There are many ways to invest in real estate, but three structures capture the most important trade-offs: a REIT (shares in a company that owns or finances real estate), a Delaware Statutory Trust or DST (a passive, fractional interest in specific properties that qualifies for a 1031 exchange), and direct ownership (buying and holding property yourself). Each offers real estate exposure, but they differ enormously in tax treatment, control, liquidity, effort, and minimum investment. For an investor with a property sale and a capital-gains bill, the central question is often 1031 eligibility — and here the three split sharply: direct ownership and DSTs qualify, REIT shares do not. But 1031 eligibility is only one axis. This guide defines all three options, compares 1031 eligibility, examines income and control, weighs liquidity and minimums, and lays out a decision framework. Note that Baker 1031 does not provide tax or legal advice — verify the current rules and your specific situation with your tax advisor; this is educational information, not investment advice.
The Three Options Defined
Start by defining each structure clearly, because they sit at different points on the real estate spectrum. A REIT is a company that owns, operates, or finances a diversified portfolio of income-producing real estate and distributes most of its income as dividends; if publicly traded, its shares are liquid and priced daily, while non-traded REITs are illiquid and priced at NAV. You own shares in the company, not specific buildings, and your exposure is passive and diversified.
A DST (Delaware Statutory Trust) is a trust that holds one or a few specific properties, in which investors own fractional beneficial interests and receive a share of the rental income. A DST interest is treated as like-kind real property, so it qualifies as replacement property in a 1031 exchange — making DSTs a popular passive landing spot for exchangers. DSTs are passive (you don't manage the property), illiquid (held until the sponsor sells, typically after a five-to-seven-year hold), and limited to accredited investors. Direct ownership means buying and holding property yourself — you have full control, can use leverage, claim depreciation directly, and qualify for 1031 exchanges, but you also handle management, financing, and concentration in one or a few assets.
So the three options are a REIT (passive, diversified shares), a DST (passive, 1031-eligible fractional real estate), and direct ownership (hands-on, controllable, 1031-eligible property). So defining each frames the comparison. The three options defined — a REIT being diversified, passive company shares (liquid if traded); a DST being a passive, 1031-eligible fractional interest in specific properties over a defined hold for accredited investors; and direct ownership being hands-on property with full control, leverage, depreciation, and 1031 eligibility but active management and concentration — set up the trade-offs across tax, control, liquidity, effort, and minimums. Each occupies a distinct point on the spectrum. Understanding the definitions frames everything else. A REIT is passive diversified shares, a DST is passive 1031-eligible fractional real estate, and direct ownership is hands-on, controllable, 1031-eligible property.
1031 Eligibility Compared
The 1031 eligibility difference is the most consequential one for an investor with a property sale and capital gains to defer. A 1031 exchange lets you sell investment real estate and reinvest the proceeds into like-kind replacement real estate while deferring the capital-gains tax you'd otherwise owe. To qualify, the replacement must be like-kind real property. Direct ownership clearly qualifies — buying another investment property is the classic 1031 exchange. A DST also qualifies: a DST interest is structured to be treated as a direct interest in real property (under IRS Revenue Ruling 2004-86), so it serves as 1031 replacement property and lets exchangers move to passive ownership while deferring tax.
A REIT share, by contrast, does not qualify, because it is a security (an interest in a company), not like-kind real property. So you can't sell a property and 1031 directly into REIT shares to defer your gain. There is an indirect bridge: an investor can 1031 into a DST, and if the DST's property is later acquired by a REIT through a 721 (UPREIT) exchange, the investor's interest converts into operating-partnership units (and eventually, potentially, REIT shares) while maintaining the deferral. So REIT exposure can be reached after a 1031 — but never by exchanging directly into a REIT.
So on 1031 eligibility, direct ownership and DSTs qualify while REIT shares don't (though a DST-then-721 path can ultimately reach a REIT). So this is the dividing line for exchangers. 1031 eligibility compared — direct ownership and DSTs both qualifying as like-kind real property that defers capital-gains tax on a property sale (the DST being the passive option, under Revenue Ruling 2004-86), versus a REIT share being a non-qualifying security, reachable only through a DST-then-721-into-REIT path — is the most consequential difference for an exchanger. Two of the three defer; the REIT does not directly. Understanding it is the dividing line. Direct ownership and DSTs are 1031-eligible like-kind property that defer tax, while a REIT share is a non-qualifying security reachable only via a DST-then-721 bridge.
