Investors exploring tax-advantaged real estate strategies often weigh Opportunity Zone funds against Delaware Statutory Trusts (DSTs) — two distinct approaches that are sometimes confused but serve different purposes. A DST is a passive vehicle for 1031 exchanges (deferring real estate gains by reinvesting in fractional interests in stabilized, income-producing real estate). An Opportunity Zone fund (QOF) is the vehicle for OZ investing (deferring any capital gain and earning tax-free growth after a 10-year hold, often via development projects). They differ in eligible gains, hold periods, income profiles, risk, and liquidity. This guide compares Opportunity Zones and DSTs across these dimensions and explains how some investors use both in one plan. Note that OZ rules are time-sensitive and evolving — verify the current rules with your tax advisor.
OZ funds vs. DSTs at a glance
At a high level, OZ funds and DSTs differ in their core purpose and structure. A DST (Delaware Statutory Trust) is a passive 1031 vehicle — it holds stabilized, income-producing real estate and offers fractional interests that qualify as like-kind replacement property for 1031 exchanges, letting real estate investors defer gains passively while earning income. So DSTs are about passive 1031 deferral with income.
An Opportunity Zone fund (QOF) is the OZ vehicle — it invests in OZ property (often development projects) and offers investors the OZ tax benefits (deferral of any capital gain, and tax-free growth after a 10-year hold). So QOFs are about OZ deferral and tax-free growth, often via development.
So at a glance: DSTs serve 1031 exchanges (real estate gains, passive income, indefinite deferral), while OZ funds serve OZ investing (any gain, tax-free growth, often development). They're distinct tools for different situations. OZ funds vs. DSTs at a glance — DSTs as passive 1031 vehicles (stabilized real estate, income, real estate gains) versus OZ funds as OZ vehicles (development, tax-free growth, any gain) — frames the core differences. Each serves a different purpose. Understanding the glance-level comparison sets up the detailed differences. At a glance, DSTs are passive 1031 vehicles (real estate gains, income) while OZ funds are OZ vehicles (any gain, tax-free growth), distinct tools for different goals.
Which gains qualify for each
The strategies accept different gains. A DST (for a 1031 exchange) requires a real estate gain — you must sell investment/business real estate and reinvest in the DST (like-kind replacement property). So DSTs only work for real estate gains (and keep you in real estate).
An OZ fund accepts any capital gain — from stock, a business sale, cryptocurrency, real estate, or other capital assets. So if you have a non-real-estate gain (e.g., from selling stock or a business), a DST won't work (it's 1031-only, real-estate-only), but an OZ fund will. So OZ funds are far broader on eligible gains.
So which gains qualify is a key differentiator: DSTs for real estate gains only, OZ funds for any capital gain. An investor with a stock or business-sale gain looks to OZ funds (not DSTs); an investor with a real estate gain can consider either. Which gains qualify for each — DSTs requiring real estate gains (1031-only), OZ funds accepting any capital gain — is a key differentiator. OZ funds are far broader. Understanding this shows which strategy your gain qualifies for. DSTs work only for real estate gains, while OZ funds accept any capital gain, so your gain's source may determine the strategy.
The gain type often decides it: a DST needs a real estate gain reinvested like-kind, while an Opportunity Zone fund accepts any capital gain — from stock, a business sale, or crypto, not just real estate.
Income & hold-period differences
The strategies differ in income and hold period. DSTs typically hold stabilized, income-producing real estate (leased properties generating rent), so they generally provide regular income (distributions) from the start, with a hold period often around 5-7 years (until the DST's property is sold). So DSTs offer income and a medium-term hold.
OZ funds often invest in development projects (building or substantially improving property), which may generate little income early (during development) and more as the project stabilizes — and the strategy requires a 10-year hold for the tax-free exclusion. So OZ funds may offer less early income and require a longer (10-year) hold.
