A non-traded REIT — often sold privately as a "private REIT" — looks liquid on the surface: it quotes a share price and offers to buy your shares back. But that price is a net asset value (NAV) the sponsor calculates periodically from third-party appraisals, not a live market quote, and the buyback offer is a redemption program capped at a few percent per quarter and suspendable at the board's discretion. Understanding those two mechanics — how the price is struck and how the exit queue actually works — tells you almost everything about how a non-traded REIT behaves, and how differently it behaves from a DST, which is never marked to a price at all and simply runs to its full-cycle sale. This piece walks through NAV pricing, the appraisal cadence, and the redemption queue, then contrasts them with the DST's mark-free, defined-term hold. (For the broader structural comparison and the threshold 1031-eligibility question, see our DST vs. REIT comparison.) Baker 1031 Investments does not provide tax or legal advice — verify the current rules and your situation with your tax advisor; this is educational, not investment advice.
NAV Pricing: A Price the Sponsor Strikes, Not the Market
The single biggest thing to understand about a non-traded REIT is that its share price is a NAV — total assets minus liabilities, divided by shares outstanding — that the sponsor recalculates on a set schedule (often monthly or quarterly), leaning on periodic third-party appraisals of the underlying properties. You transact at that struck NAV, not at a price set by buyers and sellers in real time. That has two consequences worth sitting with. First, the price moves in smooth, appraisal-driven steps rather than the daily swings of a listed REIT — which feels stable, but the stability is partly an artifact of how infrequently and how conservatively real estate is appraised, not evidence that value isn't moving. Second, you depend on the sponsor's valuation process and its assumptions; an appraisal-based NAV can lag a turning market, so the printed price may not reflect what the portfolio would actually fetch in a sale today. A DST, by contrast, carries no NAV and no periodic mark at all: you simply hold your fractional interest until the sponsor sells the property, and your "price" is realized once, at that full-cycle sale. So the non-traded REIT gives you a frequently-quoted-but-appraisal-derived price, while the DST gives you no interim price and a single realization event — a fundamental difference in how value reaches you.
DST vs. Private REIT Basics
At a basic level, DST properties and private REITs both give accredited investors passive exposure to income-producing real estate, but they're structured very differently. A DST is a trust that holds one or a few specific properties, in which investors own fractional beneficial interests and receive a share of the rental income; it's a direct interest in identifiable real estate, professionally managed, and held to a defined exit (commonly around five to seven years). The investor owns a slice of specific buildings, not shares in a company.
A private REIT is a Real Estate Investment Trust whose shares are not registered for public trading — it's sold privately to accredited or institutional investors rather than listed on an exchange. Like any REIT, it owns or finances a diversified portfolio of real estate and distributes most of its income as dividends, but its shares are unregistered securities with limited disclosure, generally illiquid, and sometimes accompanied by a limited redemption program. So a private REIT investor owns shares in a company that owns real estate, not a direct interest in specific property.
So DST properties and private REITs both offer passive, accredited-only real estate, but they diverge sharply in legal form: a DST is a direct fractional interest in specific real property, while a private REIT is unregistered company shares. So the basics frame the comparison. DST vs. private REIT basics — a DST being a trust holding specific properties in which investors own 1031-eligible fractional real-property interests over a defined hold, versus a private REIT being unregistered REIT shares sold to accredited or institutional investors that own a diversified portfolio and pay dividends — show the two as passive but structurally distinct. The defining split is whether you own real property or company shares. Understanding the basics frames everything that follows. DST properties are direct fractional interests in specific real estate; private REITs are unregistered, illiquid company shares — a structural difference that drives the rest of the comparison.
The 1031 Threshold (Briefly)
Before the pricing mechanics matter, there's a threshold question for anyone arriving from a property sale: only one of these defers your gain. A DST interest is treated as like-kind real property under IRS Revenue Ruling 2004-86, so it qualifies as 1031 replacement property and can defer the capital-gains tax. A non-traded REIT share is a security — an interest in a company — which the tax law excludes from like-kind treatment, so you cannot 1031 directly into it. If you're carrying a gain to defer, that settles the threshold in the DST's favor regardless of how the REIT is priced. We cover this distinction in full in the DST vs. REIT comparison; the rest of this piece assumes you've cleared it and focuses on how the non-traded REIT's NAV pricing and redemption mechanics actually work.