If you're carrying a capital-gains bill from a property sale, this axis decides a lot: a DST or another property can defer it, REIT shares cannot — and that gap rarely closes by wishing the underlying real estate looked similar enough.
Income & Control
The three options differ markedly in their income profiles and in how much control they give you. Direct ownership offers the most control and the most direct income: you set rents, choose tenants, decide on improvements, use leverage, and claim depreciation directly against the rental income — but you also do (or hire and oversee) the work, and your income depends on a concentrated set of properties you manage. The upside is operating control and direct tax benefits; the downside is effort and concentration.
A DST offers passive, specific-property income with no control: you receive a share of the rental income from the trust's known properties over a defined hold (commonly five to seven years), but you don't manage anything and can't make operating decisions — the sponsor does. A REIT offers passive, diversified, portfolio-level income through dividends, with the most diversification of the three (many properties, often many markets and sectors) but no control over individual assets; income REITs emphasize steady yield while growth REITs reinvest for appreciation. So control runs from highest (direct) to none (DST and REIT), while diversification runs from lowest (direct and single-DST) to highest (REIT).
So income and control trade off: direct ownership gives control and direct depreciation but demands effort and concentration; DSTs and REITs are passive, with DSTs concentrated and specific and REITs diversified and portfolio-level. So these differences shape the experience. Income and control — direct ownership offering full control, leverage, direct depreciation, and concentrated income that you manage; a DST offering passive, specific-property income over a defined hold with no control; and a REIT offering passive, diversified, portfolio-level dividend income with no control but the most diversification (income or growth oriented) — distinguish the three. Control is highest for direct, absent for DST and REIT; diversification is highest for the REIT. Understanding this shapes the experience of each. Direct ownership means control, leverage, and effort; DSTs mean passive concentrated income; REITs mean passive diversified dividends.
Liquidity & Minimums
Liquidity and minimum investment vary widely across the three, and they often drive practical decisions. A publicly traded REIT is the most liquid by far — its shares trade on an exchange, so you can buy or sell any trading day at a market price, and the minimum is essentially the price of one share (or a fund share). That makes REITs accessible at low minimums and easy to exit. A non-traded REIT, however, is illiquid like a DST, with only capped, suspendable redemptions.
A DST is illiquid: you generally can't readily sell your fractional interest and remain invested until the sponsor sells the underlying property (typically after a multi-year hold), with little or no secondary market. DST minimums are also higher — often around $100,000 for direct 1031 investors (and sometimes lower for cash investors) — and DSTs are limited to accredited investors. Direct ownership is the least liquid in practical terms (selling a property takes time, effort, and transaction costs) and has the highest capital requirement, since you're buying whole assets, often with substantial down payments. So liquidity favors traded REITs strongly, while minimums are lowest for REITs and highest for direct ownership.
So liquidity and minimums spread the three apart: traded REITs are liquid and low-minimum, DSTs are illiquid and accredited-only with six-figure minimums, and direct ownership is illiquid and capital-intensive. So these practical factors often shape the choice. Liquidity and minimums — a publicly traded REIT being highly liquid and low-minimum (a share or fund share), a non-traded REIT being illiquid like a DST, a DST being illiquid (held until the property sells) with higher minimums (often around $100,000) and accredited-only access, and direct ownership being illiquid and the most capital-intensive — vary widely and often drive practical decisions. Traded REITs win on liquidity and access; direct ownership demands the most capital. Understanding these completes the comparison. Traded REITs are liquid and low-minimum; DSTs are illiquid, accredited-only, and six-figure; direct ownership is illiquid and capital-intensive.
- A REIT is passive diversified shares, a DST is passive 1031-eligible fractional real estate, and direct ownership is hands-on, controllable, 1031-eligible property.
- On 1031 eligibility, direct ownership and DSTs qualify to defer capital-gains tax; a REIT share does not (a DST-then-721 path can reach a REIT).
