How to Choose a DST: A Practical Framework

A Delaware Statutory Trust (DST) is a trust that owns real estate and sells shares of it to investors, and choosing one means matching it to your own 1031 exchange needs before you judge the sponsor, property, debt, fees, and exit. In my offering records as of October 2026, 36 of 76 DSTs (47%) used no debt at all.

Key takeaways

• Start with yourself, not the deal. Your equity, the debt you need to replace, your income needs, your timeline, and your estate plans narrow the field fast.
• The sponsor matters as much as the building. Look for a long track record, full-cycle results (deals that were bought, run, and sold), and financial strength.
• Debt changes everything. In my records, 47% of DSTs are all-cash, while 21% carry loan-to-value above 50%. Know which kind you are buying and why.
• The highest projected distribution is not automatically the better choice. Ask how it is calculated, what supports it, and whether any of it is a return of your own money.
• Read the private placement memorandum (PPM). The risk factors, fees, debt terms, and exit sections tell you more than any brochure.
• DSTs are illiquid, you have limited control, distributions are not guaranteed, and you can lose your entire investment. Confirm every tax question with your CPA, attorney, and qualified intermediary.

What is a DST, in plain English?

Before you choose one, it helps to know exactly what you are choosing.

A Delaware Statutory Trust is a legal entity created under Delaware law. A company called a sponsor sets up the trust, buys one or more properties, and then sells beneficial interests in the trust to investors. You own a share of the trust. The trust owns the real estate.

Many people use DSTs as part of a 1031 exchange. A 1031 exchange is a way to sell investment real estate and buy other investment real estate while deferring capital gains tax. It is named after Section 1031 of the Internal Revenue Code. Under that law, you generally have 45 days after your sale to identify replacement property and 180 days (or your tax return due date, if earlier) to close on it. Since 2018, the IRS says Section 1031 applies only to real property.

Why can a share of a trust count as real estate? In 2004, the IRS issued Revenue Ruling 2004-86. It explained how a properly structured DST is treated for tax purposes. Under the facts in that ruling, an interest in a DST can qualify as replacement property in a 1031 exchange. The structure has to follow strict rules for that to work, and your own facts matter. That is why you should always confirm with your CPA and attorney.

The same ruling puts tight limits on what the trustee can do. Under the ruling's facts, the trustee cannot:

• Take in new money from investors after the offering closes.
• Renegotiate the existing loan.
• Renegotiate the lease or sign new tenants, except in cases such as a tenant's bankruptcy.
• Make more than minor, non-structural changes to the property, unless the law requires them.
• Buy other assets besides certain short-term, safe-harbor investments.

These limits matter when you choose a DST. They mean the plan has to be right on day one. The sponsor cannot easily fix a bad loan or a weak lease later. So you are not just choosing a property. You are choosing a plan that is mostly locked in.

DST interests are also securities. Most are sold as private placements under Regulation D, often under Rule 506(b). In practice, that usually means they are offered only to accredited investors. An accredited investor is someone who meets SEC tests for income, net worth, or certain professional licenses. For individuals, the SEC's investor bulletin lists income over $200,000 a year ($300,000 with a spouse or spousal equivalent) in each of the last two years, or net worth over $1 million not counting your primary home.

Why does choosing the right DST matter so much?

A DST is not like a stock you can sell tomorrow. Most DSTs are built to be held for years. There is usually no public market for your shares. If you need your money back early, you may not be able to get it, or you may have to accept a large discount.

FINRA, the regulator that oversees broker-dealers, puts it plainly on its page about alternative and emerging products. It notes that "fees are often high with alternative and emerging products." It also warns that private placements "may have fewer disclosure obligations than more traditional investments."

So the choice you make at the start is the choice you will likely live with for five to ten years. That is a strong reason to slow down and use a framework.

I studied applied mathematics and applied statistics, and I spent years in real estate acquisitions, management, and development before I started Baker 1031 Investments. One lesson from all of it is simple. The questions you ask before you buy are worth far more than the ones you ask after.

Step 1: How do I start with my own needs?

Every good DST choice starts with you. Two investors can look at the same offering and reach opposite answers, and both can be right. Here are the six things I ask every investor to write down first.

