Owning investment property might seem like an ideal wealth-building strategy with monthly rent checks, growing property values, and the pride of owning something tangible. But any experienced landlord knows the reality: late-night maintenance calls, unexpected expenses, tenant headaches, and the stress of managing it all.
If you’re worn out but worried about the tax hit when you sell, there is a solution. Without a proper strategy, capital gains, depreciation recapture, and net investment income tax can quickly add up. Often, the tax burden is so large that investors hold onto properties longer than they’d like, missing out on opportunities better suited to their lifestyle and goals.
A DST Portfolio Could Be Your Off-Ramp
Enter the Delaware Statutory Trust (DST). It’s a legal structure that provides passive income, diversification, and tax deferral without active landlord duties. In short, DSTs allow you to sell your investment property and reinvest the proceeds into a portfolio of institutional-quality real estate without triggering a taxable event, thanks to Section 1031 of the tax code.
Think of it as a way to go from landlord to investor: still owning real estate, but without the headaches of managing it yourself.
What Exactly is a DST?
A DST is a private real estate offering that lets multiple accredited investors pool money to collectively own large, professionally-managed properties. These could be apartment complexes, industrial buildings, medical offices, self-storage units, and more.
DST investments allow you to focus on your goals rather than tenants, repairs, or property upkeep. A real estate sponsor handles everything, from finding the property and securing financing, to managing operations and collecting rent. You get your share of the income, and when the property is eventually sold, you’ll receive your share of the proceeds.
From Active Management to Passive Wealth
For many investors, DSTs offer something even more valuable than tax deferral: freedom. Instead of being tied down with dayto- day property management responsibilities, DST investors can step into a passive role that frees up their time, lowers stress, and creates space to focus on bigger-picture financial goals.
DSTs make it easier to move from managing one or several local properties to holding a professionally managed portfolio of institutional-quality real estate. Instead of being concentrated in a single market or asset type, investors can diversify across regions, property sectors, and income strategies, ranging from steady income-producing assets to those with higher growth potential. This broader exposure helps reduce risk and allows investors to better align their real estate exposure with their financial goals, timeline, and lifestyle.
DSTs can also simplify the transition of wealth. When an investor passes away, DST interests can be divided among heirs without needing to sell the underlying real estate. In many cases, those interests receive a step-up in basis, which can significantly reduce or eliminate taxes on deferred gains, making DSTs an efficient tool for passing wealth to the next generation.
How to Invest in a DST
You can invest in a DST by using a 1031 exchange with the proceeds from a property sale. To keep the exchange tax-deferred, those proceeds can’t go directly to you; they must be placed with a qualified intermediary in an escrow account until you purchase an interest in a DST. Structured correctly, a 1031 exchange is not a taxable event. It’s important to note that DSTs are only available to accredited investors (as defined by the SEC), so be sure you meet the requirements before moving forward.
Ready to learn More?
DSTs give you the chance to turn the work of property ownership into true financial freedom with passive income, tax advantages, and professional management on your side. Talk to your Relationship Manager today to see how a DST could fit into your long-term wealth strategy.
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By: Nolan Gaffney, CFA®, Portfolio Manager
