DST vs TIC: How Tenants in Common Compare in a 1031 Exchange

Key takeaways

• A tenant-in-common (TIC) interest is a deeded, undivided share of a property. A Delaware Statutory Trust (DST) interest is a share of a trust, and the trust holds the deed. Both can qualify as replacement property in a 1031 exchange if they are set up correctly.
• The IRS guidelines for TIC rulings, Revenue Procedure 2002-22, list 15 conditions. Two shape everything: no more than 35 co-owners, and unanimous approval for sales, leases, re-leases and loan changes.
• A TIC gives you a vote and the power to refinance, re-lease or add money if everyone agrees. A DST gives you no vote, and the trust generally cannot do those things at all.
• Lenders and sponsors moved toward DSTs because one trust is a simpler borrower than dozens of owners. Today, DSTs are the common structure for sponsored fractional 1031 offerings.
• A TIC still makes sense in narrow cases, such as a few people who know each other buying one property together, or an owner who wants a direct say. Both structures are illiquid, both carry real risk, and you can lose money in either one.

What does tenants in common (TIC) mean in a 1031 exchange?

Let me start with the plain-English version, and then add the tax rules.

Tenancy in common is a way for two or more people to own the same property at the same time. Each owner holds an "undivided" share. Undivided means you don't own a particular floor or a particular unit. You own a percentage of the whole thing, and your name, or your company's name, is on the deed.

Say three people buy a building as tenants in common, with 50%, 30% and 20% shares. Each one owns that share of every brick, every lease and every dollar of rent. Each one also owes that share of the costs.

Tenancy in common is old and ordinary. Siblings who inherit a house often own it this way. So do friends who buy a cabin together. There is nothing exotic about it.

In the 1031 world, "TIC" means something more specific. It usually refers to a sponsored TIC offering. A sponsor is a real estate company that finds a property, arranges the loan, sells fractional shares to investors and then manages the asset. In the early 2000s, sponsors packaged office buildings, shopping centers and apartment complexes into TIC shares sized for people doing 1031 exchanges.

A 1031 exchange is the tax rule that lets you sell investment real estate and buy other investment real estate without paying capital gains tax right away. The tax is deferred, not erased. Under Section 1031 of the tax code, no gain is recognized when real property held for business or investment is "exchanged solely for real property of like kind."

A TIC interest works in a 1031 exchange because it is a deeded share of real estate. You are a real estate owner, not a partner in a business. That distinction is the whole game, and I'll come back to it.

What is a DST, in one paragraph?

A Delaware Statutory Trust is a trust formed under Delaware law that owns one or more properties. Investors buy beneficial interests in the trust. The IRS treats a properly structured DST as a grantor trust under Revenue Ruling 2004-86, so each investor is treated as owning a slice of the real estate for tax purposes. That's why a DST interest can qualify as 1031 replacement property. In return, the trustee must follow strict limits. It generally can't raise new money, refinance, sign new leases or reinvest sale proceeds. I cover the structure in depth in my complete guide to Delaware Statutory Trusts, so I won't repeat it here. This article focuses on how the two structures compare.

How is owning a DST different from owning a TIC?

The short version: in a TIC, you are on the deed. In a DST, the trust is on the deed.

That one difference ripples out into almost everything else. It changes who signs the loan, who votes, who can block a sale, how many investors can join and what happens when something goes wrong.

Title

In a TIC, each co-owner takes title to an undivided share. In sponsored deals, each investor usually held that share through a single-member LLC. A single-member LLC is a company with one owner. For federal income tax, it's usually "disregarded," meaning the IRS looks right through it to the owner. Lenders liked these LLCs because each borrower was a clean, special-purpose company.

In a DST, the trust holds title to the whole property. You hold a beneficial interest in the trust. You never appear on the deed.

Who is the borrower?

In a TIC, every co-owner, or every co-owner's LLC, is a borrower on the mortgage. With 30 co-owners, the lender has 30 borrowers. Each one signs. Each one has to be checked out.

