What is a Delaware Statutory Trust (DST) & How to Invest?

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I'm Donny. I'm a world traveler, investor, entrepreneur, and online marketing aficionado who has a big appetite to compete and disrupt big markets. I thrive on being able to create things that impact change, difficult challenges, and being able to add value in negative situations.

There are many investment vehicles through which accredited investors can obtain fractional shares of commercial real estate properties, including real estate investment trusts (REITs), real estate private equity firms, and Delaware Statutory Trusts (DSTs).

Each type of real estate investment offers numerous benefits, and each is best suited to a particular investment strategy. For example, investors often use DSTs for 1031 exchanges into other kinds of property.

Whether a DST is suitable for your portfolio depends on many factors and the kind of investing you want to pursue.

Key Takeaways
  • A DST enables you, as an investor, to perform tax-deferred exchanges.
  • You must be an accredited investor to enter into a DST.
  • Most investors use DSTs for tax purposes, including 1031 exchanges.
  • The structure of a DST ensures that your investment will be passive and low risk.

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Delaware Statutory Trust Definition

DSTs purchase real estate properties that are classified as commercial. These often include

  • Multifamily properties
  • Industrial buildings
  • Self-storage facilities
  • Medical offices
  • Corporate buildings

How Delaware Statutory Trusts Work

In a DST, each investor owns a fractional interest in the properties within the trust. This setup differs from REITs or private equity firms, where investors own a portion of the real estate management company, not the real estate itself.

Depending on the agreement, you may receive various benefits for investing in a DST trust, such as cash flow in the form of dividends or other tax benefits.

Because these trusts are private, each can devise its own rules regarding benefits for investors.

DST Fees

Fees involved in a DST include:

  • Sales commissions: Outside selling groups manage DST investment sales. These groups typically charge commission for asset management.
  • Acquisition: DSTs sometimes use sponsors to search for assets to purchase. These sponsors charge acquisition fees for their services.
  • Operational Expenses: These tend to include the costs of attorneys, financial experts and paperwork.

Delaware Statutory Trust Pros and Cons

DSTs are reliable, passive investments with a range of benefits. However, there are some significant drawbacks you should consider before deciding whether to invest.


Savings on capital gains: One of the most important benefits of DST investments is tax deferral, which may allow you to pay capital gains tax instead of income tax.

This is an enormous advantage because income tax is significantly higher.

1031 exchange eligibility: Like many investors, you may wish to invest in a DST with the goal of carrying out a 1031 exchange into a REIT.

This transaction is possible because the IRS classifies REITS and DSTs as similar enough for a like-kind exchange.

Institutional-grade properties: Because DSTs have many accredited investors, they can raise more capital than individual investors.

This extra capital gives them access to Class A or A+ properties that are not likely to go under or suffer significant losses.

Non-recourse debt: DSTs are separate legal entities, meaning investors have limited liability. If the DST fails, the loan provider is only able to pursue the trust’s properties, not its investors.

As such, DSTs offer you much more protection than other investments.

Professional property management: DSTs have designated professionals managing their commercial properties, which tends to mean more lease renewals and happier tenants.

Diversification: DSTs contain multiple types of investment, which gives you more opportunity to diversify than if you invested in a single property.


Lack of control: The ownership structure of a DST means you have limited control over individual real estate pieces.

While some investors appreciate the passivity associated with this, others prefer to maintain more autonomy over their assets.

Illiquidity: Individual property ownership usually means you can sell a property at any time. In a DST investment, that freedom is not available; the only way to leave before the end of the hold period is to offer your interests to another accredited investor.

Inability to raise new capital or refinance: Once your DST has closed offerings, you cannot invest additional funds, and new investors cannot enter the trust.

Only income from the trust itself can go toward repairs, upgrades or other expenditures.

Rate or regulatory changes: If you intend to enter a DST for the sole purpose of a 1031 exchange, you should be aware that changes in regulations may close the loophole — leaving you stuck in a DST instead of your preferred investment.

Delaware Statutory Trust for 1031 Exchanges

One of the most common reasons for investing in a DST is a 1031 exchange. This is a specialized property transaction that provides considerable tax benefits.

