Land & Land-Banking Properties for 1031 Exchange & DST Investors

Raw land is the one replacement asset in a 1031 exchange that does not behave like the others, and the difference is not a detail. Land produces no current income. There is no tenant, no lease, no rent check, and no depreciation to shelter income, because land does not wear out. What an investor buys instead is a bet on appreciation: that a parcel sitting in the path of a growing city will be rezoned, entitled, and eventually sold to a homebuilder at a higher price than it cost. That can work, and it is a real strategy with real sponsors behind it. It is also slower, less certain, and produces zero cash along the way. Before anything else, an investor weighing land has to be honest about that trade. This guide explains the land-banking model, why land still qualifies for a 1031, the tax facts that make it unusual, the one trap that can disqualify it, and who it suits.

The one fact that defines land: no current income

Start where the difference lives. A net-leased building pays rent. An apartment complex pays rent. A marina earns slip fees and service revenue. Raw land pays nothing. There is no operating cash flow to distribute, which is why the current market benchmark yield for land is 0.00 percent. That is not a low number being rounded down; it is the literal absence of income.

An investor holding land is paying carrying costs, property taxes and any assessments, and receiving no rent in return. The money the owner hopes to make is locked entirely in the future sale price. If the parcel appreciates and sells, the return shows up all at once at the end. If it does not, there was never an income stream to fall back on.

We make clients sit with this before we go any further, because it inverts the usual logic of a 1031 replacement. Most exchangers are trading one income property for another, often to get more passive income with less work. Land offers the opposite: less work, yes, but no income at all. If the goal of the exchange is to keep a paycheck coming, land is the wrong answer, full stop.

The land-banking model

Land banking is the disciplined version of buying raw land. The idea is to acquire parcels in the path of a metro area's growth, before development reaches them, hold while the city expands toward the land, work the parcel through rezoning and entitlement so it is ready to build on, and then sell it to a homebuilder who needs lots to develop.

Walton Global Holdings is the best-known name running this strategy at scale, and they have done it for decades across the United States and Canada. Their model is to buy land early in fast-growing corridors, hold it through the entitlement process, and sell finished, build-ready parcels to national and regional homebuilders when demand arrives. On our shelf today, "Colorado Growth 1 - Holly Ridge DST," sponsored by Walton Global Holdings, is a current example of a land-banking DST available to accredited investors. We reference it as an example of the structure, not as a recommendation, and we are not quoting projected figures for it here.

The value, when it appears, comes from the work done to the land and the growth that arrives around it. Raw acreage on the edge of a city is worth one thing. The same acreage, rezoned for residential use, with entitlements in hand and a homebuilder ready to buy, is worth considerably more. That gap is the land banker's thesis. It is also why the hold can run long and the timing is never fully in the investor's control.

Land is like-kind real property for a 1031

Here is the part that surprises people: land qualifies. Raw, undeveloped land held for investment is like-kind to almost any other U.S. investment real estate under Section 1031. An investor can sell an apartment building and exchange into land, or sell land and exchange into a net-leased building, and the like-kind test is satisfied either way, because the standard for real property is broad.

That breadth is what makes land a usable replacement asset at all. The IRS does not require you to trade an apartment for an apartment. It requires real property held for investment or business use to be exchanged for other real property held for investment or business use. Land held as an investment fits cleanly inside that definition.

Most accredited investors who want land in an exchange reach it through a Delaware Statutory Trust rather than buying a parcel outright, for the same sizing reason that drives the rest of the DST market: a 1031 has to absorb an exact dollar amount, and a beneficial interest in a trust can be sized to the dollar where a single parcel cannot. The land qualifies; the structure makes it practical.

How land creates value, step by step

Appreciation on land is not magic, and it is not only the city growing closer. A lot of the value comes from work the sponsor does to the parcel itself. Understanding those steps helps an investor judge whether a given program is buying raw acreage and hoping, or buying with a plan to move the land up the value chain.

The first lever is location at purchase. A parcel bought early in a corridor that planners and homebuilders already expect to develop starts with a tailwind that a random rural tract does not. The second is entitlement work: rezoning the land for its highest realistic use, securing utility and road access, clearing environmental review, and laying out a subdivision plan a builder can use. Each approval removes a piece of uncertainty a homebuilder would otherwise have to price in, and a build-ready parcel commands far more than raw ground.

