How to Buy a DST: Step-by-Step Process

I have been thinking about how quickly a 1031 exchange can turn a reasonable decision into a rushed one. First-order thinking treats a DST as a fast replacement property. Second-order thinking recognizes that the speed of closing does not remove the work: eligibility, suitability, diligence, identification, funding, and the long hold all still have to line up.

Buying a Delaware Statutory Trust in a 1031 exchange follows a defined sequence: get accredited and registered, review offerings and PPMs, identify the DST with a qualified intermediary, fund the investment, and receive a beneficial interest. The process is more structured than buying a stock or a piece of direct real estate because a DST interest is a security and is usually replacement property in a tax-deferred exchange.

Key Takeaways

• Confirm accredited status and open the broker-dealer account early. The suitability review should happen before a 45-day deadline creates pressure.
• Read the PPM for every serious offering. It covers the sponsor, property, debt, fees, projections, and risks that a headline yield does not capture.
• Identify the selected DST in writing to the qualified intermediary within 45 calendar days of selling the relinquished property, following the applicable identification rules.
• Complete subscription documents and have the QI fund the trust within the 180-day exchange period. You do not take possession of the exchange proceeds.
• After acceptance, you own a fractional beneficial interest, receive distributions and reporting, and hold passively through the sponsor’s full-cycle sale.

The roadmap is repeatable, but deadlines matter. DST interests are securities offered through a broker-dealer to accredited investors after a suitability review. Baker 1031 does not provide tax or legal advice. Verify current rules and deadlines with a tax advisor and qualified intermediary, and treat distributions as projections, not guarantees. For the wider context, read our comprehensive Delaware Statutory Trust primer.

Step 1: Get Accredited & Registered

Before looking at a specific property, confirm status as an accredited investor and open an account with the broker-dealer offering the DST interests. DSTs are securities sold under Regulation D and are generally available only to accredited investors. Typical qualification is income over $200,000 individually or $300,000 jointly in each of the last two years, with the same expectation this year, or net worth over $1 million excluding the primary residence. Many owners with substantial real-estate equity meet those thresholds, but the status must be confirmed.

Account opening is also when the suitability review occurs. Your representative gathers information about financial circumstances, goals, time horizon, liquidity needs, and risk tolerance to determine whether DST investing is appropriate and to begin matching offerings to your situation. You typically complete account paperwork and provide evidence supporting accredited status.

Do this before or around the sale of the relinquished property. Once the sale closes, the 45-day identification clock starts. Early preparation is not merely administrative convenience; it preserves the ability to choose instead of settling under a deadline. Accredited investor requirements are the first gate, and suitability remains a separate judgment.

Step 2: Review Offerings & PPMs

After account opening and suitability work, review the available DST offerings. A representative may present offerings that fit exchange parameters: equity to reinvest, debt to replace, property-type and geographic preferences, and risk tolerance. Available choices may span multifamily, net-lease retail, industrial, medical office, self-storage, sponsors, debt levels, and projected distributions. how to read a DST offering's fees, debt, and distributions helps put the comparison on substance rather than marketing.

For each serious candidate, read the Private Placement Memorandum. The PPM is the central offering document. It discloses the property, sponsor, structure, debt, fees, projected returns, and risk factors. Use it to assess sponsor track record and full-cycle history; property, tenants, and leases; loan-to-value and maturity; fees; and the risks you would bear.

This is the point to contrast first-order and second-order thinking. First-order thinking compares headline yield. Second-order thinking asks whether sponsor execution, property fundamentals, loan terms, fees, and stated risks justify that yield. Low DST minimums can allow diversification across two or more trusts, but each additional trust adds a sponsor and a PPM to review.

Step 3: Identify the DST With Your QI

For a DST bought as 1031 replacement property, the central exchange requirement is the 45-day identification deadline. Within 45 calendar days after selling the relinquished property, formally identify the replacement property in writing and deliver the identification to the qualified intermediary (QI), the independent party holding the exchange proceeds.

For a DST, the written identification notice specifies the chosen offering. It must follow IRS identification rules, such as the three-property rule or the 200% rule, which limit how many properties or how much value may be identified. See 45-day identification and work directly with your qualified intermediary on the notice.