It takes its name from the relevant section of the Internal Revenue Code that makes it possible. In a standard transaction where you wish to exchange one property for a new one, it would be necessary for you to sell the original property.

In addition, income or capital gains tax would be payable on the sale’s proceeds, cutting into your profits. You would then need to use the remaining proceeds to purchase a replacement property.

After losing some revenue in taxes, you would either have to buy a less expensive property than your original investment or front extra money to make up the difference.

In a 1031 exchange, you can exchange your existing property for a new one of like value in the same asset class without paying capital gains tax.

Sometimes investors wish to move towards a passive form of investment that still provides monthly income, such as a REIT.

However, REITs are not classified in the same way as investment properties, so they are not eligible for a 1031 exchange. Nevertheless, the tax code does allow a 1031 exchange from a DST to a REIT, in that direction.

As an investor, you can use the DST to REIT exchange possibilities to your advantage. When a new DST forms, you can offer your property in return for a proportionate share in the trust, in accordance with Section 721 of the Internal Revenue Code.

After the holding period for the REIT has expired, you can move into a REIT through a 1031 exchange, thereby deferring capital gains tax.

How to Set Up a Delaware Statutory Trust

It’s important to note that, per the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) guidelines, only accredited investors may set up a DST.

The process of setting up a DST usually follows these steps:

  1. Find a Delaware trustee: You must have a trustee in the state of Delaware to form a DST.
  2. DST offering period: DSTs have “offering periods” where other investors may join and add their own assets to the trust.
  3. File paperwork: After you have made all the necessary arrangements, you must file a Certificate of Trust with the Office of the Secretary of State in Delaware.
  4. Pay a one-time filing fee: While there are no maintenance or annual fees associated with a DST, the state of Delaware requires you to pay a one-time filing fee.

How to Invest in DST Properties

Before you decide to invest in a DST, it is essential to speak with a tax expert or real estate attorney who can ensure you understand the risks and benefits involved.

Always do your due diligence and consider all options before choosing any investment. If you wish to enter your property into a DST for a 1031 exchange, you will likely follow steps similar to these:

  1. Seek counsel: Before making an investment, such as entering a property into a trust, you should always consult a financial expert to ensure you follow the steps correctly to avoid tax penalties.
  2. Find a qualified intermediary (QI): You will need a QI to hold the proceeds of your property in escrow while you choose a replacement investment property.
  3. Look for a DST: During an offering period, a DST will have properties available for you to choose from. Asset management companies that operate DSTs often need to do due diligence on you before they make a deal, which you should bear in mind for timing.
  4. Exchange your property for one in the DST: You can now carry out a 1031 exchange to obtain a property in the DST, and your QI will release the proceeds of your property sale to the DST.

Is a Delaware Statutory Trust Right for Me?

Entering into a DST will enable you to take a more passive role in real estate investing while maintaining fractional ownership of the properties within the trust.

A DST is a good option if you wish to passively invest in commercial real estate, but simultaneously own shares in a company (as you would in a REIT).

If you’re interested in fractional ownership real estate investing, talk to your financial advisor about DSTs.


These are the most commonly asked questions about Delaware Statutory Trusts.

Are Delaware Statutory Trusts safe?

DSTs are generally safe investments. However, investing in one to exchange for another investment later on is less safe; it is possible you will not be able to complete the transaction and get stuck in the DST.

What are the risks of a Delaware Statutory Trust?

The most significant risks of investing in a DST are the lack of control over your real estate, the lack of liquidity (meaning it will be difficult to break away from the trust) and the inability to raise capital or refinance properties in the trust.

What is the difference between a DST and a REIT?

In a DST, investors have fractional ownership of the properties within the trust. In a REIT, investors have fractional ownership of the trust that owns the properties, rather than the properties themselves.

Who controls a DST?

A real estate sponsor takes care of finding, financing and managing properties on behalf of a DST.


Explore the Roofstock online marketplace to invest in single-family rental (SFR) homes to build and grow your real estate portfolio.

We earn a commission when you create a free account and deposit funds.

I'm Donny. I'm a world traveler, investor, entrepreneur, and online marketing aficionado who has a big appetite to compete and disrupt big markets. I thrive on being able to create things that impact change, difficult challenges, and being able to add value in negative situations.

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