So on income and hold period: DSTs generally provide steadier income with a medium-term hold, while OZ funds may have lower early income and a longer (10-year) hold (aimed at appreciation). So income-focused, medium-term investors may prefer DSTs, while growth-focused, long-term investors may prefer OZ funds. Income & hold-period differences — DSTs offering steadier income (stabilized real estate) with a medium-term (~5-7 year) hold, OZ funds offering lower early income (development) with a longer (10-year) hold (aimed at appreciation) — distinguish the strategies. They suit different income and horizon needs. Understanding this shows the income/hold trade-off. DSTs offer steadier income and a medium-term hold, while OZ funds offer lower early income and a longer hold aimed at tax-free appreciation.
Risk and liquidity comparison
The strategies differ in risk and liquidity. DSTs hold stabilized, income-producing real estate, so they generally carry the risks of owning leased real estate (market, tenant, interest-rate risks) but typically less development risk (the properties are usually already built and leased). OZ funds often involve development projects, which carry development risk (construction, lease-up, market risks) — generally a higher risk profile.
On liquidity, both are illiquid — DSTs are generally held until the property sells (~5-7 years), and OZ funds for the 10-year hold (longer). So both tie up capital, with OZ funds for longer. Neither is easily sold mid-hold. So OZ funds are generally longer and often higher-risk (development), while DSTs are medium-term and often lower-risk (stabilized).
So on risk and liquidity: DSTs (stabilized, medium-term) are generally lower-risk and shorter, while OZ funds (development, long-term) are generally higher-risk and longer. Both are illiquid. Risk and liquidity comparison — DSTs (stabilized real estate, ~5-7 year hold) generally lower-risk and shorter, OZ funds (development, 10-year hold) generally higher-risk and longer, both illiquid — distinguishes the strategies' risk profiles. They suit different risk tolerances. Understanding this shows the risk/liquidity trade-off. DSTs are generally lower-risk and medium-term, while OZ funds are generally higher-risk (development) and longer-term, both illiquid.
Using both in one plan
Some investors use both strategies in one plan, for different gains or goals. For a real estate gain, an investor might use a DST (passive 1031 deferral with income). For a non-real-estate gain (stock, business sale), the same investor might use an OZ fund (the only option of the two for such gains, with tax-free growth). So the strategies can serve different gains within one investor's plan.
An investor might also diversify across both — using DSTs for income and medium-term real estate exposure, and OZ funds for growth and tax-free appreciation — balancing income and growth, medium and long term, lower and higher risk. So the two can complement each other in a diversified tax-advantaged real estate allocation.
The right mix depends on the investor's gains, goals, income needs, time horizon, and risk tolerance. So using both can make sense for investors with diverse gains and balanced objectives. Using both in one plan — DSTs for real estate gains (income, medium-term) and OZ funds for other gains or growth (tax-free appreciation, long-term), complementing each other in a diversified allocation — shows the strategies can work together. The mix depends on the investor. Understanding this shows how they combine. Investors can use both DSTs (income, real estate gains) and OZ funds (growth, any gains) in one plan, complementing each other for diverse gains and balanced goals.
- DSTs are passive 1031 vehicles (real estate gains, stabilized income, ~5-7 year hold); OZ funds are OZ vehicles (any gain, tax-free growth, 10-year hold).
- Eligible gains: DSTs require real estate gains; OZ funds accept any capital gain.
- Income & risk: DSTs generally offer steadier income and lower (development) risk; OZ funds offer lower early income and higher risk but tax-free growth.
- Some investors use both — DSTs for income/real estate gains, OZ funds for growth/other gains — in a diversified plan.
Which strategy fits you
Choosing between OZ funds and DSTs depends on your situation. A DST fits if you have a real estate gain, want passive 1031 deferral with regular income, prefer a medium-term hold and stabilized (lower-development-risk) real estate, and value the 1031's indefinite deferral and step-up at death. So DSTs suit income-focused real estate investors wanting passive deferral.