The third lever is timing the sale into builder demand. Homebuilders buy lots when their own pipelines need replenishing, so a sponsor who can hold until that appetite returns captures more than one forced to sell into a soft market. Those three levers, the entry, the entitlement, and the exit timing, are where a disciplined land banker earns the appreciation that the strategy promises. A program that controls all three is doing real work; one relying on growth alone is mostly hoping.

No income, and no depreciation either

Income is not the only thing land lacks. It also gives up the depreciation deduction that shelters income on every other kind of investment real estate. Buildings depreciate because they wear out; the tax code lets an owner write down that wear against rental income each year. Land does not wear out, so there is nothing to depreciate. No building, no depreciation schedule, no paper loss to offset other income.

This matters more than it sounds. On a net-leased building or an apartment complex, depreciation can shelter a meaningful slice of the rent from tax, so the after-tax yield is higher than the headline number. Land has no yield to shelter and no depreciation to do the sheltering. Both halves of the usual tax benefit are simply absent.

So an investor choosing land is giving up two things at once: the current income and the depreciation shield. In exchange, they get a pure appreciation play with the capital-gains deferral of the 1031 still intact. Whether that is a good trade depends entirely on the goal. For a deferral-plus-growth objective it can fit. For an income-plus-tax-shelter objective it does not.

Land keeps the 1031 deferral but gives up both current income and the depreciation shield. The benchmark yield of 0.00 percent is a current market benchmark and a literal statement, not a guarantee about any deal.

Read across that table and the picture is consistent. Land trades income and tax shelter for the chance at appreciation. There is no version where you get the growth and keep the yield.

The benchmark, and why we show no track record

We are deliberately spare with numbers here, because land does not offer the figures other types do. The benchmark yield is 0.00 percent, a current market benchmark that reflects the absence of income rather than a weak one. There is no going-in cash yield to quote because there is no cash flow.

We also do not have a body of full-cycle land DST results we would stand behind, so we are not going to publish a realized return, an appreciation multiple, or an average hold for land. Returns on land depend on rezoning success, the pace of growth in a specific corridor, and the timing of an eventual sale, all of which vary enormously from parcel to parcel. Past performance, where any exists, does not guarantee future results, and that caution carries extra weight for an asset whose entire return rides on a future event that may or may not happen.

Benchmark from Baker 1031 sector data, stated as a current market benchmark. The 0.00 percent yield is literal. We track no full-cycle land results, so realized rows are intentionally blank. Past performance does not guarantee future results.

The honest version is this: with land you are not buying a return you can measure today. You are buying a thesis about tomorrow. We would rather say that plainly than dress it up with numbers we cannot support.

The dealer-property trap

This is the technical risk specific to land, and it is worth understanding carefully because getting it wrong can disqualify the exchange. Section 1031 applies to property held for investment or for productive use in a trade or business. It does not apply to property held primarily for sale, which the tax code treats as inventory, sometimes called "dealer property."

Land sits close to that line by its nature. If a court or the IRS concludes that a taxpayer held land primarily to sell it, the way a developer holds building lots as inventory, the land can be recharacterized as dealer property and lose 1031 eligibility, with gain taxed as ordinary income rather than capital gain. The facts that get weighed include how long the land was held, how much development or subdivision work the taxpayer did, how many sales they made, and whether selling land is the taxpayer's regular business.

This is exactly why the DST structure and the sponsor's intent matter so much for land. A well-built land-banking DST is designed to hold land for investment and appreciation, with the trust as the investor, not to operate as a dealer flipping lots. The line between investing in appreciating land and dealing in inventory is fact-specific, and it is the single most important thing to get right with a qualified tax advisor before exchanging into land. We flag it on every land conversation, because it is the one mistake here that the 45-day clock cannot fix.

How land works inside a DST

An accredited investor rarely buys a development-path parcel directly in an exchange. The diligence on entitlement and growth is specialized, the parcels are large, and the exact-dollar sizing problem applies as it does everywhere in the 1031 world. A Delaware Statutory Trust solves the sizing: the trust holds title to the land, and an investor buys a beneficial interest matched to their exchange amount.