The Redemption Queue vs. the Full-Cycle Hold
The flip side of NAV pricing is the redemption program — the only exit a non-traded REIT offers before a liquidity event. It is not a sell button. A typical program lets investors request buybacks at the current NAV, but caps total redemptions at roughly 2% of NAV per month or 5% per quarter, and the board can lower, suspend, or pro-rate those caps at its discretion. When many investors head for the exit at once — exactly when you're most likely to want out — the queue gates, and requests get filled partially or not at all until a later period. So the redemption feature reads as liquidity in calm markets and evaporates in stressed ones. A DST has no redemption program at all: you commit for the full cycle and exit only when the sponsor sells the property. Paradoxically, that makes the DST's illiquidity more honest — there's no exit to be gated, so there's no false sense of one. Both lock up your capital; the non-traded REIT simply dresses the lockup in an exit door that may be bolted shut when you need it.
On the income itself, the two look more alike. A DST passes through the net rental income from its specific properties, often targeting steady current distributions over the defined hold — income from known, identifiable assets, though not guaranteed and dependent on the properties performing. A non-traded REIT distributes dividends from its broader portfolio, offering more diversification of income sources but less visibility into any single property. Both are income-oriented and neither's distributions are promised — they're projections, not guarantees. The meaningful difference isn't the income; it's everything around it: how the principal is priced (NAV vs. a single realization) and how — or whether — you can get that principal back before the end (a gateable queue vs. no exit at all).
Control and Transparency
Control and transparency differ in ways that follow from the structures. With a DST, you own a fractional beneficial interest in specific, identifiable properties, so you know exactly what real estate you're invested in, can review the particular assets and their leases, and receive disclosure tied to those properties — but you have no operational control, since DST rules (the 'seven deadly sins') sharply limit the trust's and investors' ability to make new decisions. So a DST offers asset-level transparency without operational control.
With a private REIT, you own shares in a company that owns a portfolio, so you have diversification but less visibility into any single asset, and disclosure is generally more limited than for a publicly traded, SEC-reporting REIT — a private REIT isn't subject to the same public-reporting requirements. You also have no direct control over the properties; the REIT's management runs the portfolio. So a private REIT offers portfolio-level diversification but typically less per-asset transparency and limited public disclosure compared with both a DST's specific-property visibility and a public REIT's reporting.
So control is minimal in both (these are passive vehicles), while transparency differs: a DST gives clear visibility into specific assets, and a private REIT gives portfolio breadth with more limited disclosure. So control and transparency are a meaningful axis of comparison. Control and transparency — a DST offering investors a fractional interest in specific, identifiable properties with asset-level disclosure but no operational control, versus a private REIT offering shares in a diversified portfolio with limited per-asset visibility and less public disclosure than a listed REIT, also with no control — distinguish the two beyond taxes. Both are passive; the DST is more transparent at the asset level. Understanding this completes the practical comparison. DSTs give asset-level transparency into specific properties; private REITs give portfolio diversification with more limited disclosure — and both are passive, with no operational control for the investor.
- Both DST properties and private REITs are passive, accredited-only real estate, but a DST is 1031-eligible like-kind property and a private REIT (unregistered shares) is not.
- 1031 eligibility is the key difference: a 1031 investor can defer a property-sale gain into a DST but cannot defer directly into private-REIT shares.
- Both are income-oriented and generally illiquid; a private REIT may offer limited, capped redemptions, while a DST is held to its full cycle.
- The DST-to-REIT 721 bridge can roll a DST into a REIT via an UPREIT exchange — OP units (deferred), later convertible to REIT shares (taxable at conversion).
Accreditation and Suitability
Both DST properties and private REITs are private securities sold under Regulation D, so both are limited to accredited investors and accessed through a broker-dealer after a suitability review — not bought on an exchange. A DST interest is a security representing fractional real property; a private REIT is unregistered company shares. In both cases, you generally must meet accredited-investor income or net-worth thresholds, review offering documents, and complete a subscription process, and the offering comes with minimums and a longer-term, illiquid orientation.
The suitability review matters because both vehicles are illiquid, carry fees, and depend on the sponsor's execution and the underlying real estate performing — risks that aren't appropriate for every investor. For a 1031 exchanger, the DST's accreditation and suitability requirements are simply part of accessing a passive, 1031-eligible replacement within the exchange timeline; a private REIT, by contrast, can't serve as 1031 replacement property at all, so it's relevant only for non-exchange capital. So the gatekeeping is similar, but the role each plays for a 1031 investor is not.
