Definition
A Delaware Statutory Trust is a legal structure that lets multiple investors hold fractional ownership in institutional-grade real estate while qualifying as replacement property for a 1031 exchange.
How It Works
A sponsor acquires, finances, and manages a property or portfolio, then offers beneficial interests to investors. The IRS treats a DST interest as direct property ownership for 1031 purposes, so it satisfies the like-kind requirement. Investors receive a proportional share of income and any eventual sale proceeds without handling management themselves.
Example
An investor finishing a 1031 with $500,000 to place, but no desire to buy and manage a building, invests in a DST holding a portfolio of apartment communities and receives passive distributions.
When It Works Best
It suits investors completing a 1031 who want a passive, pre-packaged replacement property rather than sourcing, financing, and managing one directly, often later in life or when simplifying a portfolio.
Who It Applies To
Generally accredited investors completing a 1031 exchange.
Watch-Outs
Investors have no control over decisions, the interest is illiquid and usually held until the sponsor sells (often 5 to 10 years), fees reduce returns, and outcomes depend entirely on the sponsor and the underlying property.
