When real estate investors think about selling an investment property, one of the biggest concerns is taxes. Between capital gains tax, depreciation of recapture, and state tax exposure, a large portion of the profit can disappear quickly. Many investors are aware of the 1031 exchange, which allows them to defer those taxes, but they may not want to buy and manage another property. That’s where the Delaware Statutory Trust, or DST, becomes a powerful tool.
A Delaware Statutory Trust is a legal structure that allows multiple investors to co-own large, income-producing commercial real estate. Instead of one person buying the asset, several investors each purchase a fractional interest in the property, and the DST holds title. The investor doesn’t own shares of a company or fund; they own a real ownership interest in real estate. The trust then hires a professional asset manager to handle operations, leasing, tenant relations, building maintenance, and financial reporting.
Benefits of a Delaware Statutory Trust
The beauty of a DST is that it gives investors access to properties they typically could not buy on their own. This includes assets such as medical office buildings, distribution of warehouses, multifamily communities, and corporate headquarters leased to national tenants. These properties are often valued anywhere from $20 million to $150 million – well beyond the reach of most individual investors. With a DST, someone can invest as little as $100,000 and still benefit from owning a piece of institutional-grade real estate.
Before DSTs, completing a 1031 exchange meant finding a replacement property, negotiating a purchase, securing financing, and closing. If the timing didn’t work out, the exchange could fail, and taxes would be owed. DSTs make the exchange easier because the properties have already been acquired. Investors simply choose one (or multiple) DST offerings that match their objectives and move their exchange funds directly into the trust.
For many investors, the most compelling benefit of a DST is that it provides truly passive income. When someone has managed rental properties for years, handling repairs, dealing with tenants, navigating vacancies – there often comes a point where they want to step back. A DST lets investors remain in real estate, continue receiving income, and defer taxes, without being responsible for the work that property ownership normally requires. Monthly or quarterly income distributions are sent to investors while a sponsor handles everything in the background.
Another advantage of DST investing is diversification. If an investor sells a property and wants to spread risk, they can invest inexchange proceeds across multiple DSTs. For example, the proceeds from a single property sale could be spread between a medical office building in Arizona, a logistics warehouse in Texas, and a multifamily property in Florida. Rather than relying on one asset or one market, the investor benefits from multiple tenants, multiple leases, and multiple regions.
DSTs are designed to be passive, and as a result, they must follow specific IRS rules. For example, the trust cannot renegotiate debt or use excess cash to renovate the property beyond certain limits. These rules help keep the structure predictable but also mean the investment is not designed for hands-on involvement. Once an investor buys into the DST, their role is to receive income and allow the trust to operate according to the plan. DSTs are typically held for five to ten years, at which point the property is sold. Investors then have the option to complete another 1031 exchange to continue deferring taxes, or they can exit and take gains.
While DSTs are an excellent option for many, they are not for everyone. They are considered an illiquid investment, meaning funds are tied up during the hold period. They also require investors to be accredited, meeting certain income or net worth of thresholds. DSTs tend to appeal most to investors who are near or already in retirement, those who are done being landlords, and those who want stable income without taking on new management responsibilities.
When you break it down, the DST concept is simple: You stay invested in commercial real estate without dealing with tenants, maintenance, or property oversight, and you can defer taxes using a 1031 exchange.
For investors ready to simplify their lives without exiting real estate entirely, a DST offers a strategic path forward. It keeps wealth working, preserves tax advantages, and removes the burden of active management.
How the ICRE Investment Team Helps
Choosing a DST should be done thoughtfully. Every sponsor has different track records, different fee structures, and different return profiles. Understanding the projected income, tenant strength, debt structure, market outlook, and exit plan is critical, and that’s where experience matters.
The ICRE Investment Team helps investors evaluate whether a DST fits their financial strategy. We walk you through your options, connect you with vetted providers, and help you compare different DST offerings so you can make an informed decision based on your goals and not sales pressure.
If you’re considering selling investment real estate and want to explore passive ownership or a 1031 exchange into a Delaware Statutory Trust, we’re here to help.
