When you sell investment real estate and complete a 1031 exchange, you face a choice about what kind of replacement property to acquire. The traditional path is direct ownership — buying another building you hold and manage yourself. An increasingly popular alternative is a Delaware Statutory Trust (DST), where you buy a fractional beneficial interest in professionally managed institutional real estate that qualifies as like-kind replacement property under IRS Revenue Ruling 2004-86. Both defer your capital-gains tax. What separates them is everything else: whether you stay an active landlord or become a passive investor, how much management you take on, how diversified you are, how much control and liquidity you keep, and what minimum capital each requires. This guide compares DSTs and direct ownership as 1031 replacement property across active vs. passive ownership, management burden, diversification and minimums, control and liquidity trade-offs, and which fits your goals. Note that 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 advisor.
Active vs. Passive Replacement Property
The most fundamental difference between a DST and direct ownership as 1031 replacement property is whether you stay active or become passive. With direct ownership, you buy and hold a specific building — a rental property, a commercial building, a net-lease asset — and you are the owner-operator. You make the decisions, sign the leases, hire the management, and bear the day-to-day responsibilities of running real estate. The exchange defers your tax, but you remain an active landlord.
A DST flips that. When you exchange into a DST, you acquire a fractional beneficial interest in a trust that already owns income-producing real estate, and a professional sponsor handles every aspect of operating it through a master lease structure. You receive your pro-rata share of the net rental income, but you make no operating decisions and carry no landlord duties. IRS Revenue Ruling 2004-86 makes a DST beneficial interest like-kind real property, so it qualifies as 1031 replacement property — letting you defer the same capital-gains tax while becoming entirely passive.
So the active-versus-passive split is the starting point: direct ownership keeps you in the operator's seat, while a DST moves you to a passive, professionally managed position with the same tax deferral. So this distinction frames the whole comparison. Active versus passive replacement property — direct ownership making you the active owner-operator of a specific building (signing leases, managing operations, bearing responsibilities) versus a DST making you a passive holder of a fractional interest in sponsor-managed real estate that qualifies for 1031 under Revenue Ruling 2004-86 — is the most fundamental difference. Both defer the tax; only one keeps you active. Understanding it frames the comparison. Direct ownership keeps you an active landlord of a specific building, while a DST makes you a passive investor in professionally managed real estate — both qualify as 1031 replacement property and defer the same capital-gains tax.
Management Burden Compared
Management burden is where the active-versus-passive distinction becomes concrete. Direct ownership means you are responsible — directly or through a property manager you hire and oversee — for everything the property requires: finding and screening tenants, negotiating and renewing leases, collecting rent, handling repairs and capital expenditures, paying taxes and insurance, complying with regulations, and dealing with problems when they arise. Even with a property manager, you remain the decision-maker, and the buck stops with you.
A DST removes that burden entirely. The sponsor, operating through a master lease arrangement, handles all leasing, management, maintenance, and operations of the underlying property. You receive distributions of your share of the current cash flow without ever fielding a tenant call, approving a roof repair, or signing a lease. This is a deliberate feature of the DST structure: because Revenue Ruling 2004-86 restricts the trust from taking certain actions (the 'seven deadly sins,' including negotiating new leases), the master lease handles operations so the trust stays compliant. So a DST is genuinely hands-off, while direct ownership — even when delegated — keeps you in charge.
So management burden is heavy and ongoing with direct ownership but essentially zero with a DST — a major consideration for investors tired of landlording. So weighing the workload is central to the choice. Management burden compared — direct ownership requiring you to handle (or oversee) tenants, leases, rent collection, repairs, taxes, insurance, and compliance as the responsible decision-maker, versus a DST removing that burden entirely through the sponsor's master lease structure (which also keeps the trust compliant with Revenue Ruling 2004-86) — distinguishes the two sharply. Direct ownership is hands-on; a DST is hands-off. Understanding the workload is central to the choice. Direct ownership keeps you responsible for tenants, leases, repairs, and compliance even when delegated, while a DST removes the management burden entirely through the sponsor's master lease — making it genuinely passive.