- Control runs highest for direct ownership and absent for DSTs and REITs; diversification runs highest for REITs and lowest for direct and single-DST holdings.
- Traded REITs are liquid and low-minimum; DSTs are illiquid, accredited-only, and six-figure; direct ownership is illiquid and the most capital-intensive.
Effort and Management
Beyond tax and liquidity, the three options demand very different amounts of effort, which is often the deciding factor for investors weighing lifestyle alongside returns. Direct ownership is the most hands-on: you're responsible for acquiring, financing, leasing, maintaining, and eventually selling the property — or for hiring and overseeing a property manager. Even with help, direct ownership involves ongoing decisions, occasional problems (vacancies, repairs, tenant issues), and active engagement. For investors who want control and don't mind the work, this effort is the price of the operating upside and direct tax benefits.
A DST and a REIT are both genuinely passive — you make no operating decisions and do no management. With a DST, the sponsor handles the property entirely; you simply receive income and wait for the eventual sale. With a REIT, the company's management runs the portfolio; you own shares and collect dividends. The difference between the two passive options is mainly diversification and liquidity, not effort. So for an investor seeking to step back from active management — a common motivation for 1031 exchangers tired of being landlords — a DST (1031-eligible) or a REIT (not 1031-eligible) removes the day-to-day burden that direct ownership carries.
So effort runs from highest (direct ownership) to passive (DSTs and REITs) — a key factor for investors weighing time and lifestyle. So the effort dimension often tips the decision. Effort and management — direct ownership being the most hands-on (acquiring, financing, leasing, maintaining, and selling, or overseeing a manager), versus DSTs and REITs being genuinely passive (the sponsor or the REIT's management runs everything while you receive income) — is a major practical difference, especially for exchangers seeking to retire from active landlording. Direct ownership demands engagement; DSTs and REITs remove it. Understanding effort often tips the decision. Direct ownership is the most hands-on, while DSTs and REITs are passive — a key factor for investors weighing time, lifestyle, and the desire to stop managing property.
For a lot of long-time landlords, the real question isn't just tax deferral — it's whether they ever want to take a midnight maintenance call again. A DST or REIT answers that with a firm no.
A Decision Framework
Putting it together, the choice among a REIT, a DST, and direct ownership comes down to a handful of questions. First, do you need a 1031 exchange? If you're selling appreciated property and want to defer the gain, only direct ownership and DSTs qualify; a REIT does not (though a DST-then-721 path can reach one). Second, do you want income or growth, and do you want control? Direct ownership offers control and direct depreciation; DSTs offer passive, defined-hold income; REITs offer diversified income or growth with no control.
Third, how much liquidity do you need? A publicly traded REIT is liquid; DSTs, non-traded REITs, and direct property are not. Fourth, how much effort do you want to put in? Direct ownership is hands-on; DSTs and REITs are passive. Fifth, what are your minimums and access? REITs are low-minimum and broadly available; DSTs require accredited status and six-figure minimums; direct ownership requires the most capital. A common pattern: an exchanger who wants to defer tax and stop managing property chooses a DST; an investor with new capital who wants liquid, diversified exposure chooses a REIT; an investor who wants control and direct tax benefits chooses direct ownership. Some combine them over time, including via a DST-then-721 into a REIT.
So the framework weighs 1031 need, income vs. growth, control, liquidity, effort, and minimums to point you toward one structure (or a combination). So answering these questions guides the decision. A decision framework — asking whether you need a 1031 exchange (only direct and DST qualify), whether you want income or growth and control (direct for control and depreciation, DST for passive defined-hold income, REIT for diversified income or growth), how much liquidity you need (traded REITs are liquid; the rest aren't), how much effort you want (direct is hands-on; DSTs and REITs are passive), and your minimums and access (REITs low, DSTs accredited and six-figure, direct the most capital) — points you toward the right structure or combination. Match the answers to the vehicle. Understanding the framework guides the choice. The decision turns on 1031 need, income vs. growth, control, liquidity, effort, and minimums.