Know your equity

Equity is the cash you have from your sale after paying off your loan and closing costs. Your qualified intermediary holds it. A qualified intermediary (QI) is the independent company that holds your sale proceeds so you never touch them, which helps keep your exchange valid.

Your equity tells you how many offerings you can spread across. In my records, the median minimum investment is $100,000. Minimums range from $25,000 to $500,000. If you have $300,000, you might split it across two or three DSTs. If you have $3 million, you have many more options.

Know the debt you need to replace

This is the step people miss most often. In a 1031 exchange, deferring all of your gain generally means buying replacement property worth at least as much as what you sold, and reinvesting all of your equity. If you had a mortgage on the property you sold, you usually need to replace that debt with new debt or with extra cash. If you don't, part of your gain may become taxable. Your CPA and QI can confirm the exact numbers for your exchange.

A DST with a loan can help here. When you buy into a leveraged DST, you take on your share of the trust's debt. That share can count toward replacing the debt you paid off. An all-cash DST gives you no debt at all.

Know your income needs

Do you need monthly income to live on? Or do you want growth and can wait? Some DSTs are built to pay steady distributions. Others are built more for value growth at sale. Some, like oil and gas royalty programs, have income that can rise and fall with commodity prices and production.

Be honest about what you need. If you need a steady check, a deal whose income could swing a lot may not fit, even if its projected rate looks higher.

Know your timeline

How long can you leave this money alone? Most DSTs in my records project a hold of around 10 years. Some project five to seven. A few are two-year programs. If you expect to need cash in four years, a ten-year plan is a mismatch. And remember, a projected hold is an estimate. The real hold can be shorter or longer.

Know your risk comfort

Risk shows up in many ways. A property with one tenant depends on that tenant. A property with a big loan can lose value faster if rents fall. A new building in a fast-growing city may have more upside and more uncertainty. Think about how you would feel if distributions were cut for a year. If that would hurt your budget, lean toward lower debt and more stable income profiles.

Know your estate plans

Many of the investors I work with are thinking about their heirs. Under current tax law, heirs may receive a step-up in basis when they inherit property. That rule can change, and it depends on your situation, so talk with your estate attorney and CPA. But it often shapes the choice. An investor focused on passing assets on may care more about a structure that is simple to divide among children than about squeezing out the last bit of yield.

A worked example: matching DSTs to your needs

Say you sell a rental building for $2,000,000. You pay off a $600,000 loan. To keep it simple, we will ignore closing costs. Your QI now holds $1,400,000 of equity.

To defer all of your gain, you generally need to:

• Reinvest all $1,400,000 of equity, and
• Buy at least $2,000,000 of total replacement value, which means replacing about $600,000 of debt (or adding cash).

Now say you split your money like this:

Your total replacement value is $2,100,000. That is more than the $2,000,000 you sold. Your share of new debt is $700,000. That is more than the $600,000 you paid off. On these simple numbers, the split meets both targets. The all-cash DST lowers your overall risk. The leveraged DST does the job of replacing your debt.

This is a hypothetical example. Real exchanges include closing costs, and the rules on what counts can be detailed. Your CPA and QI should check your numbers before you commit.

Step 2: How do I evaluate a DST sponsor?

The sponsor is the company that finds the property, arranges the loan, sets up the trust, and runs things for the life of the deal. You will not be able to fire them or vote them out in any normal way. So the sponsor may be the most important choice you make.

Track record

How long has the sponsor been buying this kind of property? How many deals have they done? Did they live through a real downturn, like 2008 to 2010 or the 2020 pandemic? A sponsor who has handled hard times has shown you something a sponsor with only good years cannot.

Ask for a list of past programs. Look at more than the winners. A sponsor that only shows you its strongest deals is not showing you the whole picture.

Full-cycle results

A full-cycle deal is one that has been bought, operated, and sold, with the money returned to investors. Full-cycle results are the closest thing to a report card. They show what investors actually got, not what a projection said they would get.

Ask these questions about each full-cycle program:

• What were the projected distributions, and what was actually paid?
• What was the projected hold, and how long did it really last?
• How much did investors get back at sale compared with what they put in?
• Were there any years when distributions were cut or suspended?

My team and I track more than 1,100 full-cycle 1031 DST investments for performance. I do that because I want to compare promises with results across many sponsors, not just one.