The difference is simplest to feel on a Saturday night when a tenant calls about a burst pipe: with a directly owned building, that call is yours; with a DST, it never reaches you.
Diversification & Minimums
Diversification and minimum investment differ markedly between the two. With direct ownership, your exchange proceeds typically go into a single replacement property — one building in one market. That concentrates your capital and your risk in one asset, one tenant base, and one local economy. Buying multiple replacement properties to diversify usually requires substantial capital and multiple separate closings within the strict 1031 timeline, which is difficult to coordinate.
A DST changes the math. DST minimums are typically modest — often in the range of roughly $25,000 to $100,000 — so a single exchange can be spread across several DSTs holding different property types (multifamily, industrial, net-lease retail, medical office) in different markets. That lets a 1031 investor build genuine diversification across sponsors, sectors, and geographies from one exchange, rather than betting everything on one building. Each DST holds institutional-quality real estate that would be out of reach for most individual buyers. So a DST makes diversification practical at accessible minimums, while direct ownership tends toward concentration unless you have large capital.
So diversification favors the DST decisively — low minimums let one exchange spread across many institutional assets, while direct ownership usually concentrates proceeds in a single building. So diversification and minimums are a key axis of comparison. Diversification and minimums — direct ownership typically concentrating exchange proceeds in a single building in one market (with diversification requiring large capital and multiple timed closings), versus a DST offering modest minimums (often roughly $25,000 to $100,000) that let one exchange spread across several DSTs in different sectors and markets — distinguish the two. DSTs make diversification accessible; direct ownership tends to concentrate. Understanding this is a key axis. A DST's low minimums let a single 1031 exchange diversify across several institutional properties, sponsors, and markets, while direct ownership usually concentrates proceeds in one building unless you have substantial capital.
Control and Liquidity Trade-Offs
Control and liquidity are where direct ownership holds an advantage. As a direct owner, you control the asset: you decide when to refinance, renovate, re-tenant, or sell, and you can adjust strategy as conditions change. You also retain the ability to sell the property whenever you choose (subject to market conditions), giving you a path to liquidity — and you can refinance to pull out equity. You capture all the upside and bear all the downside, but the decisions are yours.
A DST trades that control and liquidity away. As a passive fractional investor, you have no say in the property's operation, financing, or sale timing — those decisions rest with the sponsor, and Revenue Ruling 2004-86 restricts the trust from actions like refinancing or renegotiating debt. A DST is also illiquid: there's little or no secondary market, so you generally remain invested until the sponsor sells the property at the end of the hold (commonly around five to seven years). You can't readily exit early or tap your equity. So direct ownership offers control and a liquidity path; a DST offers neither, in exchange for passivity.
So the trade-off is clear: direct ownership keeps control and a route to liquidity, while a DST surrenders both for a hands-off, professionally managed experience. So weighing control and liquidity against passivity is essential. Control and liquidity trade-offs — direct ownership preserving full control (refinancing, re-tenanting, sale timing) and a liquidity path (you can sell or refinance), versus a DST surrendering control to the sponsor (with Revenue Ruling 2004-86 restricting refinancing and lease decisions) and being illiquid until the sponsor sells at the end of the hold — distinguish the two. Direct ownership keeps control and liquidity; a DST trades them for passivity. Understanding this trade-off is essential. Direct ownership preserves control over the asset and a path to liquidity, while a DST surrenders both — you can't direct operations or exit early, remaining invested until the sponsor sells, typically after five to seven years.
- Both a DST and a directly owned building qualify as 1031 replacement property and defer the same capital-gains tax — the difference is everything else.
- Direct ownership keeps you an active landlord with full control and a liquidity path; a DST makes you a passive investor with no management burden but no control or early exit.
- DSTs offer accessible minimums (often roughly $25,000 to $100,000) and easy diversification across sectors and markets; direct ownership tends to concentrate capital in one building.
- DST interests are securities offered through a broker-dealer to accredited investors after a suitability review; direct ownership has no such gate but carries hands-on responsibilities.