DSTs can be well suited to a short window because they are pre-packaged and can close quickly without negotiating a purchase contract, obtaining new financing, or resolving conventional closing contingencies. That removes one source of timing risk, not the deadline itself. The deadline is strict and generally not extendable except in narrow disaster-relief situations. identifying DSTs within the 45-day window explains the timing in more detail. Coordinate with the QI and representative so the notice is accurate and timely.

Step 4: Fund the Investment

After identification, complete the funding mechanics. In a 1031 exchange, you do not take possession of sale proceeds. Doing so can trigger tax. The QI holds the funds, and after you complete the DST subscription documents — the paperwork that makes you a beneficial owner — the QI wires the proceeds directly to the trust. Funding must be completed within the overall 180-day exchange period, the deadline to close on replacement property.

The DST is already assembled, so funding is often fast once identification and documents are in place. There is no personal loan qualification or negotiated real-estate closing. If debt from the relinquished property must be replaced, a leveraged DST's existing non-recourse, trust-level loan provides a proportionate share of debt replacement without the investor personally applying for or guaranteeing a new loan. The investor funds the equity portion and the trust-level loan supplies the leverage side.

Confirm with the QI and representative how much equity and debt must be replaced to pursue full tax deferral, and make sure the wire and subscription are complete within 180 days. The 45-day and 180-day periods run concurrently; they do not add together.

Step 5: Receive Your Beneficial Interest

When funding is complete and the subscription is accepted, you receive a fractional beneficial interest in the trust holding the real estate. Under IRS Revenue Ruling 2004-86, that interest is treated as a direct interest in like-kind real property for 1031 purposes when the applicable requirements are met. You then become a passive owner: the sponsor and trustee manage the property, and you hold your interest and receive your share of trust cash flow.

Distributions are typically monthly and represent a share of net rental income. They are projections, not guarantees, and may vary with property performance. You also receive periodic reporting and annual tax documents, generally a substitute Form 1099 reflecting your trust income and a grantor-trust statement rather than a K-1. Because the DST is generally a grantor trust for tax purposes, you report your share and may claim your share of depreciation. Ask your CPA about the current treatment in your own circumstances.

The interest remains illiquid until the sponsor sells at full cycle, commonly after five to seven or more years. At that point, the choices described in the end of a DST — reinvest, roll up via a 721 exchange, or cash out can matter.

Timeline and Coordination

The five steps are a single exchange process. The two anchors are 45 days from sale to identify replacement property and 180 days to close and fund. Steps 1 and 2 take time, so the prudent approach is to begin account opening and due diligence before or around the sale, not after the clock begins. That leaves room for selection based on fundamentals.

Several parties coordinate the outcome. The QI holds proceeds and receives identification and funding instructions. The broker-dealer and representative handle offerings, suitability, and subscription. The sponsor manages the DST. Your CPA and attorney address your specific tax and legal questions. The investor, with help from the representative, keeps the dates and documents moving.

The fast, contingency-free close of a DST can help rescue an exchange when a primary property falls through near the deadline. It does not make the deadlines forgiving. Confirm every step with the QI and representative.

How Baker 1031 Helps You Buy a DST

Baker 1031 Investments helps investors move through the steps: accreditation and registration, offerings and PPMs, written identification with the QI, funding, and beneficial ownership. The aim is to coordinate the process through the 45- and 180-day deadlines.

DST interests are securities offered through the broker-dealer, Aurora Securities, Inc. (member FINRA/SIPC), to accredited investors after a suitability review of financial situation, goals, liquidity needs, and risk tolerance. We help confirm accreditation, open the account, compare offerings that fit exchange parameters, work through PPM risk factors, coordinate written identification, complete subscription and funding, and check the equity and debt replacement needed for a planned deferral. A DST's trust-level non-recourse debt can aid debt replacement without personal qualification, and diversification across multiple DSTs may be appropriate.

Baker 1031 does not provide tax or legal advice; your CPA, attorney, and QI handle individual tax questions and exchange mechanics. DSTs are illiquid. Distributions, yields, and returns are not promised; distributions are projections and past performance does not guarantee future results. A DST should be purchased only when suitable.

Frequently Asked Questions

How do I buy a DST?