An OZ fund fits if you have a capital gain from any source (especially non-real-estate gains), want tax-free growth on a new investment, can commit to a 10-year hold, and are comfortable with development risk. So OZ funds suit growth-focused, long-term investors with diverse gains. And as noted, some use both.
Your gains, goals, income needs, time horizon, and risk tolerance determine the fit. So assess these to choose (or combine). Which strategy fits you — DSTs for real estate gains, income, medium-term passive deferral, and lower risk; OZ funds for any gains, tax-free growth, a long hold, and development risk tolerance — depends on your situation. Each suits different investors. Understanding the fit helps you choose. DSTs fit income-focused real estate investors wanting passive deferral; OZ funds fit growth-focused, long-term investors with diverse gains — assess your situation to choose.
How Baker 1031 helps you compare
Baker 1031 Investments helps investors compare Opportunity Zone funds and DSTs — explaining the differences (eligible gains, income, hold periods, risk, liquidity) and helping you determine which strategy (or combination) fits your gains, goals, and situation. We help you access suitable investments in either strategy.
DST interests, Opportunity Zone Fund interests, and related securities are offered through the broker-dealer, Aurora Securities, Inc. (member FINRA/SIPC), and any recommendation follows a suitability review. We don't provide tax advice (your CPA handles the tax rules, including the time-sensitive OZ rules); we help you understand the strategies and access suitable investments. Our role is to help you compare OZ funds and DSTs — understanding their different eligible gains, income, risk, and hold profiles — and to choose (or combine) them based on your situation, accessing suitable investments for whichever fits. The two strategies serve different needs, and we help you determine the right approach for your gains and goals, with the professional coordination the decision requires.
Frequently Asked Questions
What's the difference between an OZ fund and a DST?
A DST (Delaware Statutory Trust) is a passive 1031 vehicle — it holds stabilized, income-producing real estate and offers fractional interests that qualify as like-kind replacement property for 1031 exchanges, letting real estate investors defer gains passively while earning income. An OZ fund (QOF) is the Opportunity Zone vehicle — it invests in OZ property (often development) and offers the OZ tax benefits (deferral of any capital gain, and tax-free growth after a 10-year hold). So DSTs serve 1031 exchanges (real estate gains, passive income, indefinite deferral), while OZ funds serve OZ investing (any gain, tax-free growth, often development). They're distinct tools for different gains and goals, sometimes confused but serving different purposes.
Which gains work for each strategy?
A DST (for a 1031) requires a real estate gain — you sell investment/business real estate and reinvest in the DST (like-kind replacement property). An OZ fund accepts any capital gain — from stock, a business sale, cryptocurrency, real estate, or other capital assets. So if you have a non-real-estate gain, a DST won't work (it's 1031-only), but an OZ fund will. So which gains qualify is a key differentiator: DSTs for real estate gains only, OZ funds for any capital gain. An investor with a stock or business-sale gain looks to OZ funds (not DSTs); an investor with a real estate gain can consider either strategy. So your gain's source may determine which strategy is available to you.
Which provides more income?
Generally a DST — DSTs typically hold stabilized, income-producing real estate (leased properties generating rent), so they generally provide regular income (distributions) from the start. OZ funds often invest in development projects, which may generate little income early (during development) and more as the project stabilizes. So DSTs generally offer steadier, earlier income, while OZ funds may have lower early income (aimed at appreciation). So income-focused investors may prefer DSTs, while growth-focused investors may prefer OZ funds. If regular income is a priority, a DST's stabilized real estate typically provides it more reliably than an OZ development fund, which prioritizes long-term appreciation over early income.
Which has a longer hold period?
OZ funds — they require a 10-year hold for the tax-free exclusion (the signature benefit). DSTs typically have a hold period of around 5-7 years (until the DST's property is sold). So OZ funds require a longer commitment (10 years) than DSTs (medium-term). So if a shorter hold is preferred, DSTs are generally shorter; if you can commit for a decade (for the tax-free growth), OZ funds fit. The hold-period difference reflects their different goals: DSTs aim for medium-term passive deferral with income, while OZ funds aim for long-term tax-free appreciation. So match the hold period to your time horizon — medium-term for DSTs, long-term for OZ funds.
