadline-bound phase, with the familiar 45/180-day clock; once you're in the DST, the rest of the journey isn't deadline-pressured.
Phase 2: Holding the DST
Phase 2 is holding the DST, the period between the 1031 exchange and the 721 exit. After closing on the DST (Phase 1), you hold your DST interest — earning distributions (passive income from the DST's property), with the gain deferred (under Section 1031). So during Phase 2, you're a passive DST investor, enjoying the income and deferral.
The duration of Phase 2 is open-ended — it lasts until the 721 exit (Phase 3) occurs, which depends on the DST/REIT structure and the sponsor's plans (potentially a few years, or a less defined timeline). So you hold the DST for however long until the REIT acquires it. This holding period is also relevant for the step-transaction analysis (a genuine DST investment with real duration supports the strategy's structure).
So Phase 2 is the open-ended DST holding period — passive income and deferral while you wait for the 721 exit. Understanding its open-ended nature helps you set expectations for when you'll reach the REIT. Phase 2: holding the DST — being a passive DST investor (earning distributions, deferring the gain) for the open-ended period until the 721 exit — is the journey's middle phase. Its duration depends on the 721 exit's timing. Understanding Phase 2 shows the DST-holding period. Phase 2 is the open-ended period of holding the DST (passive income, deferral) until the 721 exit, the journey's middle phase.
Phase 3: The 721 exit
Phase 3 is the 721 exit, when the DST is acquired by the REIT and you transition into OP units. At some point during Phase 2 (the DST holding), the REIT acquires the DST's property — and your DST interest is converted into OP units in the REIT's operating partnership, under Section 721, deferring the gain again. So Phase 3 is the transition from the DST into the REIT.
After Phase 3, you hold OP units in the REIT — a stake in the REIT's diversified portfolio, with the REIT-ownership benefits (diversification, the path to liquidity, etc.). So you've moved from the single DST into the broad REIT. The 721 exit completes your transition into REIT ownership, the journey's pivotal step.
The timing of Phase 3 isn't always fixed (it depends on the DST/REIT structure and the sponsor's decision to acquire the DST), so it occurs on the structure's schedule, not a deadline. Understanding when Phase 3 is expected (from the DST's structure) helps you anticipate reaching the REIT. Phase 3: the 721 exit — the REIT acquiring the DST and converting your interest into OP units (under Section 721, deferring the gain), transitioning you into REIT ownership — is the pivotal step reaching the REIT. Its timing is structure-driven. Understanding Phase 3 shows the transition into the REIT. Phase 3 is the 721 exit, transitioning you from the DST into REIT OP units, the pivotal step of the journey.
Phase 4: Holding OP units (lock-up)
Phase 4 is holding the OP units, beginning with a lock-up period. After the 721 exit (Phase 3), you hold OP units in the REIT, and there's typically a lock-up period (often around a year) before you can convert them to REIT shares. During the lock-up, you hold the units (earning distributions, deferring the gain) but can't yet convert. So Phase 4 begins with this initial holding requirement.
After the lock-up, you continue holding the OP units (Phase 4 extends indefinitely if you don't convert) — earning distributions, with the deferral continuing, potentially toward the step-up at death. So Phase 4 is the ongoing OP unit holding period, starting with the lock-up and continuing as long as you hold the units.
So Phase 4 is where you settle into REIT ownership as an OP unit holder — earning income, deferring the gain, after the journey's transitions. The lock-up delays the conversion liquidity initially, then you hold (or convert in Phase 5). Phase 4: holding OP units (lock-up) — holding the units starting with the lock-up period (no conversion yet), then continuing to hold (earning distributions, deferring) — is the ongoing OP unit ownership phase. It begins with the lock-up. Understanding Phase 4 shows settling into REIT ownership. Phase 4 is holding the OP units (starting with the lock-up), the ongoing REIT-ownership phase of the journey.
- Phase 1: the 1031 sale and DST exchange (45/180-day deadlines) — the only deadline-bound phase.
- Phase 2: holding the DST (passive income, deferral) for the open-ended period until the 721 exit.
