Delaware Statutory Trust As An Exit Strategy: Maximize Your Real Estate Returns In 2025

Lately, we’ve noticed a big shift in how real estate investors approach their property exits. More investors are choosing hands-off strategies that still offer strong returns and tax relief.

Case in point: recent reports show that DST investments have surged by 32.5%, with billions of dollars redirected through 1031 Exchanges into these passive vehicles.

From our experience, it’s clear that more people are warming up to Delaware statutory trust as an exit strategy, especially when the goal is to defer capital gains taxes, simplify their portfolios, and maintain exposure to commercial real estate.

If you’re looking to move out of active management and into something more passive, this guide is designed to help you do exactly that.

This article builds on what we covered in installment sales for commercial properties and pairs well with our next post on how to time your commercial property sale in any market cycle.

If you’re exploring broader options, you’ll also find value in our full overview of commercial real estate exit strategies.

Short Summary

• Delaware statutory trust (DST) investments allow passive ownership in institutional-grade commercial properties.
• Investors can use DSTs as a real estate exit strategy through a 1031 Exchange to defer capital gains taxes.
• DSTs offer fractional ownership, monthly income potential, and relief from day-to-day property management.
• Compared to direct ownership, DSTs provide diversification, passive income, and lower entry points for accredited investors.
• Ideal for those transitioning from active real estate to tax-advantaged, hands-off investing.

Understanding Delaware Statutory Trust Investments And Their Structure

If you’re curious about passive real estate investing but not quite ready to give up the benefits of institutional-quality properties, a Delaware statutory trust might just be your thing.

We’ll walk through what it is, how it works, and why it’s so popular among hands-off investors looking for 1031 Exchange solutions.

What Is A Delaware Statutory Trust (DST)?

A Delaware statutory trust is a legal entity that allows multiple investors to co-own income-producing real estate. Think stabilized apartment complexes, medical office buildings, or industrial centers, typically commercial-grade assets you wouldn’t normally buy solo.

The trust holds the title to the property, and each investor purchases a beneficial interest in the trust. So you’re not on the deed, but you still get your share of the rental income and tax benefits.

How Fractional Ownership Works

Instead of owning a property outright, you hold a fractional interest in a large-scale asset. It’s split among investors like a pie, and everyone earns a proportional piece of the income.

In one scenario, folks decided to move out of a rental property with ongoing repair issues and roll into a DST with Class A apartments in Dallas. They went from constant tenant calls to receiving monthly distributions. No calls, no stress.

The Role Of A Private Placement Memorandum

DSTs are offered as private placements, which means they come with a Private Placement Memorandum (PPM). This document lays out everything: the risks, returns, fees, property info, you name it.

Here’s the thing: only accredited investors can participate. That means certain income or net worth thresholds must be met. If you’re not there yet, keep learning and preparing. These options will be waiting.

DST Vs. Direct Ownership

Owning a duplex means managing tenants, taxes, repairs, and financing. DSTs take that off your plate. The sponsor handles everything—from property management to accounting.

So instead of unclogging toilets, you’re checking your email for distribution updates.

Why Passive Investors Like DSTs

• No active management responsibilities
• Diversification across markets
• Monthly income distributions
• Eligibility for 1031 Exchanges

For example, we’ve seen retired investors use DSTs to simplify their holdings and reduce tax exposure—all while keeping steady cash flow. That’s a win-win.

Understanding how DSTs operate can open doors for real estate investors looking to scale down involvement without sacrificing portfolio diversification or returns.

How Delaware Statutory Trust as an Exit Strategy Helps You Avoid Capital Gains Taxes

Selling appreciated investment property can come with a hefty tax bill. But if you’re looking to defer capital gains taxes and avoid the hit from depreciation recapture, using a Delaware statutory trust as an exit strategy under a 1031 Exchange might be the smartest move.

Let’s walk through how it works and what you need to keep in mind.

Step-By-Step: Using A DST In A 1031 Exchange

Under Internal Revenue Code Section 1031, you can sell an investment property and reinvest the proceeds into a replacement property of equal or greater value without triggering immediate taxes. DSTs are a qualifying option.

Here’s how it typically unfolds:

• Sell your current investment property—could be anything from a retail space to a rental home.
• Engage a qualified intermediary (QI) before the sale closes. The QI holds your proceeds temporarily.
• Identify new replacement properties within 45 days of the sale (DSTs included).
• Close on your replacement DST(s) within 180 days.

If you miss either deadline, the exchange falls through, and the taxes kick in. Remember, investors who delay picking a QI can end up scrambling.

Timing really is everything.

How DSTs Defer Taxes

DSTs make great replacement property options because they meet 1031 requirements and can be easily slotted into an exchange. This means:

• Capital gains taxes get deferred, not eliminated, but you won’t owe anything upfront.
• You also avoid depreciation recapture, which can hit you with 25% tax on prior deductions.

Some investors roll proceeds from a fourplex sale into multiple DSTs in different markets. This action not only deferred their taxes but also spread out risk across asset types.

Equal Or Greater Value Requirement

To defer 100% of your taxes, the replacement property (or properties) must equal or exceed the net sales price of your original property. Fall short, and the leftover funds (called “boot”) become taxable.

Timeline And QI Best Practices

Timing matters more than people think:

• 45 days to identify your DST(s)
• 180 days to close
• A qualified intermediary must handle the funds start to finish

Choose a QI with experience in DST transactions. It saves time and confusion.

