There’s a particular kind of phone call that pushes people toward me. It usually comes in the evening, sometimes well after dark, and it’s a tenant on the other end with a problem that won’t wait until morning. After enough of those calls, a lot of investors start asking the same question: is there a way to stay invested in real estate without being the landlord?
There is. It’s called a Delaware Statutory Trust — a DST — and it’s one of the most useful structures I work with. But it’s also one of the most misunderstood, so let me walk through what it actually is, what you gain, and just as importantly, what you give up.
What a DST actually is
A Delaware Statutory Trust is a legal entity that holds title to one or more income-producing properties — an apartment community, a medical office building, a portfolio of industrial warehouses. As an investor, you buy a beneficial interest in that trust. You own a fractional, undivided piece of institutional-quality real estate, and you receive your share of the income it produces.
What you don’t do is manage anything. You don’t sign leases, you don’t coordinate repairs, you don’t field the 2 AM call. A professional sponsor handles the operations entirely. Your role is to own a piece and collect your portion of the cash flow.
Why this matters for a 1031 exchange
Here’s the part that makes DSTs especially relevant: the IRS treats a properly structured DST interest as “like-kind” real estate. That means you can use a DST as replacement property in a 1031 exchange and defer the capital-gains taxes from your sale, just as you would by buying another building outright.
A DST lets you stay invested in real estate and keep deferring taxes — without ever again being the person responsible for the building.
For someone selling a rental they’ve owned for decades, that’s a meaningful door to walk through. You can preserve your tax deferral and step out of active management in the same transaction.
What you gain
- Genuinely passive income. No management responsibilities at all. The cash flow shows up; the headaches don’t.
- Diversification. Instead of putting all your proceeds into one replacement building, you can spread an exchange across several DSTs in different property types and different parts of the country.
- Access to institutional real estate. The kind of assets that are usually out of reach for an individual buyer — large multifamily, net-lease portfolios, medical office — become accessible at a fraction of the whole.
- A reliable 1031 backstop. Because DSTs can typically close quickly, they’re a dependable identification option when an exchange deadline is closing in.
What you give up — and you should know this going in
I’d be doing you a disservice if I only listed the upside. DSTs involve real trade-offs, and the investors who are happiest with them are the ones who understood the costs before they invested.
- Control. You’re a passive beneficiary. You don’t make operational decisions, and you can’t direct the sale of the property. If hands-on control is what you love about real estate, a DST will feel constraining.
- Liquidity. These are illiquid, long-term holds. There is no public market to sell your interest, and your capital is generally committed for the life of the investment — often several years.
- Fees. DSTs carry sponsor and offering costs that affect your net return. They aren’t hidden, but they need to be understood and weighed against the convenience and tax benefits.
The questions I ask before recommending one
Not every investor should be in a DST, and not every DST is worth owning. Before I ever recommend one, I want to understand the sponsor’s track record, the quality and location of the underlying property, the fee structure top to bottom, and how the investment fits the rest of your picture. The structure is only as good as what’s inside it.
Who DSTs tend to fit
In my experience, the investor who benefits most from a DST is someone who has built real wealth through property, values the tax advantages of a 1031 exchange, and has simply reached the season of life where they’d rather not manage tenants anymore. If that sounds like where you are — tired of the operational grind but not ready to hand a third of your gains to taxes — a DST is worth a serious conversation.
Ben has spent 20+ years in alternative real estate investments, with senior roles at Cantor Fitzgerald, NexPoint Advisors, and Capital Square Advisors. He holds FINRA Series 7, 24, and 63 licenses and is a member of the Forbes Finance Council.