Many real estate investors end up owning rental property in a state they no longer live in — a home they moved away from, an investment bought in another market, or property acquired years ago and never sold. Managing a rental from hundreds or thousands of miles away is genuinely hard: you're coordinating remote tenants, arranging distant repairs, relying on local property managers you can't easily oversee, and absorbing the stress of problems you can't see firsthand. For these out-of-state landlords, a 1031 exchange into Delaware Statutory Trust (DST) properties offers a way out — selling the far-flung rental and reinvesting the proceeds into passive, professionally managed DST interests while deferring the capital-gains tax. This guide explains the out-of-state management problem, how going passive with DSTs removes the burden, how DSTs let you diversify beyond a single market, how the 1031 defers the tax on the sale, and how to make the transition. Note that DST interests are securities offered to accredited investors after a suitability review, and Baker 1031 Investments does not provide tax or legal advice — verify the current rules with your advisors; this is educational information, not investment advice.
The Out-of-State Management Problem
Owning a rental property far from where you live creates a set of management headaches that are hard to escape. You can't easily check on the property, meet a contractor, or assess a tenant complaint in person, so you're forced to rely on third parties — local property managers, contractors, and inspectors — whom you can't readily supervise. Distance turns ordinary landlord tasks (a leaking roof, a turnover, a late payment) into logistical problems handled by phone, email, and trust, often with delays and added cost.
The out-of-state landlord also bears hidden burdens: time zones and travel make it costly to handle anything in person, local market knowledge fades as you grow more removed from the area, and a single bad property manager can quietly erode your returns through deferred maintenance, poor tenant selection, or padded invoices. Vacancies and repairs that a nearby owner would catch quickly can linger when you're remote. So remote ownership combines reduced control, higher reliance on others, and the stress of managing something you can't see — frequently for a single property in one market.
So the out-of-state management problem is real: distance reduces your control, increases your dependence on local managers, and adds cost and stress to every task. So it's a common reason landlords look for a passive alternative. The out-of-state management problem — owning a rental far from home that's hard to oversee (remote tenants, distant repairs, hard-to-supervise local managers), with hidden costs from travel, fading market knowledge, and reliance on third parties you can't easily monitor — is a genuine burden for many landlords. Distance reduces control and adds stress. Understanding the problem frames the case for going passive. Managing a rental from far away means relying on local managers you can't supervise, handling distant repairs and tenants, and absorbing the cost and stress of reduced control — a common reason out-of-state landlords seek a passive alternative.
Going Passive With DSTs
Going passive with DSTs directly addresses the out-of-state management problem by removing you from property management entirely. A DST is a trust that holds income-producing real estate, in which you own a fractional beneficial interest; a professional sponsor handles all acquisition, leasing, management, and eventual sale of the property. As a DST investor, you receive your share of the rental income without any landlord responsibilities — no tenants to screen, no repairs to coordinate, no local manager to oversee. The management burden becomes the sponsor's job, not yours.
For an out-of-state landlord, this is the central appeal: instead of trying to manage a property from a distance, you exchange into DST interests and become a passive owner of professionally managed real estate. The distance that made your rental hard to handle no longer matters, because you're no longer handling it — you collect income (which isn't guaranteed and depends on the properties performing) and let the sponsor run the assets. So going passive with DSTs converts an active, remote, hands-on obligation into a hands-off investment, which is exactly what many tired out-of-state landlords are looking for.
So going passive with DSTs removes the management burden entirely — a professional sponsor runs the real estate while you receive income passively. So it's the core solution to the out-of-state problem. Going passive with DSTs — exchanging a remotely managed rental for fractional interests in professionally managed DST real estate, where the sponsor handles all acquisition, leasing, management, and sale, so you receive income without landlord responsibilities — removes the out-of-state management burden entirely. Distance stops mattering because you no longer manage the property. Understanding this shows the core solution. Going passive with DSTs means a professional sponsor handles all management while you collect income passively — so the distance that made your out-of-state rental hard to manage no longer matters.