The sequence has five steps. First, confirm accredited status, open a broker-dealer account, and complete suitability review. Second, compare offerings and read each PPM, including sponsor, property, debt, risks, and fees. Third, identify the selected DST in writing to the QI within 45 days and follow the identification rules. Fourth, sign subscription documents and have the QI wire held proceeds to the trust within 180 days. Fifth, receive the beneficial interest and become a passive owner receiving distributions and tax reporting. The representative and QI help keep the exchange on track.

Do I need to be an accredited investor to buy a DST?

Generally, yes. DST interests are Regulation D securities offered to accredited investors. The usual tests are income over $200,000 individually or $300,000 jointly in each of the last two years with the same expectation this year, or net worth over $1 million excluding the primary residence. Owners selling appreciated property may meet the net-worth test, but supporting documentation is part of account opening. Your representative can help confirm eligibility before an exchange.

What is a qualified intermediary and why do I need one?

A QI is an independent third party that facilitates a 1031 exchange by holding sale proceeds and handling documentation so you never take actual or constructive receipt. If you receive the proceeds, even briefly, the sale can become taxable and deferral can be lost. The QI holds proceeds after sale, receives the written DST identification within 45 days, and wires the money directly to the trust within 180 days. Engage the QI before closing the relinquished-property sale; one cannot be added afterward to repair the exchange.

What is the 45-day rule when buying a DST?

Within 45 calendar days of selling the relinquished property, you must identify replacement property in writing and deliver it to the QI. For a DST, identify the offering in the written notice. The three-property rule permits up to three properties without regard to value; the 200% rule permits more if combined value does not exceed 200% of what was sold. Weekends and holidays count. The deadline is generally not extendable except in narrow disaster-relief situations. Start account opening and diligence early.

How long does it take to buy a DST?

Once selected and identified, a DST can often be funded in days because it is pre-assembled and has no personal financing, negotiation, or conventional closing process. Preparation takes longer: accreditation, account opening, and due diligence should begin before or around the sale. The exchange allows 45 days to identify and 180 days to close and fund. The speed after selection is why DSTs can help when a primary replacement property fails near the deadline.

What is a PPM and why do I read it before buying?

A PPM, or Private Placement Memorandum, is the DST's central offering document. It discloses the property, sponsor, trust structure, debt, fees, projected returns, and risk factors, including illiquidity, lack of management control, potential loss of principal, and the fact that distributions are not guaranteed. It supports review of track record, property and tenants, loan-to-value and maturity, fee load, and whether the possible return compensates for stated risks. Read it before buying and ask about what is unclear.

Do I take possession of my exchange funds when buying a DST?

No. To preserve a 1031 exchange, you must not take actual or constructive possession of sale proceeds. The QI holds them from the relinquished-property sale and wires them directly to the DST after subscription documents are complete. The money moves from QI to trust rather than through the investor, within the 180-day period.

How does debt replacement work when buying a DST?

To pursue full deferral, an investor generally replaces both equity and relinquished-property debt. A leveraged DST already has non-recourse financing at the trust level; the fractional beneficial interest includes a proportionate share of that debt. This can provide debt replacement without personally qualifying for, applying for, or guaranteeing a new loan. An all-cash DST may make sense when the relinquished property had little or no debt. The representative can match DST leverage to the exchange need.

What do I receive after buying a DST?

After subscription acceptance and funding, you receive a fractional beneficial interest treated under Revenue Ruling 2004-86 as like-kind real property for qualifying 1031 purposes. You become a passive owner. You generally receive monthly projected distributions from net rental income, periodic property reporting, and annual tax reporting: a substitute Form 1099 and grantor-trust statement rather than a K-1. You may claim your share of depreciation and hold until the sponsor sells at full cycle.

Does a DST issue a K-1 or a 1099?

A DST generally issues a substitute Form 1099 and a grantor-trust statement, not a Schedule K-1. It is generally a grantor trust, so beneficial owners are treated as owning proportionate shares of real estate, income, expenses, and depreciation directly. A partnership, such as an LLC taxed as a partnership, issues K-1s to partners. Confirm reporting and current tax treatment with your CPA; Baker 1031 does not provide tax advice.

Can I diversify across multiple DSTs in one exchange?

Yes. Minimums are often around $25,000 to $100,000, so exchange proceeds can be allocated across several trusts by sponsor, property type, and geography. That can reduce concentration in a single tenant, sponsor, assumption, or market. Each DST must be identified with the QI under the applicable identification rules. More diversification also means more PPMs and sponsors to diligence, so it is a trade-off.