How Baker 1031 Helps You Choose
Baker 1031 Investments helps investors compare REITs, DSTs, and direct ownership — defining each option, comparing 1031 eligibility, examining income and control, weighing liquidity and minimums and effort, and working through a decision framework — so you can choose the structure (or combination) that fits your tax situation, goals, time horizon, and appetite for control and effort.
REIT and non-traded-REIT interests, DST interests, and related securities are offered through the broker-dealer, Aurora Securities, Inc. (member FINRA/SIPC), and any recommendation follows a suitability review — DSTs and non-traded and private REITs typically require accredited or otherwise suitable investors, while publicly traded REITs trade through ordinary brokerage accounts. We help you understand the trade-offs across tax, income, control, liquidity, effort, and minimums; evaluate specific DST and REIT offerings; and, where it fits, coordinate a 1031 exchange into a DST (and potentially a later 721/UPREIT into a REIT). Baker 1031 does not provide tax or legal advice; your CPA and attorney handle your specific tax situation, including 1031, 721, depreciation, and the step-up at death, which can be technical. Yields and returns are never promised — past performance does not guarantee future results. Our role is to help you compare these three paths clearly and invest only when suitable for your goals and risk tolerance, coordinating with your tax professionals throughout.
Frequently Asked Questions
What are the three main ways to invest in real estate compared here?
This guide compares three structures: a REIT, a DST, and direct ownership. A REIT is a company that owns, operates, or finances a diversified portfolio of income-producing real estate and pays most of its income as dividends; you own shares (liquid if the REIT is publicly traded, illiquid if non-traded). A DST (Delaware Statutory Trust) is a trust holding one or a few specific properties in which investors own fractional, 1031-eligible beneficial interests, receiving income over a defined hold; DSTs are passive, illiquid, and limited to accredited investors. Direct ownership means buying and holding property yourself, with full control, leverage, direct depreciation, and 1031 eligibility, but active management and concentration. So the three differ in tax treatment, control, liquidity, effort, and minimums: a REIT is passive diversified shares, a DST is passive 1031-eligible fractional real estate, and direct ownership is hands-on, controllable, 1031-eligible property. Each fits different goals and situations.
Which of these qualify for a 1031 exchange?
Direct ownership and DSTs qualify for a 1031 exchange; a REIT share does not. A 1031 exchange requires reinvesting into like-kind real property to defer capital-gains tax. Buying another investment property (direct ownership) is the classic 1031 exchange. A DST interest is structured to be treated as a direct interest in real property under IRS Revenue Ruling 2004-86, so it serves as 1031 replacement property — making DSTs the passive option for exchangers. A REIT share, by contrast, is a security, not real property, so you can't 1031 directly into REIT shares. There is an indirect bridge: you can 1031 into a DST, and if the DST's property is later acquired by a REIT through a 721 (UPREIT) exchange, your interest converts into operating-partnership units (and eventually, potentially, REIT shares) while preserving the deferral. So two of the three defer tax directly, and REIT exposure is reachable only through a DST-then-721 path. Confirm the specifics with your tax advisor.
Which option gives the most control?
Direct ownership gives the most control by far. As the direct owner, you set rents, choose tenants, decide on improvements and capital expenditures, choose your financing and leverage, and claim depreciation directly against the rental income — you make every operating decision. A DST gives you no control: you own a passive fractional interest and receive income, but the sponsor manages the property and makes all decisions over the hold. A REIT also gives you no control over individual assets: you own shares in the company, and its management runs the diversified portfolio. So control runs from highest (direct ownership) to none (DST and REIT). The trade-off is effort and concentration: direct ownership's control comes with hands-on management and exposure to a small number of properties, while the passive options (DST and REIT) remove the control but also remove the work. So if operating control and direct tax benefits matter most to you, direct ownership is the choice; if you'd rather be passive, a DST or REIT fits better.
Which is the most liquid?