The fix for managing a property you can't see isn't a better property manager hundreds of miles away — it's stepping out of management entirely and letting a professional sponsor run the real estate for you.
Diversifying Beyond One Market
Beyond removing management, DSTs let an out-of-state landlord diversify beyond a single market — addressing a different risk of remote ownership. When all your equity sits in one rental in one city, your returns hinge entirely on that local economy, that property type, and that single asset. If the local market softens, a major employer leaves, or the property underperforms, you have no offset. Concentration in one distant market is a quiet but real risk for the out-of-state landlord.
DSTs can be spread across geographies and property types, so by exchanging into multiple DST interests you can replace one concentrated, far-away property with a diversified set of passive holdings — apartments in one region, industrial in another, net-lease retail in a third, for example. This spreads your exposure across markets and sectors rather than betting on a single local economy, and it does so without adding any management work, since each DST is professionally run. So instead of being a remote landlord exposed to one market, you become a diversified passive investor across several.
So diversifying beyond one market is a key DST benefit for out-of-state landlords — spreading exposure across geographies and sectors instead of concentrating it in one distant property. So it reduces single-market risk while staying passive. Diversifying beyond one market — using DSTs spread across geographies and property types to replace a single concentrated, far-away rental with a diversified set of passive holdings, spreading exposure across markets and sectors without adding management work — addresses the concentration risk of remote ownership. It trades one-market exposure for diversification. Understanding this adds to the case for DSTs. DSTs let you diversify beyond one market by spreading exchange proceeds across multiple properties, geographies, and sectors — replacing concentration in one distant rental with a diversified, still-passive allocation.
Tax Deferral on the Sale
A major obstacle that keeps out-of-state landlords stuck is the tax bill on selling — and a 1031 exchange into DSTs solves it. If you simply sold your far-away rental outright, you'd typically owe capital-gains tax on the appreciation, plus tax on any depreciation recapture, which can take a large bite out of your proceeds. For a long-held property that has appreciated, that tax can be substantial enough to discourage selling at all, trapping you in remote management.
A 1031 exchange lets you sell the rental and reinvest the proceeds into like-kind replacement real property while deferring that capital-gains tax — and because a DST interest is treated as like-kind real property (under IRS Revenue Ruling 2004-86), DSTs qualify as replacement property. So you can exchange your out-of-state rental into DSTs and defer the gain, keeping your full equity working rather than handing a chunk to the IRS. A DST can also help satisfy the 1031 requirement to replace your old debt, since DSTs come with non-recourse property-level financing already in place. So the 1031 removes the tax obstacle to selling and going passive.
So tax deferral on the sale is what makes the transition financially attractive — a 1031 into DSTs defers the capital-gains tax and keeps your equity intact. So it removes the main reason landlords stay stuck. Tax deferral on the sale — using a 1031 exchange to sell the out-of-state rental and reinvest into DSTs (which qualify as like-kind replacement property under Revenue Ruling 2004-86), deferring the capital-gains tax and depreciation recapture, keeping full equity working, with DST non-recourse debt helping satisfy the debt-replacement requirement — is what makes going passive financially appealing. The 1031 removes the tax that traps landlords. Understanding it completes the case. A 1031 exchange into DSTs defers the capital-gains tax and depreciation recapture on the sale, keeping your equity intact and removing the tax obstacle that keeps many out-of-state landlords from selling.
- Managing a rental from out of state means remote tenants, distant repairs, and hard-to-supervise local managers — reduced control and added cost and stress.
- Going passive with DSTs removes the management burden entirely: a professional sponsor runs the real estate while you receive income passively (income isn't guaranteed).
- DSTs let you diversify beyond one market — spreading exchange proceeds across multiple properties, geographies, and sectors instead of one distant rental.
- A 1031 exchange into DSTs defers the capital-gains tax and depreciation recapture on the sale, keeping your full equity working — DST non-recourse debt helps replace old debt.