- Phase 3: the 721 exit (the REIT acquiring the DST, converting your interest into OP units) — the pivotal step into the REIT.
- Phase 4: holding OP units (starting with a lock-up); Phase 5: converting for liquidity (taxable) or holding toward the step-up.
Phase 5: Conversion and liquidity
Phase 5 is conversion and liquidity, the journey's final phase where you access value (or continue holding). After the lock-up (Phase 4), you can convert your OP units to REIT shares — for liquidity (selling the shares, for a traded REIT) — though converting triggers the deferred gain (taxable). So Phase 5 is where you access liquidity via conversion, if and when you want it.
You can convert gradually (tax-smartly, for liquidity over time), convert more as needed, or continue holding the units (deferring, earning income) — potentially toward the step-up at death (avoiding the gain). So Phase 5 is open-ended and flexible — convert for liquidity (taxable) or hold for deferral (toward the step-up), as your needs dictate.
So Phase 5 is the ongoing management of your OP units — accessing liquidity (converting) or preserving deferral (holding) — the journey's flexible endpoint. The journey thus ends not at a fixed point but in ongoing OP unit ownership with the conversion option. Phase 5: conversion and liquidity — accessing liquidity by converting units to shares (taxable) or continuing to hold (deferring, toward the step-up), flexibly as your needs dictate — is the journey's final, open-ended phase. It's where you manage your liquidity and tax. Understanding Phase 5 completes the timeline. Phase 5 is the flexible conversion-and-liquidity phase, where you access value (converting, taxable) or preserve deferral (holding), the journey's endpoint.
How Baker 1031 helps through the timeline
Baker 1031 Investments helps investors navigate the full DST-to-721 timeline — guiding the deadline-bound 1031 exchange into a DST (Phase 1), the DST holding (Phase 2), the 721 exit (Phase 3), the OP unit lock-up and holding (Phase 4), and the conversion and liquidity (Phase 5). We help you understand and manage each phase, with realistic expectations for the journey's timing.
DST interests, REIT units, and related securities are offered through the broker-dealer, Aurora Securities, Inc. (member FINRA/SIPC), and any recommendation follows a suitability review — the DST and 721 steps involve securities, available to suitable investors after a review. We coordinate with your qualified intermediary (Phase 1's deadlines), CPA (the tax across the journey), and the REIT/DST sponsors. Our role is to help you navigate the DST-to-721 journey from start to finish — the deadline-bound 1031, the DST holding, the 721 exit, the OP unit holding, and the conversion — so you understand what happens when and manage each phase. The journey spans years with distinct phases, and we help you through them, so your transition from property to REIT units is well-managed across the full timeline.
Frequently Asked Questions
What is the DST-to-721 timeline?
The journey from your property sale to holding REIT OP units, in phases: Phase 1 (the 1031 sale and DST exchange, within 45/180 days), Phase 2 (holding the DST, open-ended, until the 721 exit), Phase 3 (the 721 exit, the REIT acquiring the DST and converting your interest to OP units), Phase 4 (holding OP units, starting with a lock-up), and Phase 5 (conversion for liquidity, or continued holding). So the timeline runs from the deadline-bound 1031 through the 721 exit into ongoing OP unit ownership, potentially spanning years. Understanding the phases helps you set realistic expectations.
How long does the whole DST-to-721 journey take?
It varies — the 1031 step (Phase 1) is fast (within 180 days), but the DST holding (Phase 2) and the 721 exit (Phase 3) are open-ended (the exit happens on the DST/REIT's schedule, potentially a few years), and the OP unit holding (Phases 4-5) is indefinite. So the journey can span years, with the time to reach the REIT (the 721 exit) depending on the DST/REIT structure. So there's no fixed total duration — the deadline-bound 1031 is quick, but reaching the REIT and holding the units extends over years. Understand the expected 721 exit timing for your DST.
Which phase has deadlines?
Only Phase 1 — the 1031 sale and DST exchange, with the 45-day identification and 180-day completion deadlines (since it's a like-kind exchange). The subsequent phases (holding the DST, the 721 exit, holding the OP units) don't have statutory deadlines — they unfold on the DST/REIT's schedule and your choices. So the only time-pressured phase is the initial 1031 into the DST; once you're in the DST, the rest isn't deadline-bound. This means the deadline management focuses on Phase 1, after which the journey proceeds without that pressure.