So accreditation and suitability apply to both — Reg D securities sold through a broker-dealer to suitable, accredited investors — even though only the DST can complete a 1031. So the access process is shared while the exchange role differs. Accreditation and suitability — both DST properties and private REITs being Regulation D securities limited to accredited investors, offered through a broker-dealer after a suitability review, with minimums and an illiquid, longer-term orientation — apply to both, but only the DST is 1031-eligible replacement property, so a private REIT fits only non-exchange capital. The gate is shared; the exchange role differs. Understanding this clarifies how each is accessed. Both DSTs and private REITs are accredited-only Reg D securities accessed through a broker-dealer after a suitability review, but only a DST can serve as 1031 replacement property.
Both vehicles share the same gate — accredited-only, broker-dealer-offered, suitability-reviewed — but only one of them, the DST, can actually stand in as replacement property inside a 1031 exchange.
The DST-to-REIT 721 Bridge
There's a structural path that connects the two vehicles — and it's a key reason DSTs and REITs are discussed together. After you've completed a 1031 exchange into a DST, the DST's property may later be acquired by a REIT (often the sponsor's own REIT) through a 721 (UPREIT) exchange. In that transaction, your DST interest is contributed to the REIT's operating partnership in exchange for operating-partnership (OP) units — and crucially, this maintains your tax deferral, so you don't trigger the capital-gains tax you originally deferred in the 1031.
Those OP units can typically be converted into REIT shares over time. While you hold OP units, the deferral continues; once you convert OP units to REIT shares and sell, you're then dealing with a security (not 1031-eligible real property), and the conversion or sale is generally taxable at that point. So the 721 bridge provides a path from a 1031/DST into REIT ownership — gaining the REIT's diversification and, eventually, potential liquidity — while preserving deferral up to the point of conversion. It effectively links the 1031-eligible DST to the non-1031-eligible REIT world.
So the DST-to-REIT 721 bridge lets a 1031 investor move from a DST into a REIT (via OP units) while keeping deferral, with conversion to shares the eventual taxable step. So it connects the two vehicles this comparison contrasts. The DST-to-REIT 721 bridge — a DST's property being acquired by a REIT through a 721 UPREIT exchange, converting the DST interest into deferred OP units that are later convertible to REIT shares (taxable at conversion) — provides a path from a 1031/DST into REIT ownership while preserving deferral. It links the 1031-eligible DST to the REIT world. Understanding it shows how the vehicles can ultimately connect. A DST can roll into a REIT via a 721 UPREIT exchange — your interest becomes deferred OP units, later convertible to REIT shares (taxable at conversion) — a path from a 1031/DST into REIT ownership that preserves deferral.
How Baker 1031 Helps You Compare DSTs and Private REITs
Baker 1031 Investments helps investors compare DST properties and private REITs — the structural basics, the 1031 eligibility that sets them apart, income and liquidity, control and transparency, accreditation and suitability, and the DST-to-REIT 721 bridge — so you can choose the vehicle that fits your tax situation, income goals, and liquidity needs, and understand how the two can connect.
DST interests and related REIT securities are offered through the broker-dealer, Aurora Securities, Inc. (member FINRA/SIPC), and any recommendation follows a suitability review — DST interests are securities offered to accredited investors after that review, and private REITs likewise require accredited or otherwise suitable investors. Because the central difference is 1031 eligibility, the choice often turns on whether you're deferring a property-sale gain — and Baker 1031 specializes in 1031, DST, and 721 strategies. Baker 1031 does not provide tax or legal advice; your CPA and attorney confirm your 1031 eligibility, the tax treatment, and the technical mechanics of a 721 conversion. We help you understand the trade-offs, evaluate offerings (structure, fees, and the underlying real estate), and, if a DST is suitable, access it and coordinate with your tax professionals. Distributions and returns are never guaranteed — projections are not promises, and past performance does not guarantee future results. Our role is to help you compare the vehicles clearly and invest only when suitable for your goals and risk tolerance.
Frequently Asked Questions
What is the main difference between a DST and a private REIT?