Income, Suitability, and What to Expect
Going passive with DSTs comes with a different income and ownership experience that's worth understanding before you transition. DSTs typically aim to pass through steady current rental income over a defined hold (commonly around five to seven years), after which the sponsor sells the properties and you receive your share of the proceeds — at which point you can take the cash (paying any deferred tax then), exchange again into new DSTs or other like-kind property, or potentially move into a REIT via a 721 exchange. The income is a projection, not a guarantee, and depends on the underlying real estate performing.
DSTs are also illiquid and accredited-only: you remain invested for the hold with little or no secondary market, and DST interests are securities sold under Regulation D, offered through a broker-dealer to accredited investors after a suitability review. That review confirms the investment fits your financial situation, goals, liquidity needs, and risk tolerance — important because trading an out-of-state rental for DSTs means giving up direct control and liquidity in exchange for passivity and diversification. So before transitioning, an out-of-state landlord should understand the defined hold, the illiquidity, the fees, and the accredited-only access, and confirm suitability.
So the DST experience offers passive income over a defined hold but requires accepting illiquidity, fees, and a suitability gate. So understanding what to expect rounds out the picture. Income, suitability, and what to expect — DSTs aiming for steady current income over a defined hold (often ~5-7 years) before sale, being illiquid and accredited-only securities sold through a broker-dealer after a suitability review, with income that's projected rather than guaranteed — round out the transition picture for an out-of-state landlord. You trade control and liquidity for passivity and diversification. Understanding this sets realistic expectations. DSTs offer passive income over a defined hold but are illiquid, accredited-only securities with fees and a suitability review — so understand the trade-offs before exchanging your rental, since distributions are projections, not guarantees.
Going passive is a genuine trade: you hand off the tenants, repairs, and distant managers, but you also give up direct control and liquidity — which is exactly what the suitability review is there to weigh.
Making the Transition
Making the transition from out-of-state landlord to passive DST investor follows the standard 1031 timeline, and getting the sequence right is essential. The critical first step is to engage a qualified intermediary (QI) before you sell — the QI must hold the sale proceeds so you never take possession of them, which is required for a valid 1031 exchange. If you close the sale and receive the money yourself, you generally lose the ability to do the exchange, so the QI must be in place beforehand.
Once the rental is sold, the 1031 clock starts: you have 45 days to identify your replacement property (the DSTs you intend to acquire) and 180 days to close on it. DSTs are well suited to these deadlines because they're pre-packaged, professionally managed offerings that can typically close quickly — an important advantage when the 45-day identification window is tight or a primary replacement falls through. Working with a broker-dealer, you identify suitable DSTs within the 45 days, complete the suitability and subscription process, and close within the 180-day window, coordinating throughout with your QI and your CPA.
So making the transition means engaging a QI before selling, identifying DSTs within 45 days, and closing within 180 days — a defined process the DST structure is built to fit. So a clear sequence turns the strategy into reality. Making the transition — engaging a qualified intermediary before the sale (so you never touch the proceeds), then identifying replacement DSTs within 45 days and closing within 180 days, with DSTs' fast, pre-packaged closing well suited to the deadlines, coordinated with a broker-dealer, QI, and CPA — turns the out-of-state-to-passive move into a defined process. The sequence and timing are essential. Understanding the steps makes the strategy actionable. To transition, engage a QI before selling, identify DSTs within 45 days, and close within 180 days — DSTs' fast, pre-packaged closing fits the timeline well, coordinated with your broker-dealer, QI, and CPA.
How Baker 1031 Helps Out-of-State Landlords Go Passive
Baker 1031 Investments helps out-of-state landlords go passive — understanding the management problem, how DSTs remove the burden, how they diversify beyond one market, how a 1031 defers the tax on the sale, what to expect, and how to make the transition — so you can trade a hard-to-manage remote rental for passive, professionally managed real estate if it suits your goals.