What happens if I can't fund within 180 days?

You must close on and fund replacement property within 180 calendar days of sale. Missing it generally ends the exchange and makes the sale taxable, including potential capital-gains tax and depreciation recapture. The 180 days run concurrently with the 45-day period and are generally not extendable except in narrow disaster-relief cases. A DST can close quickly, but the wire and subscription still need to be coordinated in time.

Is buying a DST risky?

Yes. A DST is illiquid and generally cannot be sold early; the hold commonly lasts five to seven or more years until full-cycle sale. The investor has no management control. Distributions may be reduced or suspended, real estate can lose value, tenants can default, leverage can amplify losses, refinancing can be difficult, and fees and load reduce net return. Due diligence reduces risk but cannot remove it. A DST can lose value, including principal, and should fit the investor’s circumstances and risk tolerance.

What is the minimum investment to buy a DST?

Minimums are often around $25,000 to $100,000. Exact minimums vary by offering and sponsor; some set a $25,000 cash-investor minimum and a higher exchange-investor minimum. The amount invested in an exchange is usually governed more by equity and debt replacement requirements than the minimum. Accreditation is the principal eligibility gate. A representative can help size an allocation for both the offering minimum and the planned full-deferral objectives.

How does Baker 1031 help me buy a DST?

We assist with accreditation and registration, offering and PPM review, written identification with the QI, subscription and funding, and receipt of the beneficial interest. DST interests are securities offered through Aurora Securities, Inc. (member FINRA/SIPC), to accredited investors after suitability review. We compare offerings, help evaluate risk factors, coordinate timing, confirm planned equity and debt replacement, and consider diversification. Your CPA, attorney, and QI handle individual tax and exchange questions. DSTs are illiquid and distributions are projections, not promises.

Glossary

Delaware Statutory Trust (DST) — A trust holding income-producing real estate, with 1031-eligible beneficial interests.

Beneficial Interest — A fractional ownership share in a DST, treated as like-kind real property.

1031 Exchange — A tax-deferred swap of like-kind investment real property.

Accredited Investor — An investor meeting income or net-worth thresholds for Reg D offerings.

Qualified Intermediary (QI) — The independent party that holds exchange proceeds and facilitates the swap.

45-Day Rule — The deadline to identify replacement property after a sale.

180-Day Rule — The deadline to close on and fund the replacement property.

Identification Notice — The written designation of replacement property given to the QI.

Three-Property Rule — An identification rule allowing up to three properties of any value.

200% Rule — An identification rule capping total identified value at 200%.

PPM — Private Placement Memorandum — the DST's central offering document.

Subscription Documents — The paperwork that makes you a beneficial owner of a DST.

Debt Replacement — Replacing relinquished-property debt via the DST's trust-level loan.

Grantor Trust — The tax status under which a DST issues a 1099, not a K-1.

Distribution — Your share of the DST's net rental income (a projection).

Full Cycle — When the sponsor sells the DST property, ending the investment.

Sources & References

• IRS. Revenue Ruling 2004-86 (Delaware Statutory Trusts)
• IRS. Like-Kind Exchanges — Real Estate Tax Tips
• Cornell Legal Information Institute. 26 CFR § 1.1031(k)-1 — Treatment of deferred exchanges
• U.S. Securities and Exchange Commission. Investor.gov — Updated Investor Bulletin: Accredited Investors

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.

Filed under: Delaware Statutory Trusts · DSTs · 1031 Exchange

About the author

Jerry Baker, Founder & Managing Principal, Baker 1031 Investments · FINRA Series 22 / 63 · SIE

Jerry founded Baker 1031 to bring institutional underwriting discipline to the 1031 exchange. He spent more than a decade on Wall Street working on $10B+ of real estate before building diversified DST portfolios for individual investors. Read full bio →

Reviewed by Lori Kamen — President & CCO, Aurora Securities, Inc. (FINRA Series 4 / 7 / 24 / 53 / 63 / 66), the supervising registered principal. Last reviewed June 2026. Baker 1031 reviews its educational content periodically for accuracy and regulatory compliance. Securities offered through Aurora Securities, member FINRA/SIPC.

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I am managing capital by getting eligibility and diligence done before a sale closes, then treating fast funding as a tool rather than a reason to rush. Where does the DST buying process create the most pressure for you?