The main difference is 1031 eligibility. A DST (Delaware Statutory Trust) interest is treated as like-kind real property under IRS Revenue Ruling 2004-86, so it qualifies as replacement property in a 1031 exchange — letting an investor sell appreciated real estate and reinvest into a DST to defer capital-gains tax. A private REIT is unregistered REIT shares — a security, not real property — so it can't be used to complete a 1031 exchange. Beyond that, a DST holds one or a few specific properties in which you own a direct fractional interest, while a private REIT is shares in a company that owns a diversified portfolio. Both are passive, accredited-only, generally illiquid investments offered through a broker-dealer after a suitability review. So both give you passive real estate, but only the DST is 1031-eligible. For a 1031 exchanger deferring a property-sale gain, that distinction is decisive: you can exchange into a DST, but not directly into a private REIT.
Can I do a 1031 exchange into a private REIT?
No — you can't complete a 1031 exchange directly into a private REIT, because private-REIT shares are securities, not like-kind real property. A 1031 exchange requires the replacement to be like-kind real estate held for investment or business, and a REIT share (private or public) is an interest in a company, so the tax law excludes it from like-kind treatment. This means you can't sell investment real estate and 1031 directly into private-REIT shares to defer your gain. There is, however, an indirect path: you can 1031 into a DST (which is 1031-eligible like-kind real property), and the DST's property may later be acquired by a REIT through a 721 (UPREIT) exchange, converting your interest into operating-partnership units while preserving deferral. So a direct 1031 into a private REIT isn't possible, but a 1031-into-DST-then-721-into-REIT path can ultimately give you REIT exposure with deferral intact up to conversion. Confirm the specifics with your tax advisor, as this path is technical.
What is a private REIT?
A private REIT is a Real Estate Investment Trust whose shares aren't registered for public trading and aren't listed on a stock exchange — instead, they're sold privately, typically to accredited or institutional investors, often under Regulation D. Like any REIT, a private REIT owns or finances a portfolio of income-producing real estate, follows the REIT qualification rules (including distributing most of its taxable income), and pays dividends to shareholders. What sets a private REIT apart from a public one is that its shares are unregistered securities with limited public disclosure, are generally illiquid, and sometimes come with a limited redemption program for partial liquidity. Because they're private and illiquid, private REITs are accessed through a broker-dealer and require suitable, accredited investors. So a private REIT is essentially the unlisted, accredited-only version of a REIT — real estate income through company shares, without the public market's liquidity or disclosure. Importantly, like all REIT shares, a private REIT is a security and is not 1031-eligible.
Are DST properties and private REITs both illiquid?
Yes — both are generally illiquid, though in slightly different ways. A DST is held to its full cycle: you typically can't readily sell your fractional interest, there's little or no secondary market, and you remain invested until the sponsor sells the underlying property, usually after a multi-year hold. A private REIT is also illiquid because its shares aren't exchange-listed, but it may offer a limited redemption program that lets some investors request that the REIT buy back shares — these programs are usually capped (a small percentage per period) and can be reduced or suspended at the REIT's discretion, especially during stress. So a private REIT sometimes provides a thin, unreliable liquidity option that a DST generally doesn't, but neither should be treated as liquid capital you can access on demand. Both suit longer-term investors who don't need ready access to their money. So plan to hold either for the long term, and confirm the redemption or exit terms in the offering documents before investing.
Why is a DST 1031-eligible but a private REIT is not?
It comes down to the legal character of what you own. A DST interest is structured under IRS Revenue Ruling 2004-86 so that each investor is treated as owning a direct, undivided beneficial interest in the underlying real property — so for tax purposes, you own real estate, which qualifies as like-kind property for a 1031 exchange. A private REIT share, by contrast, is an interest in a company (or trust treated as one) that owns real estate — a security, not a direct interest in the property itself. The tax law specifically excludes interests in entities (including stock and REIT shares) from like-kind treatment, so a private-REIT share doesn't qualify. So even though both vehicles ultimately involve real estate, it's the form of your interest — direct real property (DST) versus company shares (private REIT) — that determines 1031 eligibility. That's why a 1031 investor can defer into a DST but not directly into a private REIT. Confirm the specifics with your tax advisor, since the structuring is technical.
Do DSTs and private REITs offer similar income?