DST interests are securities offered through the broker-dealer, Aurora Securities, Inc. (member FINRA/SIPC), to accredited investors after a suitability review. We help you understand whether going passive with DSTs fits your situation, evaluate DST offerings (the sponsor, properties, fees, debt, and structure), and, if suitable, identify DSTs within your 45-day window and close within the 180-day deadline, coordinating with your qualified intermediary throughout. Baker 1031 does not provide tax or legal advice; your CPA and attorney confirm your 1031 eligibility, the deferral, the depreciation-recapture treatment, and the timing, which are technical and time-sensitive. Because the 1031 timeline is strict, we emphasize engaging a QI before you sell. Distributions and returns are never guaranteed — DST income is a projection, not a promise, and past performance does not guarantee future results; DSTs are illiquid and held for a defined period. Our role is to help out-of-state landlords understand the passive-DST path clearly and exchange only when suitable for their goals and risk tolerance.
Frequently Asked Questions
Why is owning an out-of-state rental so difficult?
Owning a rental far from where you live creates management headaches that are hard to escape. You can't easily check on the property, meet a contractor, or assess a tenant complaint in person, so you're forced to rely on local property managers, contractors, and inspectors whom you can't readily supervise. Distance turns ordinary landlord tasks — a leaking roof, a unit turnover, a late payment — into logistical problems handled by phone and email, often with delays and added cost. There are hidden burdens too: travel is expensive and time-consuming, your local market knowledge fades as you grow more removed, and a single underperforming property manager can quietly erode your returns through deferred maintenance, poor tenant selection, or padded invoices. Problems a nearby owner would catch quickly can linger when you're remote. So out-of-state ownership combines reduced control, heavy reliance on others, and added cost and stress — often concentrated in a single property in one market. That's why many out-of-state landlords look for a passive alternative like a 1031 into DSTs.
How do DSTs help an out-of-state landlord?
DSTs help by removing you from property management entirely. A DST is a trust that holds income-producing real estate, in which you own a fractional beneficial interest; a professional sponsor handles all acquisition, leasing, management, and eventual sale of the property. As a DST investor, you receive your share of the rental income without any landlord responsibilities — no tenants to screen, no repairs to coordinate, no remote property manager to oversee. For an out-of-state landlord, this is the central appeal: instead of trying to manage a property from a distance, you exchange into DST interests and become a passive owner of professionally managed real estate, so the distance that made your rental hard to handle no longer matters because you're no longer handling it. You can also diversify across multiple DSTs in different markets, and a 1031 exchange into DSTs defers the capital-gains tax on the sale. So DSTs convert an active, remote, hands-on obligation into a hands-off, diversified, tax-deferred investment. The income isn't guaranteed, so understand the trade-offs and confirm suitability first.
Can I 1031 exchange my out-of-state rental into a DST?
Yes — that's a core use of DSTs. A 1031 exchange lets you sell investment real estate and reinvest the proceeds into like-kind replacement real property while deferring the capital-gains tax. A DST interest is treated as like-kind real property under IRS Revenue Ruling 2004-86, so it qualifies as replacement property in a 1031 exchange. That means you can sell your out-of-state rental and exchange the proceeds into one or more DSTs, deferring the gain (and depreciation recapture) and keeping your full equity working rather than paying a large tax bill. The DST also comes with non-recourse property-level financing already in place, which can help satisfy the 1031 requirement to replace the debt on your old property. To do this, you must follow the 1031 rules: engage a qualified intermediary before you sell, identify your replacement DSTs within 45 days, and close within 180 days. So yes, exchanging an out-of-state rental into DSTs is a well-established strategy — confirm your eligibility and the timing with your CPA and a qualified intermediary, since the rules are strict and time-sensitive.
Does going passive with DSTs mean I give up control?
Yes — going passive means trading direct control for the benefits of professional management. As a DST investor, you don't make property-level decisions: the sponsor handles acquisition, leasing, management, and the eventual sale, and DST rules (the 'seven deadly sins') sharply limit the trust's and investors' ability to take new actions. So you give up the hands-on control you'd have as a direct landlord — you can't choose tenants, set rents, or decide when to renovate or sell. For an out-of-state landlord, though, that control was already limited by distance and largely delegated to a remote property manager, so the trade is often worthwhile: you exchange diminished, stressful remote control for genuine passivity, and you also gain diversification and tax deferral. The point of the suitability review is to weigh exactly this trade-off — whether giving up control and liquidity in exchange for passivity, diversification, and deferral fits your situation. So yes, you give up control, but for many tired out-of-state landlords that's the appeal, not the drawback. Confirm it suits your goals before transitioning.