Financial strength

A sponsor with deep pockets has more ways to handle a surprise. A sponsor stretched thin may struggle when something goes wrong. Ask about the sponsor's own balance sheet, how much of its own money it has in the deal, and how it is paid. Also ask whether it has ever had to step in and support a struggling program.

You can also do some homework yourself. FINRA BrokerCheck lets you look up the broker-dealer and the people selling the offering. The SEC's EDGAR filing search lets you look for a Form D, which is a short notice many private offerings file with the SEC.

Alignment of interest

Is the sponsor paid mostly up front, or mostly when investors do well? A sponsor that earns a share of profits only after investors get their money back has a reason to care about the end result. A sponsor paid mostly at the start has less of that reason. Neither setup is automatically wrong, but you should know which one you are looking at.

Step 3: How do I evaluate the real estate itself?

A great sponsor can still buy the wrong building. So look hard at the property.

Location

Real estate is local. Ask what drives demand in that specific area. Are jobs growing? Is the population growing? Are there new competing buildings going up nearby? A strong metro can still have weak pockets.

In my records, DST properties span 33 states. The most common are Florida (14 offerings), Texas (13), North Carolina (8), and Georgia (7). Popular states are popular for real reasons, like job and population growth. But popularity also attracts new construction, which can compete for tenants. Look beyond the state to the street.

Property type

Different property types behave differently. Here is the mix in my records:

Apartments have many tenants on short leases. That spreads out risk, but rents can change quickly in both directions. Industrial and net lease properties often have one or a few tenants on long leases. That can make income more predictable, but it concentrates risk in those tenants. Oil and gas royalty programs are different again. The owner receives a share of production revenue from wells run by third-party operators and does not pay drilling or operating costs, but income depends on production and prices.

Tenants

Who pays the rent? For a single-tenant building, the tenant's financial health is the whole ballgame. Ask whether the tenant is a large public company or a smaller private one. Ask whether a parent company backs the lease. For apartments, ask about occupancy history, turnover, and how rents compare with nearby buildings.

Lease terms

For net lease and industrial deals, read the lease summary closely. How many years are left? Does rent go up each year, and by how much? Who pays for the roof, the parking lot, taxes, and insurance? A triple-net lease means the tenant pays most of those costs. That can protect the owner's income, but the details vary.

Watch for a lease that ends before or near the projected sale. Remember the DST rules. The trustee generally cannot sign a new lease. If a big lease ends during the hold, that can be a serious problem, and some DSTs plan for it by converting to a different structure. Ask how this deal would handle it.

Market

Look at the bigger market too. What are rents doing? How much new supply is coming? What price did the sponsor pay compared with recent sales nearby? A good building bought at too high a price can still be a weak investment.

Step 4: How do I evaluate a DST's financing?

Debt can help you replace the loan from your old property. It can also add risk. Because a DST generally cannot renegotiate its loan, the loan terms on day one matter a lot.

Loan-to-value (LTV)

Loan-to-value, or LTV, is the loan amount divided by the property's value. A $6 million loan on a $10 million property is 60% LTV. Higher LTV means more debt and less cushion if values fall.

In my records:

• 36 of 76 offerings (47%) are all-cash, with no debt.
• 16 of 76 (21%) have LTV above 50%.
• Among offerings that use debt, the median LTV is about 49%.

So you have real choices. If you don't need to replace debt, an all-cash DST removes loan risk entirely. If you do need to replace debt, you can pick a lower or higher LTV. Ask yourself whether the extra debt is there because you need it, or just because it makes the projected distribution look higher.

Fixed vs. floating rates

A fixed-rate loan keeps the same interest rate for its term. A floating-rate loan moves with market rates. Floating rates can rise sharply, as many borrowers learned in 2022 and 2023. Because a DST trustee generally cannot refinance or renegotiate the loan, a floating-rate loan without a rate cap or hedge can be a real risk. Always check the rate type.

Loan maturity vs. hold period

The loan maturity is the date the loan must be paid off. Compare it with the projected hold. If the plan is to sell in 10 years but the loan comes due in 7, what happens in year 7? The sponsor may have to sell early, possibly in a bad market. Look for a loan that runs past the projected hold, with some room to spare.

Interest-only periods

Many DST loans are interest-only for some or all of the term. That means you pay only interest, not principal, which keeps payments lower and can support higher distributions early on. But if the loan switches to principal-and-interest payments later, the monthly payment goes up. That can squeeze distributions. Ask when interest-only ends and what the distribution projection looks like after that.