In a DST, the trust is the only borrower. The lender deals with one entity and one signatory trustee. That simplicity is a big reason lenders came to prefer DSTs.

Who makes decisions?

In a TIC, the co-owners keep the right to approve the big decisions. Under the IRS guidelines, some decisions require every single co-owner to agree.

In a DST, a trustee makes the narrow decisions the trust agreement allows. Investors generally don't vote on leasing, financing or sale timing.

What can the property do?

A TIC can do whatever its co-owners agree to. It can refinance a loan, sign a new lease or put more money into a roof, as long as the votes are there.

A DST can do very little. That's by design. Its tax treatment depends on the trustee having no power to change the investment. When something big must happen, many DSTs rely on a "springing LLC" clause that converts the trust into an LLC. My DST guide explains how that works and why it matters for your future exchanges.

DST vs TIC: a side-by-side comparison

Here is how the two structures compare on the points investors most often ask about. These are general features. Every offering has its own documents, and the documents control.

The table shows the core trade. A TIC gives you rights. A DST gives you simplicity. Each one costs you the other.

What does Rev. Proc. 2002-22 require of a TIC?

In 2002, the IRS issued Revenue Procedure 2002-22. It explains when the IRS will consider a request for a private ruling that a TIC arrangement is co-ownership of real estate, not a business entity such as a partnership.

That question matters because a partnership interest is not real property. If the IRS decided a TIC was really a partnership, your "deeded share" would be treated as a partnership interest. Your exchange could fail, and your deferred gain could become taxable.

These are ruling guidelines, not a safe harbor

People often call Rev. Proc. 2002-22 a safe harbor. It isn't. The procedure says its guidelines "are not intended to be substantive rules" and are not to be used for audit purposes. It only describes when the IRS will consider issuing a ruling.

In practice, though, sponsors treated the 15 conditions as the rulebook. Most sponsored TICs were built to meet them, often backed by a tax opinion from the sponsor's lawyers.

Why co-ownership can turn into a partnership

The tax rules start from a simple idea. Under Treasury Regulation 301.7701-1(a)(2), "mere co-ownership of property that is maintained, kept in repair, and rented or leased does not constitute a separate entity."

But co-owners who go further and run a business together can become a partnership. The 15 conditions draw the line between passive co-ownership and a joint business.

The 15 conditions in plain English

The two rules that matter most

Of the 15, two drive most of the practical differences between a TIC and a DST.

The 35-owner cap. Section 6.02 says "the number of co-owners must be limited to no more than 35 persons." That keeps each seat large. If a property needs $20 million of equity, 35 owners must average more than $570,000 each. Many 1031 investors have less than that to place.

Unanimous approval. Section 6.05 says co-owners must retain the right to approve the hiring of any manager, any sale, any lease or re-lease and any change to the shared mortgage. Those actions require "unanimous approval of the co-owners." One owner who says no can block a sale or a loan fix.

The procedure also says a co-owner may not give the manager a "global power of attorney." So owners can't simply sign their votes away to the sponsor at the start.

Why did the TIC market shrink?

TICs grew fast in the early 2000s. They gave 1031 investors a way to trade a rental they managed themselves for a share of a large, professionally managed building. Then the 2008 downturn tested the structure, and it showed its weak spots.

Too many decision-makers

When values fell, many properties needed a loan modification, a new tenant, a capital call or a sale. Each of those needed every co-owner to agree. Getting 30 investors in 15 states to agree on anything is slow. Some owners couldn't afford a capital call. Others refused on principle. A single holdout could stall a fix for months.

Lenders disliked the structure

Lenders, especially those whose loans were pooled and sold as bonds, found it hard to work with dozens of borrowers. A loan workout might need dozens of signatures. Some co-owners hired their own lawyers. The friction made lenders less willing to modify loans and less eager to make new TIC loans.

The DST already existed

Revenue Ruling 2004-86 had given the industry another tool. A DST has one borrower, one trustee and no 35-owner cap. Sponsors found DSTs easier to finance and easier to sell. In the years after the TIC market slowed, the DST became the standard structure for fractional 1031 investments.