How do DSTs let me diversify beyond one market?
DSTs let you diversify because you can spread your exchange proceeds across multiple DST offerings in different markets and property types, rather than concentrating everything in one distant rental. When all your equity sits in a single property in one city, your returns hinge entirely on that local economy and that one asset — if the market softens or the property underperforms, you have no offset. By exchanging into several DSTs, you can replace that concentration with a diversified set of passive holdings — for example, apartments in one region, industrial in another, and net-lease retail in a third — spreading your exposure across geographies and sectors. And you do this without adding any management work, since each DST is professionally run. So instead of being a remote landlord exposed to one market, you become a diversified passive investor across several. The number of DSTs you can spread across depends on your exchange proceeds and the minimums involved. So diversification is a key benefit of going passive with DSTs, reducing single-market and single-property risk while keeping the investment hands-off — confirm the allocation suits your goals with your advisor.
What tax do I defer by exchanging into a DST?
By doing a 1031 exchange into a DST, you defer the capital-gains tax you'd otherwise owe on selling your rental, plus the tax on depreciation recapture. If you simply sold the property outright, you'd typically owe federal (and often state) capital-gains tax on the appreciation, plus tax on the depreciation you've claimed over the years (recapture), which together can take a substantial bite out of your proceeds — sometimes large enough to discourage selling at all. A 1031 exchange lets you reinvest the full proceeds into like-kind replacement real property (a DST qualifies) while deferring all of that tax, so your entire equity keeps working rather than being reduced by the tax. The deferral continues as long as you stay in qualifying like-kind property, and if you hold until death, your heirs may receive a step-up in basis that can eliminate the deferred gain entirely. So the 1031 into a DST defers capital-gains tax and depreciation recapture, removing the main financial obstacle to selling an out-of-state rental. The amounts and treatment depend on your situation, so confirm them with your CPA — Baker 1031 doesn't provide tax advice.
Are DSTs liquid if I need my money back?
No — DSTs are illiquid, which is an important trade-off to understand before going passive. When you exchange into a DST, you generally remain invested until the sponsor sells the underlying property, typically after a multi-year hold (commonly around five to seven years), and there's little or no secondary market to sell your interest early. So you shouldn't exchange into a DST with money you might need in the near or medium term — it's a longer-term commitment. This illiquidity is part of the trade you make in going passive: you give up the ability to readily access your capital (and the direct control of ownership) in exchange for passive, professionally managed, diversified, tax-deferred real estate. The suitability review specifically considers your liquidity needs to confirm a DST fits your situation. So if ready access to your capital matters, a DST may not be appropriate, or you may want to keep other liquid assets alongside it. When the DST's hold ends and the property sells, you receive your share of the proceeds and can then take the cash, exchange again, or potentially move into a REIT. Plan for the illiquidity in advance with your advisor.
Do I need to be an accredited investor to use a DST?
Yes — DST interests are securities sold under Regulation D, so they're generally limited to accredited investors. To qualify as accredited, you typically must meet income or net-worth thresholds (for example, a certain annual income for the past two years, or a net worth above a set amount excluding your primary residence). DSTs are offered through a broker-dealer, and before you invest, a suitability review considers your financial situation, goals, liquidity needs, and risk tolerance to confirm the investment is appropriate for you. So an out-of-state landlord considering a DST exchange should confirm they meet the accredited-investor requirements and expect a suitability review as part of the process. This gatekeeping reflects the illiquidity and complexity of DSTs — they're meant for suitable, accredited investors who can commit capital for the hold. If you're not accredited, a DST generally isn't available to you, and you'd need to explore other 1031 replacement options for your out-of-state rental. So check your accredited status early, and work with a broker-dealer who can confirm eligibility and suitability before you sell, so the exchange path is clear.
What happens at the end of a DST's hold?