Both are income-oriented, but the income comes from different places. A DST passes through the net rental income from its specific properties, often targeting steady current distributions over a defined hold — the income is tied to known, identifiable assets, so you can review the particular properties and leases generating it. A private REIT distributes dividends from a broader, diversified portfolio, which spreads income across many assets but gives you less visibility into any single property. Both can provide regular distributions, and in both cases the income isn't guaranteed — it depends on the underlying real estate performing, and distributions can be reduced. So the difference is concentrated, transparent, specific-property income (DST) versus diversified, portfolio-level dividend income (private REIT). Which you prefer depends on whether you value asset-level visibility or portfolio diversification. Remember that for a 1031 investor, income is only one factor — 1031 eligibility is decisive, and only the DST qualifies. Treat any projected distributions as estimates, not promises.
Which is more transparent, a DST or a private REIT?
A DST generally offers more asset-level transparency. Because a DST holds one or a few specific, identifiable properties, you can review exactly which buildings you're invested in, examine their leases, tenants, and financing, and receive disclosure tied to those particular assets. A private REIT owns a diversified portfolio, so you gain breadth but have less visibility into any single property, and private REITs aren't subject to the same public-reporting requirements as exchange-listed, SEC-reporting REITs — so disclosure is generally more limited than for a public REIT. So at the individual-asset level, a DST tends to be more transparent, while a private REIT offers portfolio diversification with comparatively less per-asset detail and less public disclosure. Neither gives you operational control — both are passive — but the DST's specificity lets you understand precisely what real estate underlies your investment. So if asset-level clarity matters to you, the DST's structure provides it; if you prefer diversification across many properties, the private REIT spreads your exposure. Review the offering documents for either before investing.
What is the DST-to-REIT 721 bridge?
The DST-to-REIT 721 bridge is a structural path that can move an investor from a DST into a REIT while preserving tax deferral. After you've completed a 1031 exchange into a DST, the DST's property may later be acquired by a REIT — often the sponsor's own REIT — through a 721 (UPREIT) exchange. In that transaction, your DST interest is contributed to the REIT's operating partnership in exchange for operating-partnership (OP) units, and this maintains your tax deferral, so you don't trigger the capital-gains tax you deferred in the original 1031. Those OP units can typically be converted into REIT shares over time; while you hold OP units the deferral continues, but converting to shares and selling is generally a taxable event at that point. So the 721 bridge connects the 1031-eligible DST world to the REIT world: it lets you gain a REIT's diversification and eventual potential liquidity while preserving deferral up to conversion. It's technical and depends on the specific DST and REIT, so confirm the mechanics and timing with your tax advisor before relying on it.
Are both DSTs and private REITs limited to accredited investors?
Yes — both are typically limited to accredited investors and accessed through a broker-dealer, not bought on an exchange. A DST interest is a security representing fractional real property, and a private REIT is unregistered company shares; both are generally offered under Regulation D, which limits them to accredited or otherwise suitable investors. To invest in either, you usually must meet accredited-investor income or net-worth thresholds, review offering documents, and complete a subscription process after a suitability review that considers your financial situation, goals, liquidity needs, and risk tolerance. Both also tend to have investment minimums and a longer-term, illiquid orientation. So the access process is broadly similar for the two. The key difference for a 1031 investor is the role each can play: a DST can serve as 1031-eligible replacement property within an exchange, while a private REIT cannot, so a private REIT is relevant only for non-exchange capital. So expect a suitability review for either, and confirm you meet the accreditation requirements before investing.
Which should a 1031 investor choose, a DST or a private REIT?
For a 1031 exchanger, the DST is generally the relevant choice, because only a DST is 1031-eligible. If your goal is to sell investment real estate and defer the capital-gains tax through a 1031 exchange, you need like-kind replacement real property — and a DST interest qualifies, while private-REIT shares (a security) do not. So you can complete your exchange into a DST and defer your gain; you cannot do that directly with a private REIT. A private REIT is relevant only for non-exchange capital — new money you're investing outside a 1031 — where you want passive, diversified, accredited-only real estate exposure and don't need 1031 treatment. So the deciding question is whether you're deferring a property-sale gain: if yes, the DST is the option; if you're deploying new capital and want portfolio diversification, a private REIT may fit. There's also the 721 bridge, which can later roll a DST into a REIT with deferral preserved. Match the vehicle to whether you're exchanging, and confirm suitability and tax treatment with your advisors.
Are private REITs the same as non-traded public REITs?