Prepayment penalties

Some loans charge a large fee if they are paid off early. That can make an early sale costly. Ask whether there is a penalty, how it is calculated, and whether the loan can be assumed by a buyer.

Step 5: How do I evaluate the business plan and exit?

Every DST has a plan for how it will end. You want to understand that plan before you go in, not after.

Hold period

In my records, 10 years is the most common projected hold, showing up in 31 offerings. Others range from five to 10 years, and a few are two-year programs. A longer hold can give a property more time to grow in value. A shorter hold returns your money sooner but gives less time for growth. Either way, the projected hold is only a projection. The sponsor may sell earlier or later depending on the market.

What happens at sale?

When the DST sells the property, you receive your share of the sale proceeds. At that point you can generally choose to do another 1031 exchange, or pay the tax and move on. Ask your CPA how each choice would affect you.

721 exchange features

Some DSTs include a path into a real estate investment trust (REIT) through a 721 exchange. Section 721 of the tax code generally lets you contribute property to a partnership in exchange for an ownership interest without recognizing gain right away. In a DST setting, this usually means your DST interest can be exchanged for units in a REIT's operating partnership, often called an UPREIT.

This can offer more diversification and, in some cases, more liquidity later. But it also has trade-offs. Once you are in the operating partnership, you generally cannot do another 1031 exchange with those units. Selling them later is typically a taxable event. And you are now tied to the REIT's results.

The difference between optional and mandatory 721 features matters a lot:

If keeping the option to do another 1031 exchange matters to you, a mandatory 721 feature may not fit. If you like the idea of ending up in a larger, diversified REIT, it might. Read the exact language in the PPM, and ask your CPA how it would affect your taxes.

Contingency plans

What does the sponsor plan to do if something goes wrong? Many DSTs include a "springing LLC" provision. That lets the trust convert into a limited liability company if needed, which gives the manager more flexibility, such as signing a new lease or refinancing. Conversion can have its own tax and control effects, so ask how it would work and what it would mean for you.

Step 6: How do I understand DST fees and load?

Fees come out of your money, so they directly affect what you receive. FINRA reminds investors that fees in this category are often high. That does not mean every fee is bad. It means you should know where each dollar goes.

Upfront costs (the "load")

The load is the total of upfront costs paid out of investor equity when the deal is formed. It can include:

• Selling commissions and dealer fees paid to broker-dealers.
• Offering and organization costs, such as legal and accounting.
• An acquisition fee paid to the sponsor.
• Loan fees and financing costs.
• Reserves set aside for the property.

Here is a simple hypothetical. Say you invest $100,000, and the total upfront load is 9%. That means about $91,000 of your money goes into the real estate and reserves, and about $9,000 goes to costs. A different deal with a 6% load would put about $94,000 to work. Over a long hold, that difference can add up. These are made-up numbers to show the math, not the costs of any real offering.

Sometimes a sponsor will "mark up" the property. That means the DST pays investors' cost basis above what the sponsor paid for the building. The PPM should show the purchase price and the price the DST is paying. Compare them.

Ongoing fees

Ongoing fees are charged during the hold. They can include:

• An asset management fee paid to the sponsor.
• A property management fee, often a percent of rent.
• Trustee and administrative costs.

Ask whether these fees come before or after investor distributions. Ask whether any fees can be deferred if the property struggles.

Back-end fees

Some sponsors take a fee when the property is sold. This may be a disposition fee, or a share of profits (sometimes called a promote or carried interest) above a certain return to investors. A profit share that only kicks in after investors do well can align interests. Read the terms closely.

How to compare fees fairly

Don't just look at one fee. Add them up. Then compare the total with the value you are getting: the sponsor's experience, the quality of the property, the strength of the loan terms. A slightly higher fee from a sponsor with a strong full-cycle record may be a better deal than a low fee from an unproven one. The goal is to understand the trade, not just to find the lowest number.

Step 7: How do I judge projected distributions?

A distribution is the cash a DST pays to investors, usually monthly. The projected year-1 distribution rate is what the sponsor expects to pay in the first year, shown as a percent of your investment. Distributions are not guaranteed. They can be reduced or stopped.