That history is also a warning. The DST fixed the voting problem by taking away the vote. When a DST faces the same troubles a TIC faced, there is no vote to hold. The trustee follows the trust agreement, and the trust agreement may call for a conversion, a sale or simply waiting.

Who controls a TIC, and who controls a DST?

Control is the biggest difference between the two. Let me walk through what it looks like in practice.

Control in a TIC

In a sponsored TIC, a sponsor affiliate usually acts as property manager under a management agreement. The manager handles daily work: rent collection, repairs, routine leasing within an approved plan and reports to the owners.

But the owners keep the big levers. They can fire the manager when the agreement comes up for renewal, which must be at least once a year under Section 6.12. They vote on a sale. They vote on major leases. They vote on the loan.

That sounds empowering, and it can be. It also means you need to read the owner updates, show up for votes and sometimes pay your share of a capital call. A TIC is passive most of the time, but not all of the time.

Control in a DST

In a DST, a signatory trustee, usually a sponsor affiliate, makes the narrow decisions the trust agreement allows. You don't vote on leases, financing or sale timing. You read the reports, receive distributions if any are paid and wait for the sale.

Some people find that restful. Others find it frustrating. If you've spent 20 years running your own buildings, handing all control to someone else is a real change. It's worth deciding which of those two people you are before you look at any offering.

The holdout problem, and its mirror image

In a TIC, one co-owner can hold up a decision everyone else wants. In a DST, no one can hold up a decision, but no one can push for one either. If the trust agreement doesn't allow a fix, the fix doesn't happen until the trust converts or sells.

Neither is better in every case. A TIC fails when the owners can't agree. A DST struggles when the rules don't allow what the property needs.

How do loans work in a TIC compared with a DST?

Financing is where the two structures differ most for the lender, and so for you.

TIC loans

In a sponsored TIC, the lender usually makes one loan secured by the whole property. Each co-owner, often through its own LLC, signs as a borrower. Under Section 6.09, the co-owners share that debt in proportion to their interests.

Most sponsored TIC loans were non-recourse to investors. Non-recourse means the lender can take the property if the loan defaults but generally can't come after your personal assets. Non-recourse loans usually come with "carve-outs" for things like fraud or an unauthorized transfer. Who signs the carve-out guaranty depends on the loan. In many sponsored deals, it was the sponsor.

Here is the catch. Because every co-owner is a borrower, every co-owner is part of any loan change. A refinance, an extension or a modification needs unanimous approval under the guidelines. The lender also has to vet each borrower again.

DST loans

In a DST, the trust is the only borrower. The loan is in place before the offering, and investors don't sign it. DST loans are typically non-recourse to investors.

The catch is the opposite. The trust generally can't refinance or renegotiate the loan at all. If the loan comes due in a weak market, the options are an extension the documents already allow, a springing LLC conversion or a sale. I look at leverage in more detail in my guide to DST debt and leverage.

Replacing debt in your exchange

Both a TIC and a DST can help you replace debt in a 1031 exchange. If you sold a property with a mortgage, you generally need to buy replacement property with at least as much debt, or add cash to make up the difference. Your share of a TIC's or a DST's loan counts toward that target.

The difference is precision. DST offerings come with a set loan-to-value ratio, or LTV, which is the loan divided by the property's value. You can mix leveraged and all-cash DSTs to hit your numbers. With a TIC, you take whatever share of the loan comes with your share of the property.

Who can invest in a TIC or a DST?

Sponsored deals are securities

NASD, the regulator now called FINRA, addressed TICs in Notice to Members 05-18 in 2005. The notice said "TIC interests are generally investment contracts," because investors pool their money and rely on the sponsor's efforts. An investment contract is a type of security.

The same reasoning applies to DSTs. Sponsored TIC and DST interests are typically sold through broker-dealers in private offerings under Regulation D. Most are open only to accredited investors.