Not exactly — they're related but distinct. A non-traded public REIT is registered with the SEC but not listed on an exchange; it's subject to SEC reporting and disclosure requirements and can often be sold more broadly (sometimes to non-accredited investors), with liquidity through a capped redemption program. A private REIT, by contrast, is not registered for public sale at all — its shares are unregistered securities sold privately, typically under Regulation D, to accredited or institutional investors, with more limited public disclosure than a non-traded public REIT. So both are unlisted and illiquid, but a private REIT is the less-registered, accredited-only version with thinner disclosure. What they share is the key point for a 1031 investor: both are REIT shares, which are securities, so neither is 1031-eligible. Only a DST interest — a direct fractional real-property interest — qualifies for a 1031 exchange. So whether you're looking at a private REIT or a non-traded public REIT, the same conclusion holds: it can't serve as 1031 replacement property, while a DST can.
Do DSTs and private REITs charge fees?
Yes — both DSTs and private REITs involve fees, which is an important factor in evaluating either. A DST typically has upfront load and offering costs (covering selling, organizational, and acquisition expenses) and ongoing asset-management and property-related fees, all of which reduce the net income and proceeds investors ultimately receive. A private REIT likewise carries fees — which may include selling commissions, organizational and offering costs, and ongoing management and performance fees — that affect your net returns. Because both are private, accredited-only offerings, their fee structures can be meaningful and aren't always as visible as those of a low-cost, exchange-listed REIT or fund. So fees matter, and you should review them carefully in the offering documents for either vehicle, understanding how they affect projected distributions and total return. Remember that projected distributions are estimates, not guarantees, and fees are one reason actual results can differ. So weigh the fee structure alongside the other differences — especially 1031 eligibility, which for a 1031 investor is the decisive factor regardless of fees.
Can I move from a DST into a private REIT later?
There's a specific path for moving from a DST into a REIT, though it works through a 721 (UPREIT) exchange rather than a simple transfer. After you've completed a 1031 exchange into a DST, the DST's property may be acquired by a REIT — frequently the sponsor's own REIT — through a 721 exchange, converting your DST interest into operating-partnership (OP) units of the REIT's operating partnership while preserving your tax deferral. Those OP units can typically be converted into REIT shares over time; the conversion to shares (and eventual sale) is generally a taxable event. So you can effectively move from a DST into REIT ownership while keeping deferral up to the point of conversion. Note that whether the target is a public or private REIT depends on the specific sponsor's structure. This 721 bridge is the recognized path from a 1031/DST into a REIT, and it's a key reason DSTs and REITs are discussed together. It's technical, so confirm the mechanics, timing, and tax treatment with your advisor before counting on it for your situation.
Are DSTs or private REITs riskier?
Each carries different risks, so 'riskier' depends on the dimension. A DST is concentrated (one or a few specific properties), illiquid (you're committed until the property sells), and dependent on the sponsor's execution and the specific assets — so it carries concentration, illiquidity, and sponsor risk, and it uses non-recourse debt that the sponsor arranges. A private REIT is more diversified across many properties, which can reduce single-asset risk, but it's also illiquid, has more limited disclosure than a public REIT, and depends on the REIT's management and overall portfolio — and its dividends, like a DST's distributions, aren't guaranteed. So a DST's risks center on concentration and the specific deal, while a private REIT's center on portfolio management and limited transparency, both within an illiquid structure. Neither is categorically safer; they're different risk profiles. So assess the specific offering — the properties, sponsor or management, leverage, fees, and structure — rather than assuming one vehicle type is inherently riskier. Diversification, sponsor quality, and appropriate sizing help manage the risks in both, but don't eliminate them, and distributions and returns are never guaranteed.
How does Baker 1031 help me compare DSTs and private REITs?
We help investors compare DST properties and private REITs — the structural basics, the 1031 eligibility that sets them apart, income and liquidity, control and transparency, accreditation and suitability, and the DST-to-REIT 721 bridge — so you can choose the vehicle that fits your tax situation, income goals, and liquidity needs. DST interests and related REIT securities are offered through the broker-dealer, Aurora Securities, Inc. (member FINRA/SIPC), and any recommendation follows a suitability review; DST interests are securities offered to accredited investors after that review, and private REITs likewise require accredited or otherwise suitable investors. Because the central difference is 1031 eligibility, the choice often turns on whether you're deferring a property-sale gain — and we specialize in 1031, DST, and 721 strategies. Baker 1031 does not provide tax or legal advice; your CPA and attorney confirm your 1031 eligibility and the tax treatment, including the technical mechanics of a 721 conversion. We help you understand the trade-offs and, if a DST is suitable, access it. Distributions and returns are never guaranteed, and past performance does not guarantee future results.