Closing Speed and the 1031 Timeline
Closing speed is an underappreciated difference that matters within the strict 1031 deadlines. A 1031 exchange gives you 45 days to identify replacement property and 180 days to close. With direct ownership, you must find, negotiate, conduct due diligence on, finance, and close on a specific building within that window — a process that can be slow, competitive, and uncertain, with real risk that a deal falls through and jeopardizes your exchange.
A DST can close quickly — often in a matter of days — because the property is already acquired, the financing is already in place, and you're simply subscribing for a fractional interest. This makes DSTs valuable as a backup identification: a 1031 investor can identify one or more DSTs alongside a direct purchase, so that if the direct deal collapses, the DST can be closed fast to preserve the exchange. The DST's non-recourse debt is also already arranged, so you satisfy any debt-replacement requirement without personally qualifying for a new loan. So a DST offers speed and certainty of closing that a direct purchase often can't match within the timeline.
So closing speed favors the DST — it can close in days and serve as a timeline-saving backup, while a direct purchase carries the slower, riskier process of buying a specific building. So closing certainty is a meaningful practical factor. Closing speed and the 1031 timeline — a DST closing quickly (often in days) because the property and financing are already in place, making it a valuable backup identification that satisfies debt replacement with pre-arranged non-recourse debt, versus direct ownership requiring a slower, competitive, uncertain process to close a specific building within the 45- and 180-day deadlines — distinguish the two. DSTs offer speed and certainty; direct purchases carry timeline risk. Understanding this is a practical factor. A DST can close in days and serve as a backup to protect your exchange deadline, while a direct purchase risks falling through within the strict 45- and 180-day windows.
When the 45-day clock is ticking and a direct deal wobbles, a pre-packaged DST that can close in days is the difference between completing your exchange and owing the tax you set out to defer.
Which Fits Your Goals
Which option fits depends on what you want from your replacement property. Direct ownership tends to suit an investor who wants control, is comfortable with (or even enjoys) active management, wants the ability to refinance and sell on their own timeline, and is willing to concentrate capital in a building they choose. It fits those who value hands-on involvement and the full upside of a specific asset, and who don't need passivity or instant diversification.
A DST tends to suit an investor who wants out of active landlording — who is ready to trade control for a hands-off, professionally managed income stream, values diversification across multiple institutional properties at accessible minimums, needs to close quickly to meet a 1031 deadline, and doesn't require liquidity during the hold. It's especially common for aging investors simplifying their estate, those relocating, or anyone who wants real estate income without the work. Many investors blend the two — placing some exchange proceeds in a direct property and some in DSTs. So the choice turns on your appetite for control versus passivity, concentration versus diversification, and your timeline.
So direct ownership fits the control-and-active investor, while a DST fits the passive, diversification-and-simplicity investor — and a blend can serve both. So matching the vehicle to your goals is the decision. Which fits your goals — direct ownership suiting investors who want control, accept active management, and value the full upside of a chosen building, versus a DST suiting investors ready to trade control for passive, diversified, professionally managed income at accessible minimums with fast closing (with a blend serving both) — depends on your appetite for control versus passivity and your timeline. Match the vehicle to your goals. Understanding this guides the decision. Choose direct ownership for control and active management of a chosen building; choose a DST for passive, diversified, professionally managed income with fast closing — or blend both across one exchange.
How Baker 1031 Helps You Compare DSTs and Direct Ownership
Baker 1031 Investments helps investors compare DSTs and direct ownership as 1031 replacement property — the active-versus-passive distinction, the management burden, the diversification and minimums, the control and liquidity trade-offs, the closing-speed advantage, and which fits your goals — so you can choose the replacement strategy that matches your appetite for control, your need for passivity, and your 1031 timeline.