Which is riskier?
Generally OZ funds — they often involve development projects (construction, lease-up, and market risks), carrying development risk and a generally higher risk profile. DSTs hold stabilized, income-producing real estate (usually already built and leased), so they carry the risks of owning leased real estate but typically less development risk. So OZ funds (development, long-term) are generally higher-risk, while DSTs (stabilized, medium-term) are generally lower-risk. Both are illiquid, but OZ funds tie up capital longer. So weigh the risk: OZ funds offer higher potential (tax-free growth) with higher risk (development), while DSTs offer steadier (income, lower-development-risk) but more modest profiles. Match the risk to your tolerance.
Are both illiquid?
Yes — both DSTs and OZ funds are illiquid (not easily sold mid-hold). DSTs are generally held until the property sells (~5-7 years), and OZ funds for the 10-year hold (longer). So both tie up your capital for years, with OZ funds for longer. Neither offers easy liquidity during the hold (you generally can't readily sell your interest before the investment resolves). So both require committing capital you won't need during the hold period. If liquidity is a concern, neither strategy provides it mid-hold — and OZ funds lock up capital longer (10 years) than DSTs (~5-7 years). So plan for the illiquidity of both, sizing your investment to capital you can commit long-term.
Can I use both strategies?
Yes — some investors use both in one plan, for different gains or goals. For a real estate gain, an investor might use a DST (passive 1031 deferral with income); for a non-real-estate gain (stock, business sale), the same investor might use an OZ fund (with tax-free growth). An investor might also diversify across both — DSTs for income and medium-term real estate exposure, OZ funds for growth and tax-free appreciation — balancing income and growth, medium and long term, lower and higher risk. So the two can complement each other in a diversified tax-advantaged allocation. The right mix depends on your gains, goals, income needs, time horizon, and risk tolerance. So using both can make sense for investors with diverse gains and balanced objectives.
Which is better for a real estate gain?
For a real estate gain, you can use either — a DST (a 1031 exchange, deferring indefinitely with income and the step-up at death) or an OZ fund (deferring temporarily but with tax-free growth on the new investment). The better choice depends on your goals: a DST for passive income, indefinite deferral, and the step-up (eliminating the gain at death); an OZ fund for tax-free growth on a new (often development) investment, if you can hold 10 years and accept development risk. So for a real estate gain, weigh the DST's income and indefinite deferral against the OZ fund's tax-free growth — they suit different objectives. Many real estate investors favor DSTs for passive income and the step-up, while growth-focused investors may prefer OZ funds. Consider your goals.
How does Baker 1031 help me compare?
We help you compare Opportunity Zone funds and DSTs — explaining the differences (eligible gains, income, hold periods, risk, liquidity) and helping you determine which strategy (or combination) fits your gains, goals, and situation. We help you access suitable investments in either strategy. DST and OZ fund interests are offered through the broker-dealer (Aurora Securities, member FINRA/SIPC) after a suitability review. We don't provide tax advice (your CPA handles the rules, including the time-sensitive OZ rules); we help you understand the strategies and access suitable investments. We help you choose (or combine) OZ funds and DSTs based on your situation and access suitable investments for whichever fits, with the professional coordination the decision requires.
Can I do a 1031 into a DST and an OZ investment from the same sale?
Potentially, in a structured way — but it's complex. For a single real estate sale, the gain generally gets one treatment (a 1031 into a DST, or an OZ investment), not both for the same dollars. However, an investor might, for example, do a partial 1031 (deferring part via a DST) and take taxable boot, then invest that boot's gain into an OZ fund — combining the strategies across portions of the sale. This is technical and requires careful structuring with your CPA and a qualified intermediary. So you generally don't apply both to the same gain dollars, but combinations across portions of a sale are possible. Don't attempt this without professional guidance, as the 1031 and OZ rules (and timing) must each be satisfied for their respective portions. Consult your advisors before structuring a combination.
