DST vs TIC vs REIT vs Direct Ownership: Which Is Best After Selling a Rental Property?

Selling a rental property feels like a win until you see the tax bill.

Between long-term capital gains taxes (up to 20% federally), the 3.8% Net Investment Income Tax for higher earners, and depreciation recapture taxed at up to 25%, many landlords are looking at a six-figure IRS bill if they don’t plan carefully. The good news: a 1031 exchange lets you defer all of that by reinvesting proceeds into a qualifying replacement property. You have 45 days to identify one and 180 days to close.

So which replacement property makes sense? Here are the four most common paths, and how to think through each one. 

Option 1: Delaware Statutory Trust (DST)

A DST is a legal trust that holds title to institutional-quality real estate. Investors buy fractional interests in the trust, collect monthly income distributions, and have zero management responsibilities. The sponsor handles everything. When the property eventually sells (typically after 5 to 10 years), you receive your share of the proceeds and can roll into another 1031 exchange.

The key: in 2004, the IRS confirmed that DST interests qualify as direct real estate ownership for 1031 exchange purposes (Revenue Ruling 2004-86). That makes DSTs one of the cleanest passive replacements available.

A few numbers worth knowing: DST sponsors raised $5.66 billion in equity in 2024, typical yields run 4 to 6% annually, and the minimum investment is usually $100,000. Up to 499 investors can participate in a single offering.

DSTs are built for landlords who are genuinely done being landlords. They’re also a strong estate planning tool: when a DST interest passes to your heirs, the cost basis steps up to fair market value at death, which can effectively wipe out decades of deferred gain for your family.

The main tradeoffs: DSTs are illiquid (you’re locked in until the sponsor sells) and you cannot refinance the property while it’s in trust. 

Option 2: Tenancy-in-Common (TIC)

A TIC lets two or more investors each hold deeded title to an undivided fraction of a property. Like DSTs, TIC interests qualify for 1031 exchanges. The difference is structure: TIC co-owners have a voice in major decisions, and the arrangement allows cash-out refinancing, which DSTs prohibit.

The tradeoffs are real. TICs are capped at 35 investors by IRS guidelines, which drives minimums up to $250,000 to $1 million and limits access to smaller properties. Decision-making by committee can also get complicated when co-owners disagree.

If a DST fits your situation, it’s usually the simpler choice. TICs make the most sense when refinancing flexibility is a specific priority or when a custom co-ownership structure is already in place. 

Option 3: Real Estate Investment Trust (REIT)

REITs are companies that own income-producing real estate and trade on stock exchanges. They’re liquid, accessible with almost any amount of capital, and have delivered strong long-term returns (listed equity REITs averaged 9.74% annually over 25 years per CEM Benchmarking, 2024).

But here’s the critical point: REIT shares do not qualify as 1031 exchange replacement property. They’re securities, not direct real estate interests. If you sell a rental property and buy REITs without a completed exchange, you owe the full tax bill that year.

REITs make sense if you’ve already paid the taxes, missed the 45-day window, or are working with fresh capital. They’re an excellent real estate exposure tool. They’re just not a tax deferral tool. 

Option 4: Buying Another Property Directly

This is what most landlords consider first: sell, do a 1031 exchange, and buy a new property outright. You own it, you run it, and 100% of the upside is yours.

It works well for investors who genuinely enjoy property management and know their market. The challenge is execution: the 45/180-day 1031 timeline is tight in a competitive market, and buying direct keeps you in the landlord business for another decade or more. For investors heading toward retirement, that’s worth thinking hard about. 

DST vs TIC vs REIT vs Direct Ownership : Side-by-Side Comparison 

 *For educational purposes only. Individual results vary. Consult a qualified tax and financial advisor before investing. 

Which One Is Right for You? 

 There’s no universal right answer, and honestly, most investors haven’t had to think through a decision quite like this one before. It touches your tax situation, your retirement plan, and your estate all at once. Getting the right advisor involved early, before your sale closes, makes a real difference.  

Frequently Asked Questions

Can I use a REIT as a 1031 exchange replacement property?

No. REITs are securities, not direct real estate, so they don’t qualify under Section 1031. Selling a rental property and moving into a REIT without a completed exchange means you owe the full tax bill that year. The only way to end up in a REIT while still deferring taxes is through a DST-to-REIT 721 exchange, which requires upfront planning.

What is the minimum investment for a DST?

Most DST offerings start at $100,000, though some sponsors set higher minimums. DSTs are only available to accredited investors, meaning a net worth over $1 million (excluding your primary residence) or income over $200,000 per year ($300,000 filing jointly). For comparison, TICs typically require $250,000 to $1 million and public REITs have no minimum at all.

What happens at the end of a DST’s holding period?

When the sponsor sells the property (usually after 5 to 10 years), you receive your share of the proceeds. From there, you can take the cash and pay the deferred taxes, roll into another 1031 exchange, or participate in a 721 exchange into a REIT if the sponsor has structured that exit. It’s worth asking about the likely exit path before you invest.

Is a DST the same as a REIT?

They’re both passive, professionally managed real estate investments, but they work differently. DSTs qualify for 1031 exchanges while REITs do not. DST investors hold a direct beneficial interest in specific property while REIT investors hold corporate securities. DSTs are private and illiquid while most REITs trade daily on exchanges.

What are the main risks of investing in a DST?

Illiquidity is the biggest one: you generally cannot exit before the sponsor sells the property. Returns also depend heavily on sponsor quality, so due diligence matters. And like all real estate, DSTs carry market risk, interest rate risk, and tenant risk. Working with an experienced advisor who knows the sponsor landscape helps you evaluate these factors before committing.

Can I split my 1031 exchange proceeds across multiple DSTs?

Yes, and many investors do. Splitting across two or three DSTs lets you diversify by property type, geography, and sponsor within a single exchange. It’s one of the more useful features of the structure, especially for investors with larger exchange amounts.

What should I do right now if I’m planning to sell a rental property?

Talk to an advisor before your sale closes, not after. The 45-day identification clock starts the moment the sale closes, and that is a tight window if you haven’t prepared. DST Investment Advisors offers free consultations to help you think through your options before you need to make any decisions. Visit dstinvestmentadvisors.com to schedule a time. 

Disclosure

This content is for educational purposes and does not constitute investment, tax, or legal advice. Investing involves risk, including possible loss of principal. DST investments are illiquid and available only to accredited investors. Past performance does not guarantee future results. Always consult a qualified financial advisor and tax professional before making investment decisions. Statistics referenced are sourced from publicly available data current as of early 2026 and are subject to change.