DST interests are securities offered through the broker-dealer, Aurora Securities, Inc. (member FINRA/SIPC), to accredited investors after a suitability review, while direct property purchases are handled outside the securities framework. We help you understand the trade-offs, evaluate DST offerings (the properties, sponsors, fees, debt, and structure), and, if a DST is suitable for you, access it — including using DSTs as a fast-closing backup to protect your exchange deadline. Baker 1031 does not provide tax or legal advice; your CPA and qualified intermediary handle your specific 1031 eligibility, deadlines, and tax treatment, which are technical and time-sensitive. We're candid that DSTs are illiquid, surrender control, and carry fees, while direct ownership keeps control but carries management burden and concentration. Distributions and returns are never guaranteed — they're projections only, past performance doesn't guarantee future results, and you should verify current rules. Our role is to help you compare the two clearly and invest only when suitable for your goals.
Frequently Asked Questions
Can a DST be used as 1031 replacement property?
Yes — a DST (Delaware Statutory Trust) interest qualifies as like-kind replacement property in a 1031 exchange. Under IRS Revenue Ruling 2004-86, a beneficial interest in a properly structured DST is treated as a direct interest in real property, so it counts as like-kind real estate for 1031 purposes. This lets you sell appreciated investment real estate and reinvest the proceeds into a DST to defer the capital-gains tax you'd otherwise owe — just as you could with a directly owned building. The difference is that you become a passive fractional investor in professionally managed real estate rather than the owner-operator of a specific property. DST interests are securities, so they're offered through a broker-dealer to accredited investors after a suitability review. So a DST is a fully valid 1031 replacement option, popular with investors who want to defer tax while shifting from active landlording to passive ownership. Confirm your specific eligibility and timeline with your tax advisor and qualified intermediary.
What is the main difference between a DST and direct ownership?
The main difference is active versus passive ownership. With direct ownership, you buy and hold a specific building and remain the owner-operator — you sign leases, manage operations, control decisions, and bear the responsibilities of being a landlord, even if you hire a property manager. With a DST, you buy a fractional beneficial interest in a trust that owns income-producing real estate, and a professional sponsor handles all operations through a master lease; you receive your share of the income but make no decisions and carry no management burden. Both defer the same capital-gains tax in a 1031 exchange, because Revenue Ruling 2004-86 makes a DST interest like-kind real property. So the tax outcome is similar, but the experience is opposite: direct ownership keeps you active and in control, while a DST makes you passive and hands-off. Beyond that, they differ in management burden, diversification, minimums, control, and liquidity. The choice turns on whether you want control and active involvement or passivity and simplicity.
Is a DST more passive than owning property directly?
Yes — a DST is substantially more passive than direct ownership. With a DST, the sponsor handles every operational aspect of the property through a master lease structure: leasing, tenant management, rent collection, maintenance, repairs, taxes, insurance, and compliance. You simply receive distributions of your share of the current cash flow, with no decisions to make and no responsibilities to fulfill. This is a deliberate feature of the DST structure — because Revenue Ruling 2004-86 restricts the trust from taking certain actions (like negotiating new leases), the master lease handles operations so the trust stays compliant. With direct ownership, by contrast, you remain the responsible decision-maker even if you hire a property manager — you oversee the manager, approve major expenditures, and the ultimate responsibility is yours. So a DST is genuinely hands-off, making it popular with investors who want real estate income without landlording, while direct ownership keeps you involved. If passivity is your goal, a DST delivers it far more completely than a directly managed building.
What are typical DST minimum investments?
DST minimum investments are typically modest compared to buying a building outright — often in the range of roughly $25,000 to $100,000, though the exact minimum varies by offering and sponsor. This accessibility is one of the DST structure's key advantages for 1031 investors: rather than concentrating all of your exchange proceeds into a single replacement property, you can spread them across several DSTs holding different property types in different markets. That makes genuine diversification practical from a single exchange. Each DST also gives you a fractional interest in institutional-quality real estate — large multifamily communities, industrial portfolios, net-lease properties — that would be far out of reach for most individual buyers purchasing directly. So the relatively low minimums let you both diversify and access institutional assets you couldn't buy on your own. Keep in mind that DST interests are securities offered to accredited investors after a suitability review, and that minimums, fees, and terms vary by offering, so review the specific offering documents before investing.