Which gives a better estate-planning outcome, an OZ fund or a DST?
For estate planning around a real estate gain, a DST (via the 1031) often has an edge — its indefinite deferral plus the step-up at death can eliminate the deferred gain entirely for heirs. An OZ fund defers the original gain only temporarily (recognized at a set date, so heirs don't escape that gain via the OZ), though the OZ investment's post-investment appreciation can be tax-free after 10 years. So for eliminating a real estate gain at death, the DST/1031 (with the step-up) is often favored; for tax-free growth on a new investment, the OZ fund shines. So the better estate tool depends on the goal — DSTs for eliminating the original gain at death, OZ funds for tax-free growth. Consider both with your estate advisors, as they serve different estate objectives and your priorities determine the fit.
Do DSTs and OZ funds have different minimum investments?
They can — both DSTs and OZ funds are typically offered as securities to accredited investors with minimum investment amounts set by the sponsor, and these minimums vary by offering. DSTs often have minimums in a range accessible to many accredited investors (sometimes around $25,000-$100,000), and OZ funds similarly set minimums per offering (often higher for some institutional-style funds). So the minimums depend on the specific offering, not the strategy type per se. So check each specific fund's minimum investment, as it varies. Both generally require accredited-investor status and a suitability review, and the minimums are set by the sponsors. So there's no fixed minimum by strategy — review the specific DST or OZ fund's terms, including its minimum, when evaluating it.
Can I move from a DST into an OZ fund later, or vice versa?
Not directly as a tax-free move — a DST and an OZ fund are different vehicles under different rules, and you generally can't roll one into the other tax-free. When a DST resolves (its property sells), you can do another 1031 (into another DST or property) or potentially invest that gain into an OZ fund (within 180 days) — but that's a new decision for the new gain, not a tax-free transfer between the vehicles. Similarly, exiting an OZ fund is governed by the OZ rules (and the 10-year hold for the exclusion). So you don't move between them tax-free; rather, as each investment resolves, you make a new choice for the resulting gain. So plan each investment on its own terms, consulting your CPA when one resolves and you're deciding the next step for that gain.
Glossary
- Opportunity Zone Fund (QOF)
- The OZ vehicle (any gain, tax-free growth, development).
- Delaware Statutory Trust (DST)
- A passive 1031 vehicle (real estate gains, income).
- 1031 Exchange
- Deferring real estate gains via like-kind reinvestment (DSTs).
- Eligible Gains
- Real estate (DST) vs. any capital gain (OZ fund).
- Stabilized Real Estate
- Leased, income-producing property (DSTs).
- Development Project
- Building/improving property (common in OZ funds).
- Income Distributions
- Regular payments, steadier from DSTs.
- Hold Period
- ~5-7 years (DSTs) vs. 10 years (OZ funds).
- Development Risk
- The risk in OZ development, less in stabilized DSTs.
- Illiquidity
- Both strategies tie up capital during the hold.
- 10-Year Exclusion
- The OZ fund's tax-free growth benefit.
- Step-Up at Death
- The 1031/DST benefit eliminating the deferred gain.
- Indefinite Deferral
- The DST/1031's lasting deferral.
- Tax-Free Growth
- The OZ fund's appreciation exclusion.
- Diversified Allocation
- Using both strategies for balance.
- Accredited Investor
- The status typically required for both.
Sources & References
- IRS. Opportunity Zones Frequently Asked Questions
- IRS. Revenue Ruling 2004-86 (Delaware Statutory Trusts)
- Cornell Legal Information Institute. 26 U.S. Code § 1400Z-2 — Special rules for capital gains invested in opportunity zones
- U.S. Securities and Exchange Commission. Investor.gov — Real Estate Investment Trusts and Other Real Estate
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.