A publicly traded REIT is by far the most liquid of the three. Its shares trade on a stock exchange, so you can buy or sell any trading day at a market price, and you can exit quickly with low transaction costs. A non-traded REIT, however, is illiquid like a DST, offering only capped, suspendable redemptions. A DST is illiquid: you generally can't readily sell your fractional interest and remain invested until the sponsor sells the underlying property, typically after a multi-year hold, with little or no secondary market. Direct ownership is also illiquid in practical terms — selling a property takes time, marketing, negotiation, and significant transaction costs. So liquidity favors publicly traded REITs strongly, while DSTs, non-traded REITs, and direct property all require a multi-year commitment. If the ability to exit quickly is important to you, a publicly traded REIT provides it; the other options do not. Weigh that liquidity against the DST's and direct ownership's 1031 eligibility, which the liquid traded REIT lacks.
What are the minimum investments for each?
Minimums vary widely. A publicly traded REIT has the lowest minimum — essentially the price of one share, or one fund or ETF share — so it's accessible to almost any investor with a brokerage account. A DST has a higher minimum, often around $100,000 for direct 1031 exchange investors (and sometimes lower for cash investors), and DSTs are limited to accredited investors, so there's both a dollar threshold and an eligibility requirement. Direct ownership has the highest practical capital requirement, since you're buying whole properties, often with substantial down payments plus closing and reserve costs. So minimums run from lowest (REITs) to highest (direct ownership), with DSTs in between and gated by accredited-investor status. This is an important practical factor: an investor with modest capital may find REITs the only accessible option, while a 1031 exchanger with significant proceeds can meet a DST minimum, and a well-capitalized investor seeking control can pursue direct ownership. Match the minimum and access requirements to your capital and eligibility.
Which option is the most passive?
DSTs and REITs are both genuinely passive, while direct ownership is the most hands-on. With a DST, the sponsor handles the property entirely — acquisition, leasing, management, and the eventual sale — and you simply receive income; you make no operating decisions. With a REIT, the company's management runs the diversified portfolio, and you own shares and collect dividends. So both remove the day-to-day burden of real estate. Direct ownership, by contrast, requires you to acquire, finance, lease, maintain, and sell the property, or to hire and oversee a property manager — it involves ongoing decisions and occasional problems like vacancies and repairs. For investors who want to step back from active management (a common motivation for 1031 exchangers tired of being landlords), a DST (1031-eligible) or a REIT (not 1031-eligible) provides passive exposure. So if minimizing effort is a priority, choose a DST or REIT; if you want control and don't mind the work, direct ownership offers it. The two passive options differ mainly in diversification and liquidity, not effort.
Can I move from a DST into a REIT?
Yes — there's an established path from a DST into a REIT that preserves tax deferral, known as the 721 or UPREIT exchange. Here's how it works: you complete a 1031 exchange into a DST (deferring the gain on your property sale), and later the DST's property may be acquired by a REIT's operating partnership. Through a 721 exchange, your DST interest is contributed to the operating partnership in return for operating-partnership (OP) units, which can eventually convert into REIT shares. Throughout this process, the tax deferral is generally maintained. The result is that you start with 1031-eligible real estate (the DST) and end up with REIT exposure (diversification and, eventually, potential liquidity) without triggering the deferred tax along the way. Note that once you hold OP units or REIT shares, you've left 1031-eligible real property, so a future 1031 exchange isn't available from that point. So the DST-then-721 path bridges the 1031 world and the REIT world. Confirm the specifics and timing with your tax advisor, since the mechanics are technical.
Which option offers the best diversification?
A REIT offers the best diversification of the three. A single REIT typically owns many properties across multiple markets — and sometimes multiple sectors — so buying one REIT share gives you exposure to a broad pool of real estate rather than a single building; a REIT fund or ETF adds another layer by holding many REITs. A DST is far more concentrated: it typically holds one or a few specific properties, so your exposure is tied to that small set of assets (though some investors spread a 1031 exchange across multiple DSTs to diversify). Direct ownership is the most concentrated of all — your capital is in one or a few properties you own outright. So diversification runs from highest (REIT) to lowest (direct ownership and single-DST). If broad diversification is a priority, a REIT provides it most easily; if you prefer concentrated exposure to specific, known real estate (and, for a DST, 1031 eligibility), a DST or direct ownership fits. Diversification is one of several axes to weigh against tax treatment, control, liquidity, and effort.
What are the tax benefits of direct ownership versus a REIT or DST?