Does a DST offer more diversification than direct ownership?
Generally, yes — a DST makes diversification far easier than direct ownership. With direct ownership, your exchange proceeds usually go into a single replacement building in one market, concentrating your capital and risk in one asset, one tenant base, and one local economy; diversifying would require substantial capital and multiple separate closings within the strict 1031 timeline, which is hard to coordinate. With DSTs, modest minimums (often roughly $25,000 to $100,000) let you split a single exchange across several DSTs — different sponsors, property sectors (multifamily, industrial, net-lease retail, medical office), and geographies — building real diversification from one transaction. Each DST holds institutional-quality real estate, so you gain breadth and quality you couldn't easily achieve buying directly. So if diversification matters to you, a DST offers a practical path that direct ownership typically can't match without large capital. That said, diversification reduces but doesn't eliminate risk, and each DST still carries its own concentration, illiquidity, and sponsor risks. Review each offering and size your allocations appropriately.
Can I control a DST property the way I control my own building?
No — you give up control when you invest in a DST. As a passive fractional investor, you have no say in how the property is operated, financed, leased, or sold; those decisions rest entirely with the sponsor. In fact, Revenue Ruling 2004-86 restricts the DST itself from taking certain actions — it can't raise new capital, refinance or renegotiate the debt, negotiate new leases, or reinvest sale proceeds (the so-called 'seven deadly sins') — and the master lease structure handles operations to keep the trust compliant. With direct ownership, by contrast, you control everything: you decide when to refinance, renovate, re-tenant, or sell, and you can adjust strategy as conditions change. So the control difference is significant — direct ownership keeps you in command of the asset, while a DST asks you to trust the sponsor's management entirely. This loss of control is the trade-off for the DST's passivity and professional management. If hands-on control matters to you, direct ownership preserves it; if you'd rather delegate completely, a DST is built for that.
Are DSTs liquid?
No — DSTs are illiquid. Once you invest in a DST, there's little or no secondary market for your fractional interest, so you generally can't sell it readily or access your capital on demand. Instead, you remain invested until the sponsor sells the underlying property at the end of the hold period, which is commonly around five to seven years (though it can be shorter or longer). You also can't refinance to pull out equity, because Revenue Ruling 2004-86 restricts the trust from refinancing. By contrast, a directly owned building offers a liquidity path — you can sell it whenever you choose (subject to market conditions) or refinance to access equity. So liquidity is a clear advantage of direct ownership and a real limitation of DSTs. A DST is appropriate only for capital you can commit for the full hold and don't expect to need in the interim. Before investing, confirm the expected hold period and understand that the timing of the eventual sale is the sponsor's decision, not yours. Plan your cash-flow needs accordingly.
How quickly can a DST close compared to a direct purchase?
A DST can close much faster than a direct purchase — often in a matter of days — because the property has already been acquired, the financing is already in place, and you're simply subscribing for a fractional interest. A direct purchase, by contrast, requires you to find, negotiate, conduct due diligence on, finance, and close on a specific building, which can take weeks or months and carries real risk of falling through. This speed makes DSTs valuable within the strict 1031 timeline (45 days to identify, 180 days to close). Many investors identify one or more DSTs as a backup alongside a direct purchase, so that if the direct deal collapses, they can close the DST quickly and preserve the exchange. The DST's non-recourse debt is also pre-arranged, so you can satisfy any debt-replacement requirement without personally qualifying for a new loan. So a DST offers speed and certainty of closing that a competitive direct purchase often can't match. This backup role is one reason DSTs are widely used in 1031 planning. Confirm timing with your qualified intermediary.
Which is better for an investor tired of being a landlord?