What happens during the DST holding phase?
During Phase 2 (holding the DST), you're a passive DST investor — earning distributions (passive income from the DST's property), with the gain deferred (under Section 1031). You hold the DST until the 721 exit (Phase 3) occurs. The duration is open-ended (depending on when the REIT acquires the DST). This holding period also supports the strategy's structure (a genuine DST investment with real duration). So Phase 2 is passive income and deferral while you wait for the 721 exit, the journey's middle phase. You enjoy the DST's benefits during this period.
When does the 721 exit happen?
Phase 3 (the 721 exit) happens when the REIT acquires the DST's property, which depends on the DST/REIT structure and the sponsor's plans — potentially a few years after the DST exchange, on a structure-driven (not deadline) schedule. So the timing isn't always fixed. Understanding the expected 721 exit timing (from the DST's structure) before investing helps you anticipate reaching the REIT. The 721 exit is the pivotal step transitioning you from the DST into the REIT (OP units). Its timing is governed by the DST/REIT structure, so confirm the expected exit when choosing the DST.
What is the lock-up in the timeline?
After the 721 exit (Phase 3), you hold OP units, and Phase 4 begins with a lock-up period (often around a year) before you can convert the units to REIT shares. During the lock-up, you hold the units (earning distributions, deferring) but can't convert. After the lock-up, you can convert (Phase 5) or continue holding. So the lock-up is the initial holding requirement after reaching the REIT, delaying the conversion liquidity. It's part of Phase 4 (holding the OP units), the period after the 721 exit before conversion becomes available.
When can I get liquidity in the journey?
Conversion liquidity (Phase 5) becomes available after the OP unit lock-up (which follows the 721 exit). So you can access liquidity (by converting units to shares and selling, for a traded REIT) after the lock-up — which is well into the journey (after Phase 1's 1031, Phase 2's DST holding, Phase 3's 721 exit, and Phase 4's lock-up). Before that, your liquidity is the distributions (income) along the way. So conversion liquidity comes late in the journey (after the lock-up); plan accordingly, not relying on principal liquidity until then. The distributions provide income throughout, but conversion liquidity comes after the lock-up.
Is the journey the same for everyone?
The phases are similar, but the timing varies — the 1031 step (Phase 1) is consistently deadline-bound (45/180 days), but the DST holding (Phase 2) and 721 exit (Phase 3) timing depend on the specific DST/REIT structure (varying by offering), and the OP unit holding/conversion (Phases 4-5) depend on your choices. So while the phases are common to the DST-to-721 path, the durations (especially reaching the REIT) vary by the DST/REIT and your decisions. So your journey's timing depends on the specific structure and your choices, even though the phases are shared. Understand your specific DST's expected timeline.
Can I exit the journey early?
At certain points, with consequences. During the DST holding (Phase 2), the DST is generally illiquid (you typically can't easily exit until the DST resolves). After reaching the OP units (Phase 4-5), you can convert and sell (triggering the gain) to exit. So exiting early is limited — the DST is illiquid during Phase 2, and exiting the OP units (Phase 5) triggers the tax. So the journey isn't easily reversible mid-stream; the DST and OP units are longer-term holdings. If you might need to exit, understand the limited liquidity at each phase. The journey is designed as a longer-term commitment, with limited early-exit options.
How does Baker 1031 help through the timeline?
We help you navigate the full DST-to-721 journey — guiding the deadline-bound 1031 exchange into a DST (Phase 1), the DST holding (Phase 2), the 721 exit (Phase 3), the OP unit lock-up and holding (Phase 4), and the conversion and liquidity (Phase 5). We help you understand and manage each phase with realistic timing expectations. DST interests and REIT units are offered through the broker-dealer (Aurora Securities, member FINRA/SIPC) after a suitability review. We coordinate with your QI (Phase 1's deadlines), CPA (the tax), and the sponsors. We help you through the multi-year journey from property to REIT units, so each phase is well-managed.