How the projection is calculated

In broad terms, the sponsor starts with expected rent. It subtracts operating costs, loan payments, fees, and money set aside for reserves. What is left can be paid out. The rate is that amount divided by the total equity raised.

So a projection is only as good as its assumptions. Ask:

• What rent growth does the sponsor assume each year?
• What occupancy does it assume?
• What happens to distributions when an interest-only period ends?
• What happens if a big tenant leaves?

Why the highest number isn't automatically better

In my records, the median projected year-1 distribution rate is 4.7%. The range runs from 4.0% to 9.0% across the 71 offerings that published one. That is a wide spread. A rate near the top of that range should prompt more questions, not fewer.

Here is why. A higher projected rate can come from:

• More debt, which raises the cash return on equity in good times but adds risk.
• An interest-only loan that will later require bigger payments.
• A property type or tenant with higher risk.
• A commodity-linked income stream, such as oil and gas royalties, that can swing with prices and production.
• Lower reserves, which means less cushion for repairs and surprises.

None of these is automatically wrong. But each one is a trade. You want to know what you are trading for that extra income.

A worked example: comparing two income projections

Say you invest $500,000 and look at two hypothetical DSTs.

DST Y projects about $10,000 more in year one. But it has a 60% loan, an interest-only period that ends in year 5, and less reserve cushion. If rents dip or the loan payment rises, DST Y's distribution has more room to fall. DST X pays less but has no loan risk.

Which is right? It depends on Step 1. If you need to replace debt and can live with some swings, DST Y could fit. If you need dependable income and have no debt to replace, DST X might fit better. The point is to see the whole picture, not just the rate.

Return of capital

Sometimes part of a distribution is a return of capital. That means you are getting some of your own invested money back, not profit from the property. This can happen when a sponsor pays distributions from reserves or other sources while a property gets up to speed.

Return of capital is not always a red flag. But it is important to know. Ask the sponsor what share of past distributions came from property operations. Look at the "sources of distributions" language in the PPM. Ask your CPA how distributions would be treated on your tax return, since tax treatment and "return of capital" in the investing sense are not the same thing.

Step 8: Why do reserves matter?

Reserves are cash the DST sets aside at the start for repairs, leasing costs, and surprises. Because a DST generally cannot raise new money from investors later, reserves are often its main safety net.

Ask these questions:

• How much is in reserves, in dollars and as a percent of equity?
• What are they meant to cover? Roof, HVAC, parking lot, unit renovations?
• What happens if reserves run out?
• Can the sponsor cut distributions to rebuild reserves?

An older apartment building usually needs bigger reserves than a brand-new warehouse with a tenant who pays for repairs. Compare reserves with the age and type of the property, not just with other deals.

Step 9: What should I read in the offering documents?

The private placement memorandum, or PPM, is the main offering document. It is a long document. You don't need to read every word, but you should read certain sections closely. FINRA's Regulatory Notice 05-18 tells broker-dealers not to rely only on a sponsor's statements in offering documents, and to check whether projections are supportable. I think investors should take the same attitude.

PPM sections to read first

• Summary of the offering. The quick overview: property, price, loan, minimum investment, and projected hold.
• Risk factors. This section lists what could go wrong. It is long for a reason. Read it all, and note the risks specific to this property.
• Estimated use of proceeds. Shows where investor money goes, including the property, fees, loan costs, and reserves. This is where you see the load.
• Compensation of the sponsor and affiliates. Lists every fee the sponsor and related companies receive, up front, during the hold, and at sale.
• Financing terms. Loan amount, rate, fixed or floating, interest-only period, maturity, and prepayment penalties.
• Lease summary or property description. Tenants, lease terms, rent increases, and who pays which costs.
• Projections and assumptions. The distribution forecast and the assumptions behind it.
• Prior performance. The sponsor's track record on past programs, including any that struggled.
• Tax considerations and tax opinion. How the structure is meant to work for 1031 purposes. Have your CPA or attorney review it.
• Trust agreement and master lease (if any). The legal rules for how the trust is run, including any springing LLC or 721 provisions.

Other documents worth asking for

• A third-party appraisal or valuation.
• Property condition and environmental reports.
• Market studies.
• The sponsor's audited financial statements, if available.

If a sponsor or advisor won't share key documents, that tells you something too.

How do I compare two DSTs side by side?