Accredited investor rules

An accredited investor is someone who meets SEC income, net worth or license tests. Under the SEC's accredited investor rules, an individual generally qualifies with income above $200,000 in each of the past two years ($300,000 with a spouse or spousal equivalent), or net worth above $1 million not counting a primary home. A Series 7, 65 or 82 license in good standing also qualifies. My guide to accredited investor status covers the details.

Direct TICs among a few owners

Not every TIC is a security. The same notice also says TIC interests "standing alone generally are not securities." Two business partners who buy a building together and manage it themselves aren't buying securities. They're buying real estate.

That difference matters. A direct TIC among people you know, where the owners manage the property themselves, generally doesn't need a sponsor, a broker-dealer or accredited status. Whether an interest is a security depends on the facts, so confirm with your attorney. It does need a good co-ownership agreement, a lawyer and partners you trust.

The 35-owner cap in practice

The cap shapes who can join. Fewer seats mean larger seats. A sponsored TIC on a $30 million property might need minimums in the hundreds of thousands of dollars. A DST on the same property can spread equity across hundreds of investors and accept much smaller checks.

How are TICs and DSTs taxed?

For federal income tax, the two work much the same way, as long as each is set up correctly.

Year-to-year reporting

A TIC co-owner owns real estate directly. You report your share of rent, expenses, interest and depreciation, often on Schedule E. Under Section 6.03, the co-ownership can't file a partnership return.

A DST investor is treated as owning a slice of the real estate through a grantor trust. The sponsor sends an annual statement, and you report your share the same way. Neither structure generally issues a K-1, unless a DST converts to an LLC taxed as a partnership.

Depreciation

Depreciation is a yearly tax deduction for wear and tear on a building. In both structures, your share flows to you. Your carried-over basis from the old property generally keeps depreciating on its old schedule. Your CPA will sort out the details. My guide to DST tax reporting covers how the annual statement works.

When the property sells

When a TIC property sells, each co-owner receives its share of the net proceeds. Each one can do its own 1031 exchange or take the cash and pay the tax. The same is true when a DST sells.

That independence is a real advantage of both structures over a partnership. In a partnership, the partnership sells and the partnership decides. Partners who want different outcomes have to sort it out in advance.

The tax risk unique to each

For a TIC, the main risk is recharacterization. If the co-owners act like a business, the IRS could treat the arrangement as a partnership. That could disqualify the exchange.

For a DST, the main risk is the trust breaking the limits in Rev. Rul. 2004-86, or converting to a springing LLC. Either one can change how your interest is treated. A conversion can end your ability to do your own 1031 exchange when the LLC sells.

This isn't tax advice. Confirm how either structure applies to you with your CPA and attorney.

What are the real advantages of a TIC?

I don't want this to read as a sales pitch for DSTs. TICs have real strengths, and in some cases they're the better fit.

You have a vote

A TIC gives you a legal say in every major decision. If the sponsor wants to sell at a price you think is too low, you can say no. If a re-lease deal looks bad, you can vote against it.

The property can adapt

A TIC can refinance, re-lease and raise money from its owners. A DST generally can't do any of those without converting. For a property that may need active management, that flexibility matters.

You can fire the manager

Under Section 6.12, the management agreement must be renewable at least once a year. If the manager performs poorly, the owners can replace it. In a DST, the sponsor's affiliates usually hold the key roles for the life of the trust.

Your name is on the deed

Some owners simply feel better holding direct title. It's tangible. You can see your name in the county records.

A good fit for small, known groups

For a family, or for a few business partners, a direct TIC can be a simple way to co-own one property in a 1031 exchange. There may be no sponsor and no load. There's no offering memorandum to buy into. You set the terms together.

What are the real advantages of a DST?

No vote to win

There's no holdout problem. No one has to chase 30 signatures to keep the property running.

Simpler financing

The lender deals with one borrower. Loans are arranged before the offering, and you don't qualify for or sign the loan. That's a big reason most fractional 1031 offerings are DSTs today.

Smaller minimums

Because a DST isn't limited to 35 owners, minimums can be lower. That makes it easier to spread an exchange across several properties and sponsors.