Can the 721 exit happen automatically, or do I have to act?
It depends on the DST/REIT structure. In many DST-to-721 structures, the 721 exit is built into the structure — the REIT has the option (or plan) to acquire the DST, and when it does, your DST interest converts into OP units largely automatically (per the structure's terms), without you having to initiate it. So in those structures, you don't trigger the exit; it happens per the structure when the REIT acquires the DST. The specifics vary by offering, so review the DST's documents to understand how and when the 721 exit is expected to occur, and whether any action is needed on your part. Generally the exit follows the structure's terms rather than requiring you to act.
What if I want to stay in the DST and not move to the REIT?
That depends on the structure — in many DST-to-721 structures, the 721 exit (the REIT acquiring the DST) is part of the design, so staying in the DST indefinitely may not be an option (the DST is expected to resolve via the 721 exit). So if you prefer to stay in a DST without moving to a REIT, a DST-to-721 structure may not fit — a standalone DST (without a planned 721 exit) might suit you better. So understand, before investing, whether the structure contemplates a 721 exit (moving you to the REIT) or allows staying in the DST. If you don't want the REIT endpoint, choose a structure accordingly. The DST-to-721 path is designed to reach the REIT, so it fits those who want that endpoint.
Does the timeline restart the 1031 deadlines at the 721 exit?
No — the 45/180-day deadlines apply only to the initial 1031 exchange (Phase 1, into the DST). The 721 exit (Phase 3) is governed by Section 721 (a contribution to a partnership), not Section 1031, so it doesn't have the 45/180-day deadlines — it happens on the DST/REIT's schedule. So you don't face a new set of 1031 deadlines at the 721 exit; the deadline pressure is only at the initial 1031 step. After Phase 1, the journey proceeds without the 1031 clock. So the 1031 deadlines are a one-time, front-end consideration, not something that recurs at the 721 exit or later phases of the journey.
How should I plan around the journey's timeline?
Plan for the deadline-bound start (Phase 1, the 1031 — engage a QI early, identify the DST within 45 days, close within 180), then for the open-ended middle (Phase 2, the DST holding, and Phase 3, the 721 exit, on the structure's schedule — understand the expected exit timing), then for the OP unit phases (Phase 4's lock-up before conversion, Phase 5's conversion tax). Key planning points: meet the front-end 1031 deadlines, understand the expected 721 exit timing, don't rely on principal liquidity until after the lock-up, and plan the conversion tax (or holding toward the step-up). So plan phase by phase, with the deadline focus on Phase 1 and liquidity expectations set realistically for the later phases.
Glossary
- DST-to-721 Journey
- The full path from property sale to REIT OP units.
- Phase 1
- The 1031 sale and DST exchange (45/180-day deadlines).
- Phase 2
- Holding the DST until the 721 exit (open-ended).
- Phase 3
- The 721 exit into the REIT (OP units).
- Phase 4
- Holding OP units, starting with the lock-up.
- Phase 5
- Conversion and liquidity (or continued holding).
- 45/180-Day Deadlines
- The 1031 deadlines in Phase 1.
- Qualified Intermediary
- The party handling Phase 1's 1031 mechanics.
- DST Holding Period
- Phase 2's open-ended wait for the 721 exit.
- 721 Exit
- Phase 3's transition from the DST into the REIT.
- Lock-Up Period
- Phase 4's initial wait before converting units.
- Conversion
- Phase 5's exchange of units for shares (taxable).
- Continuous Deferral
- The gain deferred across the journey's phases.
- Open-Ended Timing
- The non-deadline timing of Phases 2-5.
- Distributions
- The income earned throughout the journey.
- Structure-Driven
- The 721 exit timing set by the DST/REIT structure.
Sources & References
- Cornell Legal Information Institute. 26 CFR § 1.1031(k)-1 — (1031 deadlines)
- Cornell Legal Information Institute. 26 U.S. Code § 721 — Nonrecognition of gain or loss on contribution
- IRS. Revenue Ruling 2004-86 (Delaware Statutory Trusts)
- U.S. Securities and Exchange Commission. Investor.gov — Real Estate Investment Trusts (REITs)
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.