A DST has a defined life: the sponsor holds the properties for a period (commonly around five to seven years) and then sells them. When the properties are sold, the DST is wound down and you receive your share of the proceeds. At that point, you have choices. You can take the proceeds as cash, paying any capital-gains tax that was deferred (and that now comes due). You can roll the proceeds into another 1031 exchange — into new DSTs or other like-kind real property — to continue deferring the tax. Or, if the DST offers it, you may be able to move into a REIT through a 721 (UPREIT) exchange, converting your interest into operating-partnership units while continuing deferral. So at the end of the hold, you're not stuck — you can cash out, exchange again, or potentially shift into a REIT, depending on the situation and your goals. This is worth planning for in advance, because the defined hold means a decision point will arrive. So discuss the end-of-hold options with your advisor and CPA before you invest, so you have a plan for when the DST sells and you receive your proceeds.
How quickly can a DST close for my exchange?
DSTs can typically close quickly, which is one reason they're popular for 1031 exchanges with tight deadlines. Because a DST is a pre-packaged, professionally managed offering with the property already acquired and financing in place, you're investing into an existing structure rather than negotiating and closing a property purchase from scratch. That means once you've identified a suitable DST and completed the suitability and subscription process, the actual closing can often happen in days rather than the weeks or months a direct property purchase might take. This speed is a real advantage given the 1031 timeline: you have only 45 days from the sale of your rental to identify replacement property and 180 days to close. DSTs' fast closing makes them well suited to meeting those deadlines, and they're often used as a reliable identified replacement (or backup) in case a primary replacement property falls through within the 45-day window. So if you're racing the 1031 clock after selling an out-of-state rental, a DST's quick close is a meaningful benefit. Coordinate the timing with your broker-dealer, qualified intermediary, and CPA.
Why do I need a qualified intermediary before selling?
You need a qualified intermediary (QI) in place before you sell because a valid 1031 exchange requires that you never take actual or constructive receipt of the sale proceeds. The QI holds the proceeds from your rental's sale and then uses them to acquire your replacement property (the DSTs), so the money flows through the QI rather than to you. If you close the sale and receive the funds yourself — even briefly — you generally disqualify the exchange and trigger the capital-gains tax you were trying to defer. That's why the QI must be engaged before the sale closes; you can't add one after the fact. So the very first practical step in exchanging an out-of-state rental into DSTs is to engage a qualified intermediary before you sell, ahead of identifying replacement DSTs or signing closing documents. This is one of the most common ways well-intentioned exchanges fail, so it's worth emphasizing. So plan the QI early, and coordinate the sale closing, the QI's involvement, and your replacement-DST identification together with your advisors so the exchange stays valid from the start.
Is going passive with DSTs right for every out-of-state landlord?
No — going passive with DSTs isn't right for everyone, which is why a suitability review matters. DSTs suit an out-of-state landlord who wants to stop managing a remote rental, is comfortable giving up direct control and liquidity, doesn't need ready access to the invested capital, qualifies as an accredited investor, and wants passive, diversified, tax-deferred real estate. They're less appropriate for someone who needs liquidity, wants to retain hands-on control, isn't accredited, or has a short time horizon. The trade-offs — illiquidity over a multi-year hold, fees, accredited-only access, and reliance on the sponsor — must fit your situation, and the income is a projection rather than a guarantee. So before transitioning, an out-of-state landlord should weigh whether the benefits (escaping remote management, diversification, deferral) outweigh the trade-offs for their goals, liquidity needs, and risk tolerance. The suitability review is designed to make exactly that assessment. So DSTs are a strong fit for many tired out-of-state landlords, but not all — confirm it suits your situation with a broker-dealer and your CPA before selling, rather than assuming it's automatically the right move.
Can I move from a DST into a REIT later for more diversification?