Direct ownership offers the most direct tax benefits. As the owner, you claim depreciation directly against your rental income (potentially sheltering some of it), can use cost-segregation studies, control the timing of gains, and qualify for 1031 exchanges to defer capital-gains tax indefinitely. A DST also offers 1031 eligibility (you defer the gain on a property sale by exchanging into the DST) and passes through depreciation to investors, plus a step-up in basis for heirs if held until death — but you don't control the depreciation strategy. A REIT is different: REIT dividends are mostly taxed as ordinary income (with a 20% Section 199A deduction on qualified REIT dividends, made permanent by the 2025 OBBBA), and REIT shares are not 1031-eligible, so you can't defer a property-sale gain by buying REIT shares. So direct ownership and DSTs offer 1031 deferral and depreciation benefits, while a REIT offers the 199A deduction but no 1031 eligibility. Baker 1031 doesn't provide tax advice — verify the current rules and your specific situation with your tax advisor.
Who should choose a DST?
A DST tends to fit an investor who has sold (or is selling) investment real estate and wants to defer the capital-gains tax through a 1031 exchange while moving to passive ownership. It's purpose-built for the 1031 exchanger who wants real estate income over a defined hold (commonly five to seven years), doesn't need liquidity, is comfortable being passive with no operating control, and may want the eventual step-up in basis for heirs. A DST is especially appealing to long-time landlords who are tired of active management and want to retire from being a hands-on owner without triggering a large tax bill. DSTs require accredited-investor status and typically have minimums around $100,000 for 1031 investors. They're illiquid, so a DST is appropriate only for capital you can leave invested through the hold. So choose a DST if you need 1031 deferral, want passive defined-hold income, don't need liquidity, and accept the accredited-investor and minimum requirements — confirmed by a suitability review. If you want liquidity or are investing new (non-exchange) capital, a REIT may fit better.
Who should choose a REIT?
A REIT tends to fit an investor who isn't doing a 1031 exchange and wants liquid, diversified real estate exposure. It's a strong choice for someone investing new capital (not exchange proceeds) who values daily liquidity (a publicly traded REIT), broad diversification across many properties and sectors, low minimums, and the ability to add real estate to a portfolio easily — and who is comfortable with market pricing and short-term volatility. A REIT is also the choice when you want growth-oriented or sector-specific exposure that a single DST can't provide, or when you simply want a low-effort, passive, liquid way to own real estate. The key limitation is that REIT shares aren't 1031-eligible, so a REIT doesn't help you defer a property-sale gain (though a DST-then-721 path can bridge to one). So choose a REIT if you want liquid, diversified, low-minimum, passive real estate exposure with new capital, and you don't need 1031 deferral. If tax deferral on a property sale is your goal, a DST or direct ownership fits better. Match the vehicle to your capital source and goals.
Who should choose direct ownership?
Direct ownership tends to fit an investor who wants control and direct tax benefits and doesn't mind the work. It's the right choice for someone who wants to set rents, choose tenants, make operating and capital decisions, use leverage to amplify returns, and claim depreciation directly — and who has the capital to buy whole properties and the time (or willingness to hire a manager) to handle acquisition, leasing, maintenance, and eventual sale. Direct ownership also offers the fullest 1031 flexibility, letting you exchange from one property to another indefinitely. The trade-offs are significant: it's the most hands-on, the least liquid, the most capital-intensive, and the most concentrated of the three options, exposing you to property-specific risk. So choose direct ownership if you value control, operating upside, and direct tax benefits, have substantial capital, and accept the management effort and illiquidity. If you'd rather be passive — a common goal for investors tired of landlording — a DST (1031-eligible) or a REIT (liquid, diversified, but not 1031-eligible) removes the day-to-day burden while still providing real estate exposure.
Can I combine these strategies?
Yes — many investors use more than one of these structures, sometimes in sequence. A common pattern over time: an investor begins with direct ownership (buying and managing properties), and when they want to retire from active management without triggering a large tax bill, they complete a 1031 exchange into one or more DSTs for passive, defined-hold income while deferring the gain. Later, if a DST's property is acquired by a REIT through a 721 (UPREIT) exchange, the investor can move into REIT exposure (diversification and eventual potential liquidity) while maintaining deferral. Investors also commonly hold a mix simultaneously — for example, direct property for control, DSTs for passive 1031 deferral, and publicly traded REITs for liquid, diversified exposure with new capital. So these aren't mutually exclusive; they can complement one another across a portfolio and over an investing lifetime. The right combination depends on your tax situation, goals, liquidity needs, and appetite for control and effort. Baker 1031 can help you understand how the structures fit together; your CPA and attorney handle the specific tax mechanics, which can be technical.