DST Vs. Taxable Sale Outcome

Compared to a straight sale, where federal and state taxes eat into profits, using a DST in a 1031 Exchange lets you:

• Keep more equity working for you
• Delay tax payments indefinitely (or pass the asset to heirs at a stepped-up basis)
• Simplify your real estate exit planning without sacrificing income

This is why many smart real estate investors consider DSTs a go-to tool for capital gains tax deferral. The tax savings alone can make a huge difference in long-term returns.

Investment Benefits And Risk Analysis For DST Investors

There’s a lot to like about Delaware statutory trust investments, especially if you’re after passive income and tax advantages. Still, it’s important to weigh the upsides against potential risks. 

Here’s how we usually look at the pros and cons based on experience and conversations with other investors:

Steady Cash Flow Potential

DSTs give investors access to commercial real estate and rental properties that would be tough to buy solo. These are often high-end real estate assets—think medical office buildings, industrial parks, or Class A apartments—generating reliable rental income.

• Monthly distributions are common and generally tied to lease agreements.
• Investors receive a proportional share of income, based on their beneficial interest.
• The structure allows income without the typical property management headaches.

In one example, an investor replaced a four-unit rental with DSTs holding national retail tenants. That switch bumped up their monthly income while cutting down on maintenance stress.

Diversification Reduces Risk

Instead of sinking everything into a single asset, you can spread your investment across multiple DSTs in different locations and sectors. That helps reduce concentration risk.

• Diversified DST portfolios can include retail, multifamily, self-storage, and industrial properties.
• Spreading out across asset classes and markets protects you if one sector underperforms.

We’ve seen investors build a small “portfolio” of DSTs within one exchange—one commercial retail DST in Texas, another in a multifamily property in Florida. Each provided a different income stream.

Liquidity And OP Unit Flexibility

DSTs are illiquid, but there can be some flexibility depending on the sponsor. Some offer operating partnership units (OP units) that may convert to REIT shares later, providing an exit path. There’s a caveat, though: just know that this isn’t guaranteed.

Key Risk Factors To Consider

All investments carry risk, and DSTs are no exception. A few things to keep on your radar:

• You have limited control—sponsors handle operations, leases, and decisions on when to sell.
• Property performance depends on the real estate market, so market volatility affects returns.
• Exit timelines aren’t flexible—you must wait until the trust liquidates or sells the property.

DST Vs. Direct Ownership

When comparing DST interest vs. direct real property investments, here’s what usually stands out:

• DSTs offer passive ownership with built-in diversification.
• Direct ownership gives you full control but comes with active management and higher exposure.
• DSTs often produce consistent income but don’t allow refinancing or major property changes.

Delaware statutory trust investments can work well for those wanting tax deferral, income, and less day-to-day hassle, but it’s important to go in with clear expectations and a balanced outlook.

Evaluating DST As Your Real Estate Exit Strategy

If you’re thinking about stepping away from active property management but want to keep earning from your real estate property, a Delaware statutory trust could be the answer. But DSTs aren’t a one-size-fits-all solution.

Here’s how to figure out if this exit strategy fits your financial goals and investment style:

Who’s A Good Fit For DST Investments?

This approach is ideal for investors with appreciated real estate who want to defer taxes and reduce hands-on involvement.

• Retirees or near-retirees looking to shift into passive real estate investments
• Owners of single-family rentals, small apartment buildings, or commercial properties
• Investors aiming to avoid active management and secure predictable monthly income

Say you’ve owned a triplex for 20 years, and it’s tripled in value. Managing tenants is becoming a burden, and you’re ready for passive cash flow without giving up real estate entirely. That’s a typical scenario where DSTs shine.

Minimum Investment And Accreditation

To participate in most DST offerings, you must be an accredited investor. This means:

• You have a net worth over $1 million (excluding primary residence), or
• You earn $200,000 annually as an individual, or $300,000 with a spouse

Minimum investments typically start around $100,000, though some can go lower depending on the sponsor.

Does Your Property Qualify For Tax Deferral?

Mind you, not all real estate qualifies. But if your property was held for investment or business purposes, it likely qualifies for tax deferred basis treatment under IRS Section 1031.

• Vacation homes used for rental income may qualify
• Primary residences do not
• Mixed-use properties might qualify, depending on use and how you report it

It’s smart to get a qualified intermediary involved early to confirm timing and structure.

Should You Choose Dst Or Stay In Direct Ownership?

Here’s a simple way to weigh your options:

• Prefer control and active involvement? Stick with direct property ownership
• Want diversification, tax deferral, and passive income? Explore DSTs
• Looking to simplify your portfolio in retirement? DSTs can help reduce exposure and tenant stress

There are landlords who owned several duplexes trade into three DSTs spanning multifamily and industrial sectors. They reduced stress, increased monthly income, and avoided a large capital gains tax hit.

Work With Experts Early

Talk with a tax advisor, a 1031 exchange expert, and a financial planner before making any moves.

• They’ll help you verify qualification rules
• Map out the real property transaction timeline
• Ensure the replacement property fits your goals

Switching from rentals to DSTs doesn’t happen overnight, but with a little planning, it can be one of the smoothest transitions in your investment journey.

Final Thoughts

Choosing a Delaware statutory trust can be a smart move if you’re ready to step away from active management and want to keep growing your wealth. It’s not overly complicated, but it does take planning, good advice, and knowing what fits your goals.If you’re serious about deferring taxes and simplifying your real estate life, now’s the time to take a closer look. Have questions or want to see if a DST fits your strategy? Head over to our homepage and let’s figure it out together.