Once you have narrowed the field, a simple scoring sheet can help. Give each factor a weight based on what matters most to you. Then score each DST from 1 (weak) to 5 (strong). Multiply and add.

Here is a hypothetical example for an investor who needs steady income, wants to replace some debt, and plans to pass assets on to heirs.

In this example, DST B might have a higher projected distribution and lower fees. But DST A scores higher overall because of its sponsor, its loan terms, and its exit fit. Your weights may be different. That's the point. The table forces you to say what matters to you, then judge each deal against it.

The scores are judgment calls. Use them to organize your thinking, not to replace it. If two deals are close, talk through the differences with your advisor.

DST vs. owning a rental: which fits you?

Many people choosing a DST are also asking a bigger question: should I just buy another rental myself? Here is a plain comparison.

Neither choice is right for everyone. A DST trades control for convenience and diversification. Owning directly gives you control but also the work and the concentration. FINRA's guide on concentration risk is a good reminder that having too much in one investment can magnify losses. That applies to one rental, and it applies to one DST.

What my data shows

I keep detailed records on the DST offerings my team and I review. As of October 2026, my offering records cover 76 DST offerings from 38 sponsors. Here is what they show, and what I take from them.

Nearly half of DSTs use no debt. 36 of 76 offerings (47%) are all-cash. That surprises many investors who assume every DST is leveraged. If you have no debt to replace, you have plenty of all-cash choices. If you do need to replace debt, you'll be choosing from the other half, and the LTV you pick is worth careful thought. Among leveraged offerings, the median LTV is about 49%, and 16 offerings (21%) are above 50%.

The typical projected income is modest. The median projected year-1 distribution rate is 4.7%, with a range of 4.0% to 9.0% across the 71 offerings that published one. When I see a rate well above the median, I don't assume it's better. I look for what's behind it: debt, interest-only terms, property risk, commodity exposure, or thin reserves.

Most DSTs have some kind of 721 feature. 44 offerings (58%) have an optional 721 exit into a REIT. 13 (17%) are mandatory. 17 (22%) have none, and 2 are unclear. That means three out of four DSTs I tracked include some REIT path. If keeping your ability to do future 1031 exchanges matters to you, check this feature on every deal.

Ten years is the most common plan. 31 offerings project a 10-year hold. Others range from five to 10 years, and a few are two-year programs. Match the projected hold to your own timeline from Step 1.

Entry points vary widely. The median minimum investment is $100,000, but minimums range from $25,000 to $500,000. 21 offerings (28%) start at $25,000. That makes it possible to spread even a modest exchange across more than one property.

Apartments lead, but the mix is broad. Multifamily makes up 41% of offerings, industrial 24%, and net lease (including energy royalty programs) 20%. Self-storage, retail, and medical office round out the rest. Locations span 33 states, led by Florida, Texas, North Carolina, and Georgia. The median offering size is about $65 million of total capitalization.

Not every deal makes the cut. Of the 76 offerings, 16 are open, 6 have limited availability, 24 are under review, 25 are closed, and 5 are ones I reviewed and passed on. Passing is part of the job. My due diligence covers five areas: broker-dealer review, investment manager audit, investment offering review, real estate assessment, and institutional underwriting. I partner with outside auditors in each area, and the review is continuous, not a one-time check.

These are my records, not a survey of the whole DST market. They reflect the offerings my team and I chose to track and review. Still, they give you a useful baseline. When you look at any DST, you can ask: how does this compare with the typical deal?

Your DST selection checklist

Use this list before you commit to any DST. If you can't check a box, ask more questions.

About you

• I know my exact equity and the debt I need to replace.
• My CPA and QI have confirmed my replacement value and debt targets.
• I know how much income I need and how steady it must be.
• My timeline fits the projected hold, with room to spare.
• I have thought about how this fits my estate plan.
• I meet the accredited investor rules, if the offering requires it.
• I can afford to have this money tied up for years, and I understand I could lose it all.

About the sponsor

• I've reviewed the sponsor's track record, including weaker deals.
• I've seen full-cycle results: projected vs. actual distributions and returns.
• I understand the sponsor's financial strength and how it gets paid.
• I've looked up the broker-dealer and representatives on BrokerCheck.

About the property

• I understand the location, local demand, and new competing supply.
• I know who the tenants are and how strong they are.
• I've read the lease terms, including when leases end.
• I've compared the purchase price with the price the DST is paying.