Speed

A DST already owns its property. Once your paperwork, funding and approvals are complete, closing can often take two to three business days. That makes DSTs useful as backups when a direct purchase falls through near the end of the 180-day window (or your tax return due date, if earlier), as long as you identified the DST in writing within the 45-day identification period.

Fully passive

A DST asks almost nothing of you. No votes. No capital calls, because the trust can't accept new money. You read the reports and wait.

Those strengths come with real costs. You give up control, you can't refinance, and you rely heavily on the sponsor. Fees can be high, distributions are not guaranteed, and you can lose your entire investment. My guide to DST pros and cons weighs both sides in more depth.

When does a TIC still make sense?

TICs are far less common than they once were, but they still have a place. Here are the situations where I'd think about one.

A few owners who know each other

Say you and your brother each want to exchange into the same property. A direct TIC lets each of you hold your own deeded share. Each of you can do your own exchange now and your own exchange later. With two or three trusted owners, unanimous approval is a conversation, not a crisis.

An owner who wants to stay involved

If you want a real vote on leasing and financing, a TIC gives you one. A DST doesn't.

A property that will need active decisions

A multi-tenant building with shorter leases may need frequent leasing decisions. Some DSTs handle that with a master lease to a sponsor affiliate. A small TIC can handle it by vote. If you'd rather the owners decide, a TIC may fit.

Partners who want to go separate ways

Sometimes partners in an LLC want different outcomes when they sell. One wants cash, one wants a DST, and one wants a new building. Restructuring into tenancy in common before a sale, sometimes called a "drop and swap," is one way people try to split those paths.

Be very careful here. The IRS may look at whether each owner truly held a real property interest for investment, and how long before the sale the change happened. This is a planning step for your tax attorney, done well ahead of any sale. It's not something to improvise during escrow. State tax agencies may look closely at these restructurings too, and the new TIC has to be run as true co-ownership, not as the old partnership.

When a TIC doesn't make sense

A TIC is usually the wrong tool if you don't know your co-owners. It's also the wrong tool if you can't afford a capital call. And it fits poorly if you want to be truly hands-off, or if you want to put a small amount of money to work. If you want a passive share of an institutional property, a DST is the common structure for sponsored fractional 1031 offerings today.

A worked example: the loan comes due

This is a hypothetical example with round numbers. It doesn't represent any offering or any client. It's here to show how the two structures react to the same problem.

The setup

Say a property is bought for $30,000,000. The loan is $18,000,000, which is 60% LTV. Investor equity is $12,000,000.

• In the TIC version, 30 co-owners each put in $400,000. Each owns a 1/30 share.
• In the DST version, 120 investors each put in $100,000. Each owns a 1/120 share.

The loan is a seven-year fixed-rate loan. The loan is interest-only, so the full $18,000,000 is still owed when it matures. The plan is to sell in year six.

The problem

The market turns, and the sale doesn't happen. In year seven, the market is still soft. The property is worth $25,000,000, not the $33,000,000 the plan hoped for. The loan comes due. A new lender will lend only $16,000,000. That leaves a $2,000,000 gap to refinance.

What the TIC can do

The TIC owners can vote. They have three main choices.

1. Refinance with a capital call. Each of the 30 owners puts in $2,000,000 ÷ 30 = about $66,667. Every owner must agree to the new loan. If even one says no, the deal can stall.
2. Sell now. The sale needs unanimous approval too. After the $18,000,000 loan payoff and, say, $750,000 of selling costs, owners split about $6,250,000. That's about $208,333 each, compared with $400,000 invested. It's a loss, but it's a choice the owners made together.
3. Negotiate an extension. The lender has to agree. Every co-owner is a borrower, so every co-owner is part of that talk.

If all 30 owners agree, the TIC can refinance and wait for a better market. That's the flexibility a TIC offers. If two owners can't pay and one refuses on principle, the property may end up in default. That's the risk a TIC carries.

What the DST can do

The DST can't hold a capital call, because it can't accept new money. It generally can't refinance either.

