Comparing DSTs with Other Passive Real Estate Investments

Passive real estate investing offers ways to build wealth without managing tenants or maintenance. Among these, Delaware Statutory Trusts (DSTs) stand out—especially for investors looking to defer capital gains through a 1031 exchange. Understanding how DSTs stack up against alternatives like direct property ownership, REITs, or TIC structures will help you choose the best match for your investment goals.

What Is a DST?

A Delaware Statutory Trust (DST) lets multiple investors pool capital to own beneficial interests in professionally managed, high‑quality real estate—without day‑to‑day responsibilities. It qualifies as "like‑kind" property under IRS rules, enabling 1031 exchange participation through IRS Revenue Ruling 2004‑86.

Investor perks:

• Passive income stream, with no tenant calls or maintenance duties.

• Access to institutional-grade assets, like multifamily or commercial properties, often out of reach for individual investors.

• Tax‑deferral through 1031 exchanges plus potential diversification and estate‑planning benefits.

Comparing DSTs to Other Passive Investments

DST vs. Direct Ownership

Pros of DSTs:

• 100% passive—no operational headaches.

• Easier access to premium markets via fractional investment.

• Simplifies 1031 exchanges.

Cons:

• No control over property decisions.

• Limited liquidity and a typical hold period of 5–10 years.

DST vs. REITs

• DSTs are illiquid but tax‑deferral friendly.

• REITs offer daily liquidity and broader diversification—but generally do not support 1031 exchanges.

• REIT returns often come from dividends and depreciation at the corporate level; DST returns come via direct property income and deferred gains.

DST vs. TIC (Tenancy-In-Common)

• DSTs centralize management under a trustee, simplifying decision-making and investor coordination.

• TIC structures require unanimous approval for changes; they also face lender reluctance due to multiple borrower challenges
   

When DSTs Shine—And When They Don’t

Best for:

• Investors aiming for tax‑deferred diversification.

• Those who want hands-off income without landlord headaches.

• Individuals seeking access to high-quality commercial properties with lower capital outlays.

Caveats:

• Illiquidity ties up capital—typically for years.

• Sponsorship risk: performance hinges on the trustee's ability to manage and exit effectively.

Fees and structure complexity can erode returns—due diligence is key.

Final Thoughts

DSTs offer a powerful blend of passive management, tax-deferral, and access to institutional real estate—with an edge over other passive strategies when aligned with an investor’s long-term goals. That said, they’re not one-size-fits-all. Control, liquidity, and risk tolerance should guide your choice between DSTs, REITs, TICs, or direct ownership.

General Disclosure