About the financing

• I know the LTV and why it was chosen.
• The loan is fixed-rate, or I understand the floating-rate protections.
• The loan matures after the projected hold.
• I know when any interest-only period ends and how that affects distributions.
• I understand any prepayment penalty.

About the plan and costs

• I know the projected hold and exit plan.
• I know whether there is a 721 feature, and whether it is optional or mandatory.
• I've added up upfront, ongoing, and back-end fees.
• I understand how distributions are calculated and what supports them.
• I know whether any distributions may be a return of capital.
• I know how much is held in reserves and what they cover.
• I've read the PPM sections listed above, especially risk factors.

Mistakes to avoid when choosing a DST

These are the mistakes I see most often. Most are easy to avoid once you know about them.

Chasing the highest projected distribution

This is the most common one. A higher rate can be a sign of more risk, not more value. Always ask what is behind the number.

Waiting until day 40 to start

The 45-day identification window goes fast. Investors who start looking on day 40 often feel pushed into whatever is available. Start your research before your sale closes, if you can, by looking at the offerings I currently have available. Because DST properties are already owned by the trust, closing can often happen within two to three business days once paperwork, funding, and approvals are complete. But choosing well takes longer than closing.

Forgetting to replace debt

Some investors put all their equity into all-cash DSTs, then learn they didn't replace the debt from their old property. That can create a taxable amount. Work out your debt target with your CPA and QI first.

Putting everything in one deal

Even a strong DST can have a bad stretch. With minimums as low as $25,000 in some offerings, many investors can spread money across two or more properties, sponsors, or property types. Ask whether diversifying makes sense for you.

Ignoring the loan details

A loan that matures before the planned sale, a floating rate without protection, or an interest-only period that ends early can each change the story. Read the financing section of the PPM.

Skipping the mandatory 721 fine print

If a DST has a mandatory 721 feature, your path may lead into a REIT whether or not you want it to. That can limit future 1031 options. Know this before you invest.

Treating projections as promises

Projections are estimates. Distributions are not guaranteed. Property values can fall. The hold can run longer than planned. Build your plan around the chance that things go worse than projected.

Not reading the risk factors

The risk factors section is there to tell you what could go wrong. Skipping it is like skipping the inspection report on a house.

Going it alone on tax questions

Every exchange is different. The way a DST fits your exchange, your estate plan, and your tax return depends on your facts. Confirm with your CPA, attorney, and QI.

Questions to ask your advisor

A good advisor should welcome these questions and answer them clearly. When I review opportunities with an investor, I explain why I'm considering each one, what I like, and where I have reservations. You deserve that level of candor from anyone you work with.

1. Why are you recommending this DST for me, based on my equity, debt, income needs, and timeline?
2. What do you like about this offering, and what concerns do you have?
3. What is the sponsor's full-cycle record? Can I see projected vs. actual results?
4. What is the LTV, the rate type, the loan maturity, and the interest-only period?
5. How does this deal help me replace the debt from my sale?
6. What are the total upfront, ongoing, and back-end fees?
7. What supports the projected distribution, and what could cause it to fall?
8. Have any past distributions from this sponsor been funded by anything other than operations?
9. How much is in reserves, and what are they meant to cover?
10. Is there a 721 feature? Is it optional or mandatory?
11. What happens if a major tenant leaves or the loan comes due before the sale?
12. How are you paid if I invest in this offering?
13. What other offerings did you look at, and why did you pass on some?
14. Can I see the full PPM and third-party reports before I decide?

How I help investors choose

My process is simple. It starts with an introductory call where we talk about your exchange, your goals, and your timeline. Then we review opportunities together. I tell you why I'm considering each one, what I like about it, and where I have reservations. When you're ready, I coordinate the paperwork with the sponsor and your qualified intermediary. Because DST properties are already acquired, closing can often take two to three business days once paperwork, funding, and approvals are complete.

I offer DSTs from more than 20 institutional sponsors. That range lets us compare across sponsors instead of fitting you into one company's product. Securities are offered through Aurora Securities, Inc., member FINRA/SIPC. Baker 1031 Investments is independent of Aurora Securities.

Frequently asked questions

How do I choose the right DST for my 1031 exchange?