Glossary
- DST
- A Delaware Statutory Trust holding 1031-eligible fractional real estate.
- Private REIT
- Unregistered REIT shares sold privately to accredited investors.
- 1031 Exchange
- A tax-deferred swap of like-kind investment real estate.
- Like-Kind Real Property
- The real estate a 1031 requires (a DST qualifies; a REIT share doesn't).
- Revenue Ruling 2004-86
- The IRS ruling treating a DST interest as real property for 1031.
- Fractional Beneficial Interest
- A DST investor's direct share of the specific property.
- REIT Share
- A security representing ownership in a REIT (not 1031-eligible).
- 721 / UPREIT Exchange
- Contributing property to a REIT for OP units, preserving deferral.
- Operating Partnership (OP) Units
- Units received in a 721 exchange, convertible to REIT shares.
- Regulation D
- The exemption under which DSTs and private REITs are sold privately.
- Accredited Investor
- An investor meeting income or net-worth thresholds for private offerings.
- Suitability Review
- Assessing whether a DST or private REIT fits the investor.
- Redemption Program
- A private REIT's limited, often-capped liquidity feature.
- Non-Recourse Debt
- Property-level loans a DST sponsor arranges that can satisfy 1031 debt.
- Defined Hold
- A DST's multi-year period (often ~5-7 years) before sale.
- Capital-Gains Deferral
- Postponing the tax on a property-sale gain (via a DST/1031).
Sources & References
- IRS. Revenue Ruling 2004-86 (Delaware Statutory Trusts)
- Cornell Legal Information Institute. 26 U.S. Code § 1031 — Exchange of real property held for productive use or investment
- U.S. Securities and Exchange Commission. Investor.gov — Real Estate Investment Trusts (REITs)
- FINRA. Real Estate Investments
DST vs. private REIT at a glance
How a Delaware Statutory Trust and a private (non-traded) REIT compare across the factors that matter most to a 1031 investor:
| Factor | DST | Private (Non-Traded) REIT |
|---|---|---|
| 1031 eligible | Yes — qualifies as replacement property under Rev. Rul. 2004-86 | No — REIT shares are personal property, not like-kind |
| What you own | Fractional beneficial interest in specific identified properties | Shares in a fund holding a diversified portfolio |
| Pricing | Fixed offering price per the PPM | NAV struck periodically by the sponsor, not the open market |
| Liquidity | Illiquid; held to a finite full-cycle sale | Limited; periodic redemption queue that can be gated |
| Income | Pass-through rent, sheltered by depreciation | Dividends, largely ordinary income |
| Control | None; static, by trust rule | None; actively managed by the sponsor |
| Diversification | Per offering; build your own across deals | Built-in across the portfolio |
| Exit | Sponsor sale, or a 721 roll-up into a REIT | Redemption program or a future liquidity event |
Which should you choose?
If you are completing a 1031 exchange and need to defer the gain on an appreciated property, the DST is the qualifying path — a private REIT purchased with sale proceeds does not preserve 1031 deferral.
Choose a private REIT when you are investing non-1031 cash and want built-in diversification and a periodic-redemption liquidity profile. Many investors use both in sequence: a DST today to defer, then a 721 exchange into a REIT later for diversification and estate flexibility.
Disclosures
This article is published by Baker 1031 Investments, LLC for general educational purposes for accredited investors and is not an offer to sell or a solicitation of an offer to buy any security, nor is it tax, legal, accounting, or investment advice or a recommendation. Any securities offering is made solely through a sponsor’s private placement memorandum (PPM) following a suitability determination. Securities offered through Aurora Securities, Inc. (ASI), member FINRA / SIPC; Baker 1031 Investments is independent of ASI.
Oil & gas mineral and royalty interests and DST programs are speculative, illiquid securities sold only to verified accredited investors and involve substantial risk, including possible loss of principal, commodity-price and production-decline risk, lack of control, and the risk that an intended 1031 exchange fails to qualify for tax deferral. Whether a particular interest qualifies as like-kind real property is a fact-specific legal determination that varies by state and by the terms of the instrument. Tax results depend on your individual circumstances. Consult your own CPA and attorney before acting. Past performance does not guarantee future results.