For an investor tired of active landlording, a DST is typically the better fit. The whole appeal of a DST is that it removes the management burden entirely — the sponsor handles all leasing, tenant issues, maintenance, repairs, taxes, insurance, and compliance through a master lease, and you simply receive your share of the income with no decisions to make and no responsibilities to fulfill. This lets a long-time landlord exit the day-to-day work of owning real estate while still deferring the capital-gains tax through a 1031 exchange and continuing to earn real estate income. It's an especially common choice for aging investors simplifying their lives or estates, those relocating, or anyone ready to trade control for passivity. Direct ownership, by contrast, keeps you in the operator's role even if you hire a property manager. So if escaping the landlord role is your goal, a DST is purpose-built for it — though you should weigh the trade-offs of illiquidity, loss of control, and fees, and confirm a DST is suitable for you through a broker-dealer's suitability review.
Do both options defer the same capital-gains tax?
Yes — both a DST and a directly owned building, when used as replacement property in a properly structured 1031 exchange, defer the same capital-gains tax. The 1031 exchange defers the tax on your gain by reinvesting the proceeds into like-kind replacement real estate. Direct ownership obviously qualifies, since you're buying real property. A DST qualifies because IRS Revenue Ruling 2004-86 treats a beneficial interest in a properly structured DST as a direct interest in real property — so it's like-kind real estate for 1031 purposes. As long as you follow the 1031 rules (using a qualified intermediary, meeting the 45- and 180-day deadlines, and replacing equity and debt as required), both paths defer the gain equally. The tax outcome doesn't favor one over the other; what differs is the ownership experience — active versus passive, controlled versus delegated, concentrated versus diversified. So the deferral is the same; the choice between them turns on those other factors. Confirm your specific eligibility, deadlines, and debt-replacement requirements with your tax advisor and qualified intermediary, as the rules are technical.
Can I invest in both a DST and a direct property in one exchange?
Yes — many 1031 investors blend the two, placing part of their exchange proceeds into a directly owned property and part into one or more DSTs. This can give you the best of both: control and active involvement with the direct property, plus passive, diversified income from the DSTs. Blending is also a practical risk-management tool — DSTs can serve as a backup to absorb any leftover exchange proceeds (avoiding taxable 'boot') or to close quickly if a direct purchase falls through within the timeline. To do this, you identify both the direct property and the DSTs within your 45-day identification window, following the 1031 identification rules (such as the three-property or 200% rules), and close each within 180 days. The DSTs' fast closing helps you complete the exchange on time. So combining a direct property and DSTs in one exchange is common and can balance control, diversification, and timeline certainty. Coordinate carefully with your qualified intermediary and tax advisor, since the identification rules and deadlines are strict and the structure must be set up correctly.
What are the risks of choosing a DST over direct ownership?
Choosing a DST means accepting several risks and trade-offs that direct ownership doesn't carry in the same way. Illiquidity: you can't readily sell your interest and must wait until the sponsor sells the property, typically after five to seven years. Loss of control: you have no say in operations, financing, or sale timing — you're trusting the sponsor entirely. Sponsor risk: the sponsor's competence, integrity, and financial strength materially affect the outcome. Fees: DSTs carry an upfront load and ongoing fees that reduce your net returns. Concentration and market risk: each DST holds specific properties whose performance depends on tenants, markets, and the economy. Financing risk: leveraged DSTs face interest-rate and refinancing risk, and the no-refinance rule limits flexibility. Direct ownership, by contrast, keeps control and liquidity but carries its own risks — concentration, management burden, and personal loan liability. So neither is risk-free; they're different risk profiles. Distributions and returns on a DST are projections, not guarantees, and past performance doesn't guarantee future results. Review each offering's risk factors carefully and confirm suitability.
Are DSTs only for accredited investors?
Generally, yes — DST interests are securities, and they're typically offered under Regulation D (often Rule 506(c)) to accredited investors only. To be accredited, an individual generally must meet income thresholds (such as over $200,000 in annual income, or $300,000 jointly with a spouse, in each of the prior two years with the expectation of the same) or a net-worth threshold (over $1 million, excluding the primary residence), among other qualifying categories. Because DSTs are private securities offerings, you access them through a broker-dealer, and before investing you go through a suitability review that considers your financial situation, goals, liquidity needs, and risk tolerance — confirming both that you're accredited and that the investment is appropriate for you. Direct property ownership, by contrast, has no such accreditation requirement — anyone can buy a building. So the accreditation gate is specific to DSTs (and other private securities). If you're a 1031 investor considering a DST, expect to verify accredited status and complete a suitability review. Confirm your status and the offering's requirements with your broker-dealer before proceeding.