1. Use an extension option, if the loan has one. Many DST loans don't, or the terms are tight.
2. Convert to a springing LLC. The LLC can then refinance and raise new money. But investors now hold LLC interests, taxed as a partnership. When the LLC later sells, each investor may not be able to do a separate 1031 exchange.
3. Sell. The trustee can sell, often without an investor vote. Investors split the same roughly $6,250,000. That's about $52,083 per $100,000 invested.

What the example shows

Notice that the money result of a sale is the same in both versions. Each owner gets back about 52 cents per dollar invested. The structure doesn't change the market. It changes who decides and what tools they have.

The TIC had more tools, but it needed 30 people to agree on each one. The DST had fewer tools, but no one could block them. Neither structure protected investors from losing money.

How do you choose between a DST and a TIC, step by step?

Here's a practical process for weighing co-ownership in a 1031 exchange.

Step 1: Decide how involved you want to be

Be honest with yourself. Do you want a vote? Will you read owner updates and respond to them on time? Could you fund a capital call? If the answers are no, a TIC will probably frustrate you.

Step 2: Look at who the co-owners would be

A TIC with people you know and trust is very different from a TIC with strangers. With strangers, unanimous approval is a real risk. With family or partners, it may be fine.

Step 3: Line up a qualified intermediary before you sell

A qualified intermediary, or QI, is a company that holds your sale proceeds during the exchange so you never touch them. The IRS like-kind exchange fact sheet says "You can not act as your own facilitator." Neither can your agent, accountant or attorney. The QI must be in place before your sale closes.

Step 4: Confirm your investor status

If you're looking at sponsored TIC or DST offerings, confirm whether you're an accredited investor. If you're forming a direct TIC with people you know, you may not need to be. Your attorney can confirm.

Step 5: Read the governing documents

For a TIC, read the co-ownership agreement, the management agreement and the loan documents. Look for how votes work, what happens if an owner won't fund a capital call and who signs the carve-out guaranty.

For a DST, read the private placement memorandum (PPM), the trust agreement and the master lease, if there is one. A PPM is the legal document that describes the offering, its fees, its risks and its conflicts. Look for the springing LLC clause and who can trigger it.

Step 6: Identify your choices in writing within 45 days

Under 26 CFR 1.1031(k)-1, you identify replacement property in a written document you sign and deliver within 45 days of your sale. You can generally identify up to three properties of any value, or more under the 200-percent rule. Each TIC interest or DST interest you might buy counts as a property for these rules. My guide to the 1031 identification rules walks through the options.

Step 7: Close within 180 days

You must receive the replacement property within 180 days of your sale, or by your tax return due date (with extensions), if earlier. A DST can often close in two to three business days once paperwork, funding and approvals are complete. A TIC purchase, especially a direct one, can take longer because of title, lender approval and the co-ownership agreement.

Step 8: Report the exchange and keep records

You report the exchange on IRS Form 8824 for the tax year of the sale. Keep your exchange agreement, closing statements and the TIC or DST documents. Your basis history runs through all of them.

Mistakes to avoid with TICs and DSTs

These are the mistakes I'd watch for most closely. Some apply to both structures. Some are unique to one.

1. Treating a TIC as fully passive. A TIC is passive until a vote or a capital call arrives. Then it isn't. Plan for both.
2. Joining a TIC with strangers without a plan for holdouts. Read what the co-ownership agreement says about an owner who won't vote or won't pay. Look for a right of first offer and a buyout process.
3. Assuming Rev. Proc. 2002-22 is a safe harbor. It sets out guidelines for ruling requests. It doesn't promise any tax result. Ask whether the sponsor has a tax opinion and what it covers.
4. Acting like a business in a direct TIC. Don't file a partnership return, use a shared business name or call each other partners. Those are the signs that can turn co-ownership into a partnership.
5. Ignoring the springing LLC clause in a DST. Learn who can trigger a conversion and what it would mean for your next exchange.
6. Forgetting the loan maturity. In both structures, a loan that comes due in a weak market is the most common source of trouble. Compare the loan term with the planned hold.
7. Mismatching debt. Run your debt replacement math before you pick an offering. Your share of the loan counts toward your target.
8. Putting everything into one property. NASD (now FINRA) Notice to Members 05-18 warned that concentration in a single asset class "is not suitable for many investors." Consider spreading your money where the identification rules allow.
9. Restructuring a partnership into a TIC at the last minute. If you plan to split from partners, start early with your tax attorney.
10. Skipping your advisors. Co-ownership is a legal decision and a tax decision as much as an investment one. Bring in your CPA, attorney and QI early.