Yes — there's a path for that, through a 721 (UPREIT) exchange. After you've exchanged into a DST, the DST's property may later be acquired by a REIT (often the sponsor's own) through a 721 exchange, converting your DST interest into operating-partnership (OP) units of the REIT's operating partnership while preserving your tax deferral. Those OP units can typically be converted into REIT shares over time; converting to shares and selling is generally a taxable event at that point. For an out-of-state landlord who has gone passive with DSTs, this offers an eventual route into broader REIT diversification and potential liquidity while keeping deferral intact up to conversion. So you're not necessarily locked into DSTs forever — at the end of a hold, or through a 721 transaction, you may be able to shift into a REIT, exchange into new DSTs, or cash out. The 721 path is technical and depends on the specific DST and REIT, so confirm the mechanics and timing with your tax advisor before relying on it. So DSTs can be a step that later connects to REIT ownership, giving you additional diversification options down the road.
What are the risks of exchanging my rental into DSTs?
Exchanging into DSTs carries real risks you should weigh. DSTs are illiquid — you're committed for the multi-year hold with little or no secondary market — so you can't readily access your capital. They carry fees (upfront load and offering costs, plus ongoing management fees) that reduce net returns. The income is a projection, not a guarantee, and depends on the underlying real estate performing — distributions can be reduced if rents or occupancy fall. There's sponsor risk (you rely on the sponsor's execution) and, because each DST holds specific properties, concentration risk in those assets, though you can mitigate it by diversifying across several DSTs. DSTs also use non-recourse leverage, which adds property-level debt risk. And the 1031 itself has strict rules — a misstep in the timeline or process can disqualify the exchange and trigger the tax. So while DSTs solve the remote-management problem and offer diversification and deferral, they trade those benefits for illiquidity, fees, and investment risk. So assess the specific offerings, diversify, size the allocation appropriately, and confirm suitability — distributions and returns are never guaranteed, and past performance doesn't guarantee future results.
How does Baker 1031 help out-of-state landlords go passive?
We help out-of-state landlords go passive — understanding the management problem, how DSTs remove the burden, how they diversify beyond one market, how a 1031 defers the tax on the sale, what to expect, and how to make the transition — so you can trade a hard-to-manage remote rental for passive, professionally managed real estate if it suits your goals. DST interests are securities offered through the broker-dealer, Aurora Securities, Inc. (member FINRA/SIPC), to accredited investors after a suitability review. We help you understand whether going passive fits your situation, evaluate DST offerings (sponsor, properties, fees, debt, and structure), and, if suitable, identify DSTs within your 45-day window and close within 180 days, coordinating with your qualified intermediary. Baker 1031 does not provide tax or legal advice; your CPA and attorney confirm your 1031 eligibility, the deferral, depreciation-recapture treatment, and timing. Because the 1031 timeline is strict, we emphasize engaging a QI before you sell. Distributions and returns are never guaranteed — DST income is a projection, not a promise, DSTs are illiquid, and past performance doesn't guarantee future results. Our role is to help you understand the passive-DST path and exchange only when suitable.
Glossary
- DST
- A Delaware Statutory Trust holding 1031-eligible fractional real estate.
- Out-of-State Landlord
- An owner managing a rental property far from where they live.
- 1031 Exchange
- A tax-deferred swap of like-kind investment real estate.
- Like-Kind Real Property
- The real estate a 1031 requires (a DST interest qualifies).
- Revenue Ruling 2004-86
- The IRS ruling treating a DST interest as real property for 1031.
- Passive Ownership
- Owning real estate without managing it (the DST model).
- Sponsor
- The firm that acquires, manages, and sells the DST property.
- Qualified Intermediary (QI)
- The party that holds 1031 proceeds so you never receive them.
- 45-Day Identification
- The window to identify replacement property after selling.
- 180-Day Closing
- The deadline to close on replacement property in a 1031.
- Depreciation Recapture
- Tax on prior depreciation, also deferred by a 1031.
- Non-Recourse Debt
- Property-level DST financing that helps replace old debt.
- Defined Hold
- A DST's multi-year period (often ~5-7 years) before sale.
- Diversification
- Spreading exchange proceeds across multiple DSTs and markets.
- Accredited Investor
- An investor meeting income or net-worth thresholds for DSTs.
- 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
- Cornell Legal Information Institute. 26 U.S. Code § 1014 — Basis of property acquired from a decedent
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.