How do I decide between a DST and direct ownership?
The decision comes down to what you want from your replacement property. Choose direct ownership if you value control, are comfortable with (or enjoy) active management, want the ability to refinance and sell on your own timeline, and are willing to concentrate capital in a building you choose — it fits hands-on investors who want the full upside of a specific asset and don't need passivity or instant diversification. Choose a DST if you want out of active landlording — if you're ready to trade control for a hands-off, professionally managed income stream, value diversification across multiple institutional properties at accessible minimums, need to close quickly to meet a 1031 deadline, and don't require liquidity during the hold. Many investors blend both, placing some proceeds in a direct property and some in DSTs. So weigh your appetite for control versus passivity, concentration versus diversification, and your timeline. A DST also requires accredited status and a suitability review. The right answer depends on your goals, and discussing it with your advisor, CPA, and a broker-dealer helps you decide and access a suitable DST if appropriate.
How does Baker 1031 help me compare DSTs and direct ownership?
We help investors compare DSTs and direct ownership as 1031 replacement property — the active-versus-passive distinction, the management burden, the diversification and minimums, the control and liquidity trade-offs, the closing-speed advantage, and which fits your goals — so you can choose the replacement strategy that matches your appetite for control, your need for passivity, and your 1031 timeline. DST interests are securities offered through the broker-dealer, Aurora Securities, Inc. (member FINRA/SIPC), to accredited investors after a suitability review, while direct purchases are handled outside the securities framework. We help you understand the trade-offs, evaluate DST offerings (properties, sponsors, fees, debt, and structure), and, if suitable, access a DST — including as a fast-closing backup to protect your exchange deadline. Baker 1031 does not provide tax or legal advice; your CPA and qualified intermediary handle your eligibility, deadlines, and tax treatment. We're candid that DSTs are illiquid, surrender control, and carry fees. Distributions and returns are projections only, never guaranteed, and past performance doesn't guarantee future results.
Glossary
- Delaware Statutory Trust (DST)
- A trust holding income-producing real estate in which investors own fractional interests.
- Beneficial Interest
- A DST investor's fractional, 1031-eligible ownership stake.
- 1031 Replacement Property
- The like-kind real estate acquired to complete a 1031 exchange.
- Revenue Ruling 2004-86
- The IRS ruling treating a DST interest as like-kind real property.
- Direct Ownership
- Owning and operating a specific building yourself.
- Passive Investment
- Owning real estate income without managing it.
- Master Lease
- The structure through which a DST sponsor operates the property.
- Management Burden
- The ongoing work of operating real estate (heavy for direct owners).
- Diversification
- Spreading exchange proceeds across multiple DSTs or assets.
- Minimum Investment
- A DST's entry amount (often roughly $25,000 to $100,000).
- Illiquidity
- The inability to readily sell a DST interest before the hold ends.
- Hold Period
- A DST's multi-year term (commonly around five to seven years).
- Non-Recourse Debt
- DST financing with no personal loan liability for investors.
- Backup Identification
- Naming a DST as a fast-closing fallback to protect a 1031 deadline.
- Accredited Investor
- An investor meeting income or net-worth thresholds for DST offerings.
- Suitability Review
- Assessing whether a DST fits the investor before investing.
Sources & References
- IRS. Revenue Ruling 2004-86 (Delaware Statutory Trusts)
- Cornell Legal Information Institute. 26 U.S. Code § 1031 — Exchange of real property held for productive use or investment
- IRS. Like-Kind Exchanges — Real Estate Tax Tips
- U.S. Securities and Exchange Commission. Investor Bulletin: Accredited Investors and Regulation D Offerings
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.
