Delaware Statutory Trust (DST)1031 Exchange: Common Questions Answered

Delaware Statutory Trust (DST) 1031 exchange lets you defer capital gains tax, earn passive real estate income, and eliminate landlord responsibilities, without sacrificing your ability to reinvest under IRC Section 1031. If you want to perform a 1031 exchange but don’t want to manage a commercial property yourself, a DST provides many benefits.

We at JTC sometimes take for granted that we have access to some of the best minds in the business when it comes to IRC Section 1031 like-kind exchanges. For those just getting started, we want to make sure we periodically take a step back and cover the basics.

One topic we’re frequently asked about is Delaware Statutory Trusts (DSTs), which have become incredibly popular as 1031 replacement properties. Let’s answer some common questions and discuss the ins and outs so you can decide if a DST investment is right for you.

If you’re new to 1031 exchanges or want to brush up on the basics, check out our 1031 Exchange Guide.

What is a Delaware Statutory Trust (DST)?

Delaware Statutory Trusts (DSTs) are real estate investment vehicles in which a group of investors buy a property or group of properties to be managed by a professional property manager. Essentially, an entity is created that acts as the “master tenant” and owns the properties, and individuals invest in that entity without having to actively manage them.

You do not have to live in Delaware to participate in a DST, and since DST interests qualify as like-kind properties under Section 1031, they present excellent opportunities to diversify your real estate portfolio or generate passive income. Instead of investing the proceeds of a property sale into owning a residential property, you could exchange into a DST and let someone else handle day-to-day operations.

DST advantages for 1031 exchanges

Whether or not you should choose a DST over a whole property for your 1031 exchange depends on your financial situation, life stage, and occupation. Investors new to commercial real estate will appreciate the simplicity of DSTs and that they don’t have to worry about when to sell the properties.

Key benefits of DSTs for investors include:

• No rehab or property management: Professional managers handle all operations.
• Low barrier to entry: Minimum investment is far lower than buying an entire property.
• Instant portfolio diversification: Access the DST’s entire portfolio rather than a single property.
• Multiple DSTs in one 1031 exchange: Reinvest gains into several DSTs, maintaining 1031 tax deferral.
• Access to institutional markets: Invest in houses, commercial, hospitality, industrial, and other property types, even if unaffordable individually.
• Certainty for 1031 deadlines: DSTs reduce risk of unavailable replacement properties due to the 45-day identification rule and 180-day purchase deadline.
• Passive income for retirement: Generate steady cash flow while deferring capital gains taxes.
• Simplification in estate planning: DSTs allow heirs to individually manage interests, reducing conflict in executing the swap till you drop strategy. Read more.

Potential downsides of investing in a DST

The biggest drawback is lack of control: investors do not choose properties, rents, or sale timing. If you want control over your real estate, a DST may not suit you. However, DSTs are ideal for passive 1031 exchange investments offering hassle-free management and competitive returns.

Typical DST investor structure: how many investors can join?

Unlike TICs, which limit to 35 investors, DSTs can include hundreds of investors (usually 99–499). Benefits include:

• Diverse portfolio creation due to a larger investor pool.
• Low minimum investment to enter otherwise inaccessible markets.

Average initial investment for a DST

Minimum DST investment varies. Typical minimum is $100,000 for 1031 investors, though some DSTs accept as low as $25,000, allowing participation without large capital gains.

DST property types and portfolio size

DSTs can be:

• Single-asset: One large property; simpler but less diversified.
• Multi-asset: Several properties; offers diversification. Assets under management can range $15M–$150M.

Expected returns from a DST investment

DSTs generate passive income via rent. Typical cash-on-cash (CoC) returns are 4–9%, plus appreciation realized upon sale, which can be significant over 10-year holding periods.

DST holding period: what you need to know

Holding periods are ≤10 years. Selling before maturity is possible, but secondary market liquidity is limited. Upon maturity, exchanges out of DSTs can be into another DST, whole property, or a REIT via a Section 721 UPREIT exchange.

Investing in a DST without a 1031 exchange

DSTs are available to non-1031 investors with lower minimums ($25,000). This allows participation even without gains from a property sale.

How 1031 exchanges work with DSTs: rules and requirements

Both exchanges into and out of DSTs follow standard 1031 rules. A Qualified Intermediary (QI) is required to hold proceeds and avoid constructive receipt. JTC specializes in DST exchanges, providing 24/7 fund security and guidance.

Download our 1031 fact sheet