Start with your own needs: equity, debt to replace, income needs, timeline, risk comfort, and estate plans. Then evaluate the sponsor, the property, the loan, the fees, the projected distributions, the reserves, and the exit plan. Read the PPM and confirm tax details with your CPA, attorney, and qualified intermediary.

What is a good distribution rate for a DST?

There's no single "good" rate. In my offering records as of October 2026, the median projected year-1 rate was 4.7%, with a range of 4.0% to 9.0%. A higher rate often comes with more debt or more risk, and distributions are not guaranteed.

Is an all-cash DST better than a leveraged DST?

Neither is automatically better. An all-cash DST removes loan risk, but it gives you no debt to help replace the mortgage from your old property. A leveraged DST can help replace debt but adds risk if values or rents fall. Your exchange needs should drive the choice.

How much do I need to invest in a DST?

Minimums vary by offering. In my records, the median minimum is $100,000, and minimums range from $25,000 to $500,000. About 28% of the offerings I tracked start at $25,000.

How long will my money be tied up in a DST?

Most DSTs plan to hold their property for several years. In my records, 10 years is the most common projected hold, though some project five to seven years and a few project two. DSTs are illiquid, and the real hold can be longer or shorter than projected.

What is a 721 exchange in a DST?

A 721 exchange lets you contribute your DST interest to a REIT's operating partnership for units, generally without recognizing gain at that time under Section 721. It can add diversification, but you generally can't do another 1031 exchange afterward. Some DSTs make this optional and some make it mandatory, so read the terms.

What fees should I look for in a DST?

Look at upfront costs (commissions, offering costs, acquisition fees, loan costs), ongoing fees (asset and property management), and back-end fees (disposition fees or profit shares). The PPM's "use of proceeds" and "compensation" sections list them. Compare total fees with the quality of the sponsor and property.

What should I read in a DST's PPM?

Focus on the offering summary, risk factors, use of proceeds, sponsor compensation, financing terms, lease summary, projections and assumptions, prior performance, and the tax section. Have your CPA or attorney review the tax opinion. Ask for third-party reports such as appraisals and property condition reports.

Can I lose money in a DST?

Yes. DSTs are real estate investments with real risks, including falling values, tenant problems, loan issues, and sponsor problems. Distributions are not guaranteed, and you can lose your entire investment.

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

Most DSTs are offered only to accredited investors. For individuals, that generally means income over $200,000 ($300,000 with a spouse or spousal equivalent) in each of the last two years, or net worth over $1 million not counting your primary home. Certain professional licenses can also qualify.

Can I split my 1031 exchange across several DSTs?

Often, yes. Many investors spread their equity across two or more DSTs to diversify by sponsor, property type, or location. Make sure your identification follows the 1031 rules and that your total replacement value and debt meet your targets, and confirm the details with your QI and CPA.

What happens to my DST when the property is sold?

You receive your share of the sale proceeds. You can generally choose to do another 1031 exchange or pay the taxes due. If the DST has a 721 feature, you may instead be offered, or required to take, units in a REIT's operating partnership.

Sources

• 26 U.S. Code § 1031, Exchange of real property held for productive use or investment (Cornell Law School, Legal Information Institute)
• 26 U.S. Code § 721, Nonrecognition of gain or loss on contribution (Cornell Law School, Legal Information Institute)
• Revenue Ruling 2004-86 (IRS)
• Like-Kind Exchanges, Real Estate Tax Tips (IRS)
• Updated Investor Bulletin: Accredited Investors (SEC, Investor.gov)
• Private Placements, Rule 506(b) (SEC)
• EDGAR Search Filings (SEC)
• Notice to Members 05-18 (FINRA)
• Alternative and Emerging Products (FINRA)
• Concentrate on Concentration Risk (FINRA)
• BrokerCheck (FINRA)

This article is for education only. It is not tax, legal, or investment advice. DST interests can qualify as replacement property in a 1031 exchange only if structured properly and only under your specific facts. DSTs are illiquid, offer limited control, are generally available only to accredited investors, and carry risk, including the loss of your entire investment. Distributions are not guaranteed. Confirm your situation with your CPA, attorney, and qualified intermediary. Securities offered through Aurora Securities, Inc., member FINRA/SIPC. Baker 1031 Investments, LLC is independent of Aurora Securities, Inc.