What are the risks of TICs and DSTs?

Both structures share most of the same risks. Here are the ones I'd want you to weigh.

• Loss of principal. Property values can fall. You can lose some or all of your investment, and debt increases that risk.
• Distributions are not guaranteed. Income depends on tenants and expenses, and it can be cut or stopped.
• Illiquidity. There's no public market for either. The SEC's bulletin on private placements says "you should be prepared to hold the securities indefinitely." A TIC owner can try to sell a share, but buyers are few, and lender approval may be needed.
• Control risk. In a TIC, other owners can block what you want. In a DST, you have no say at all.
• Sponsor risk. In sponsored deals, the sponsor's affiliates usually manage the property. Their judgment and finances directly affect you. My guide on what happens if a DST sponsor goes bankrupt covers that question.
• Capital call risk (TIC). If the property needs money, you may be asked to pay your share. If you can't, your share may be diluted or put at risk.
• Rigidity risk (DST). The trust generally can't refinance, re-lease or raise money without converting.
• Leverage. Debt magnifies losses as well as gains.
• Fees. Sponsored TICs and DSTs both carry up-front and ongoing fees that reduce what's invested and what you earn.
• Tax risk. If the structure fails its tax requirements, or your exchange isn't completed properly, your deferred gain can become taxable. Tax laws can change.

How I approach co-ownership

My background is in applied mathematics and applied statistics, which I studied at Babson College. Before I founded Baker 1031 Investments, I spent years in real estate acquisitions, management and development at ValueRock Realty Partners, Faris Lee Investments, Westport Capital Partners and Arbor Bay Capital Partners. I've been involved in more than $10 billion of real estate investment activity.

That experience taught me to ask who actually makes the decisions in any deal. In a TIC, it's the co-owners, and the question is whether they'll agree. In a DST, it's the sponsor, and the question is whether its rules fit what the property may need.

I offer DSTs from more than 20 institutional sponsors. My team and I review each one across five areas, and we partner with outside auditors in each: broker-dealer review, investment manager audit, investment offering review, real estate assessment and institutional underwriting. The review is continuous, not a one-time check. I also track more than 1,100 full-cycle 1031 DST investments for performance.

When we talk, I'll walk you through the offerings I currently have available. I'll tell you why I'm considering each one, what I like and where I have reservations. If a direct purchase or a co-ownership with people you know fits you better, I'll say so. Securities are offered through Aurora Securities, Inc., member FINRA/SIPC. Baker 1031 Investments is independent of Aurora.

What my data shows

Here's what my offering records as of October 2026 show, across 76 DST offerings from 38 sponsors. My records track DST offerings, so they don't measure how many TICs exist. These figures describe the offerings I track. They're not a forecast or a promise about any future offering.

Minimums are built for many investors

The median minimum investment is $100,000, and 21 of 76 offerings (28%) start at $25,000. Minimums range from $25,000 to $500,000. The median offering is about $65 million of total capitalization.

Those numbers only work with many investors. A structure limited to 35 co-owners couldn't offer seats that small to most investors on properties that large. That's the practical gap between the two structures.

Debt levels

Lenders were a big part of the TIC story, so leverage is worth a look. 36 of 76 offerings (47%) are all-cash, with no loan at all. Another 16 (21%) have LTV above 50%. Among offerings that use debt, the median LTV is about 49%.

An all-cash DST avoids the loan maturity problem in the worked example above. A leveraged DST helps you replace debt from your old property. You can mix the two to fit your exchange.