What are the risks of each option?
Each of the three options carries distinct risks. Direct ownership exposes you to concentration risk (your capital is in one or a few properties), management and operational risk (vacancies, repairs, problem tenants), leverage risk (debt amplifies both gains and losses), and illiquidity (selling takes time and cost). A DST carries concentration risk (it holds one or a few specific properties), illiquidity (you're committed until the sponsor sells, with little secondary market), no control (the sponsor makes all decisions), and the risk that the property underperforms or that the eventual sale price disappoints. A REIT carries market risk (publicly traded shares fluctuate with the market), interest-rate risk (REITs are rate-sensitive), property and sector risk, and distribution risk (dividends can be cut); non-traded REITs add illiquidity. So all three involve real risk of loss — direct ownership and DSTs are concentrated and illiquid, while REITs add market and rate sensitivity. Diversifying, understanding the structure, and sizing the position appropriately help manage these risks but don't eliminate them. Past performance doesn't guarantee future results.
How does Baker 1031 help me choose among REITs, DSTs, and direct ownership?
We help investors compare REITs, DSTs, and direct ownership — defining each option, comparing 1031 eligibility, examining income and control, weighing liquidity, minimums, and effort, and working through a decision framework — so you can choose the structure or combination that fits your tax situation, goals, time horizon, and appetite for control and effort. REIT and non-traded-REIT interests, DST interests, and related securities are offered through the broker-dealer, Aurora Securities, Inc. (member FINRA/SIPC), and any recommendation follows a suitability review; DSTs and non-traded and private REITs typically require accredited or otherwise suitable investors, while publicly traded REITs trade through ordinary brokerage. We help you understand the trade-offs, evaluate specific DST and REIT offerings, and, where it fits, coordinate a 1031 into a DST and a potential later 721/UPREIT into a REIT. Baker 1031 doesn't provide tax or legal advice — your CPA and attorney handle 1031, 721, depreciation, and the step-up. Yields and returns are never promised; past performance doesn't guarantee future results.
Glossary
- REIT
- A company that owns, operates, or finances income-producing real estate.
- DST (Delaware Statutory Trust)
- A passive, 1031-eligible fractional interest in specific properties.
- Direct Ownership
- Buying and holding property yourself, with full control.
- 1031 Exchange
- A swap of like-kind real property that defers capital-gains tax.
- Like-Kind Property
- Real property held for investment that qualifies for a 1031 exchange.
- Revenue Ruling 2004-86
- The IRS ruling treating a DST interest as 1031-eligible real property.
- 721 / UPREIT Exchange
- Contributing property to a REIT for OP units, preserving deferral.
- Operating-Partnership (OP) Units
- Units received in a 721 exchange that can convert to REIT shares.
- Depreciation
- A deduction direct owners and DSTs pass through against income.
- Step-Up in Basis
- The reset of basis to fair market value at death, erasing deferred gain.
- Accredited Investor
- An investor meeting income or net-worth thresholds for DSTs and private REITs.
- Publicly Traded REIT
- An exchange-listed, liquid, low-minimum REIT.
- Non-Traded REIT
- An SEC-registered but unlisted, illiquid, NAV-priced REIT.
- Liquidity
- The ability to sell and access your capital readily.
- Section 199A Deduction
- The 20% deduction on qualified REIT dividends.
- Suitability Review
- Assessing whether a DST or REIT fits the investor before investing.
Sources & References
- U.S. Securities and Exchange Commission. Investor.gov — Real Estate Investment Trusts (REITs)
- Cornell Legal Information Institute. 26 U.S. Code § 1031 — Exchange of real property held for productive use or investment
- Nareit. What's a REIT (Real Estate Investment Trust)?
- FINRA. Real Estate Investments
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.