The same Revenue Procedure 2004-86 rules apply that govern every DST. Once the offering closes, the trust generally cannot raise new capital or refinance, and its activity is limited. For land that is often a comfortable fit, because the plan is to hold and pursue entitlement toward an eventual sale rather than to actively operate a business. The constraint that bites elsewhere, the inability to actively manage, is less of an issue for an asset whose job is mostly to sit and appreciate.

Pooling spreads risk here too. A land-banking program that holds parcels across several growth corridors is less exposed to one city stalling or one rezoning failing than a single parcel would be. It does not remove the central uncertainty, which is whether and when appreciation arrives, but it does keep one bad parcel from defining the whole result.

Where land can go wrong

The risks track straight from the structure. The first is the obvious one: no income to wait on. If the thesis takes longer than expected, the investor earns nothing in the meantime and keeps paying carrying costs. Time has a cost, and land charges it without paying interest.

Then there is execution risk on the appreciation itself. Rezoning can be denied or delayed. A growth corridor can cool, a homebuilder's appetite can dry up in a housing slowdown, and a parcel that looked build-ready can sit unsold. The eventual exit depends on a buyer wanting the land at the right time, which is outside anyone's full control. Add the dealer-property risk we covered, the speculative nature of the bet, and the illiquidity and lack of investor control inside a DST, and land emerges as the most uncertain of the property types we discuss with clients.

We do not say that to scare anyone off. We say it because land is the one type where the downside is not a smaller return; it is potentially no return, on capital that earned nothing while it waited. An investor needs to be able to absorb that outcome before the upside is worth pursuing.

Who it suits, and who should pass

Land fits an investor who wants to defer capital gains and is reaching for appreciation, not income, and who can wait years for a payoff that is not guaranteed to come. It tends to suit exchangers with other sources of income who do not need this capital to produce a paycheck, who have a long time horizon, and who understand they are making a speculative bet on growth and entitlement.

It is a poor fit, and we will say so directly, for anyone who needs current income, who cannot tolerate a hold with no cash flow, who might need liquidity, or who is uncomfortable with the chance that the appreciation never materializes. A retiree counting on the exchange to replace a rent check should look at net lease or another income asset instead. Land is a growth allocation wearing the clothes of a 1031 replacement, and it should be sized and chosen with that in mind, usually as one slice of a broader exchange rather than the whole of it.

Working with Baker 1031

Land-banking DSTs are a specialized corner of the 1031 market, and the sponsor's discipline matters more here than almost anywhere. We provide sponsor-agnostic diligence: we look at the growth corridor, the entitlement plan, the sponsor's land-banking history, and the structure's care around dealer-property intent before we discuss whether land belongs in an exchange at all. We are paid to be skeptical on your behalf, not to push any one sponsor.

Because land carries the longest and least certain hold of the types we cover, and because the dealer-property question has to be settled before you exchange, the time to ask about it is early, well before the 45-day identification window opens. We keep a current view of vetted DST offerings open to accredited investors, including land-banking programs such as the Walton-sponsored example noted above, and we are glad to walk through whether an appreciation play fits your goals and, if so, in what size.

View Available Land Investments →

Frequently Asked Questions

Glossary

Land Banking

Buying land in the path of growth before development reaches it, holding through entitlement, and selling build-ready parcels to homebuilders.

Entitlement

The approvals, such as zoning changes and permits, that make raw land legally ready to be developed, which can sharply raise its value.

Rezoning

A change in a parcel's permitted use, for example from agricultural to residential, often a precondition for selling land to a homebuilder.

Dealer Property

Real estate held primarily for sale to customers, treated as inventory and excluded from 1031 treatment, with gain taxed as ordinary income.

Carrying Cost

The ongoing expense of holding land, such as property taxes and assessments, paid while the land produces no income.

Appreciation

An increase in a property's value over time, which is the sole source of return on raw land since it pays no rent.

Like-Kind Property

Real property held for investment or business use that can be exchanged for other such real property under Section 1031; the standard is broad and includes land.

Depreciation

A tax deduction reflecting the wearing out of a building; land cannot be depreciated because it does not wear out.

Revenue Procedure 2004-86

The IRS guidance that lets a beneficial interest in a Delaware Statutory Trust qualify as like-kind property for a 1031 exchange, while restricting what the trust may do.

Sources & References

Disclosures