Hold periods and exits

A 10-year projected hold is the most common, at 31 offerings. Others project 5 to 10 years or 7 years, and a few are 2-year programs. On exits, 44 offerings (58%) offer an optional 721 exit into a REIT, 13 (17%) make it mandatory, 17 (22%) offer none and 2 are unclear. In a DST, these terms are set in advance. In a TIC, the owners would vote on the exit when the time came.

Frequently asked questions

What is the main difference between a DST and a TIC?

In a TIC, you hold a deeded share of the property and vote on major decisions. In a DST, you hold an interest in a trust that owns the property, and a trustee makes the limited decisions allowed. A TIC offers more control, while a DST offers more simplicity.

Can a TIC interest be used in a 1031 exchange?

Yes, if it's structured as true co-ownership of real estate and not a partnership. The IRS guidelines in Rev. Proc. 2002-22 describe 15 conditions sponsors have used to support that treatment. Confirm the structure with your CPA and attorney before you rely on it.

How many owners can a TIC have?

Rev. Proc. 2002-22 says the IRS ordinarily won't consider a ruling request unless the co-owners are "no more than 35 persons." A husband and wife count as one person. A DST isn't subject to that 35-owner limit.

Why did TICs fall out of favor?

Unanimous approval for sales, leases and loan changes made decisions hard with dozens of owners. Lenders also found it hard to work with many separate borrowers, especially in the 2008 downturn. DSTs solved both problems by putting one trust on title and one trustee in charge.

Are 1031 tenant-in-common properties still available?

Sponsored TIC offerings are rare today, and DSTs are the common structure for sponsored fractional 1031 offerings. Direct TICs among people who know each other are still common for families and small groups.

Is a TIC less risky than a DST?

Not necessarily, and neither one is protected from loss. Both can lose value, both are illiquid, and distributions are not guaranteed in either. A TIC gives you more say, but it also brings holdout and capital call risks a DST doesn't have.

Do I need to be an accredited investor for a TIC?

For sponsored TIC offerings sold as securities, usually yes. A direct TIC among a few people buying real estate together generally isn't a securities offering. Your attorney can confirm which applies to your situation.

Can a TIC refinance its loan?

Yes, if all co-owners agree. Rev. Proc. 2002-22 requires unanimous approval for any change to the shared mortgage. A DST generally can't refinance at all without converting to an LLC.

Do TIC owners get a K-1?

Generally, no. A TIC that meets the IRS guidelines can't file a partnership return, so each owner reports its own share of income and expenses. DST investors also generally get an annual statement rather than a K-1.

Can I 1031 exchange out of a TIC or a DST when it sells?

Usually, yes. In both structures, you're treated as owning your share of the real estate, so you can roll your share of the proceeds into a new 1031 exchange with a qualified intermediary in place. A DST that has converted to a springing LLC may not allow that.

What happens if one TIC owner won't agree to a sale?

Under the IRS guidelines, a sale requires unanimous approval, so one owner can block it. Many co-ownership agreements include a right of first offer or buyout terms to handle this. Read those terms closely before you invest.

Before you act

This guide is for education only. It isn't tax, legal or investment advice. Please confirm every decision with your CPA, attorney and qualified intermediary. DST and TIC interests sold as securities are offered only by private placement memorandum to qualified investors, most are for accredited investors only, and you can lose your entire investment.

Sources

• IRS, Revenue Procedure 2002-22
• IRS, Revenue Ruling 2004-86
• 26 U.S.C. § 1031, Exchange of real property held for productive use or investment (Cornell LII)
• 26 CFR § 1.1031(k)-1, Treatment of deferred exchanges (Cornell LII)
• 26 CFR § 301.7701-1, Classification of organizations for federal tax purposes (Cornell LII)
• IRS Fact Sheet FS-2008-18, Like-Kind Exchanges Under IRC Code Section 1031
• IRS, About Form 8824, Like-Kind Exchanges
• FINRA (NASD) Notice to Members 05-18
• Investor.gov, Updated Investor Bulletin: Accredited Investors
• Investor.gov, Private Placements under Regulation D