How to Invest in a Delaware Statutory Trust: A Step-by-Step Guide
A complete walkthrough of the DST investment process, from confirming eligibility through funding and closing.
Key Takeaway
Investing in a Delaware Statutory Trust involves six key steps: confirming accredited investor status, determining your investment context, assembling a professional team, evaluating offerings, completing subscription and funding, and planning for ongoing ownership and exit. Each step requires coordination with licensed professionals. This is not a do-it-yourself transaction.
Investing in a Delaware Statutory Trust is not as straightforward as purchasing stocks or mutual funds. DSTs are private securities offerings structured under SEC Regulation D, with specific eligibility requirements, regulatory frameworks, and multiple licensed professionals involved at each stage of the transaction. Understanding the full process before committing capital can help investors avoid costly mistakes and missed deadlines.
This guide walks through the DST investment process from start to finish: confirming eligibility, assembling a professional team, evaluating offerings, and closing the transaction. Each step identifies the professionals involved and the typical timeframes investors can expect.
Most DST investments occur through 1031 exchanges, allowing investors to defer capital gains taxes while transitioning from active property management to passive real estate ownership. DSTs qualify as like-kind replacement property under IRS Revenue Ruling 2004-86. However, investors may also purchase DST interests with cash outside a 1031 exchange. For a comprehensive overview of what DSTs are and how they work, see the Delaware Statutory Trust Learning Hub.
Step 1: Confirm Accredited Investor Status
DSTs are offered under SEC Regulation D, which generally limits participation to accredited investors. Before exploring any DST offerings, investors should confirm they meet the eligibility requirements established by the SEC.
The current accredited investor thresholds include two primary financial tests. The first is an income test: individual income exceeding $200,000 in each of the two most recent years, or $300,000 combined with a spouse or spousal equivalent, with a reasonable expectation of reaching the same level in the current year. The second is a net worth test: individual or joint net worth exceeding $1 million, excluding the value of the primary residence.
Investors may also qualify through professional credentials. Holders of FINRA Series 7, Series 65, or Series 82 licenses meet the accredited investor definition, as do directors, executive officers, and general partners of the issuing company. Knowledgeable employees of private funds also qualify.
The verification process varies by sponsor and offering. Some sponsors rely on investor self-certification, while others require documentation such as tax returns, bank statements, or brokerage statements. A third-party verification letter from a CPA, attorney, or registered investment advisor is another common method. The broker-dealer facilitating the transaction typically manages the verification process.
For a detailed overview of accredited investor requirements and how they apply to DST investments, see the Accredited Investor Guide.
Step 2: Determine Your Investment Context (1031 Exchange vs. Cash)
There are two paths into a DST investment. The most common is through a 1031 exchange, but investors may also purchase DST interests with cash (non-exchange capital). The path determines which professionals are needed, the urgency of timelines, and the overall transaction structure.
1031 Exchange Path
In a 1031 exchange, the investor has sold or is in the process of selling an investment property and needs to identify replacement property within 45 calendar days of closing. The full acquisition must be completed within 180 days. These deadlines, established under IRC Section 1031 and Treasury Regulation §1.1031(k)-1, are strict and cannot be extended.
A Qualified Intermediary must be engaged before the relinquished property sale closes. The QI holds the exchange proceeds in escrow throughout the process. The investor cannot take constructive receipt of the funds at any point, or the exchange fails. When identifying replacement property, the investor submits a written identification to the QI listing up to three properties (the three-property rule) or any number of properties whose total value does not exceed 200% of the relinquished property's value.
DSTs can typically close in 3 to 5 business days once the subscription is approved, which makes them particularly useful when exchange deadlines are tight.
Cash (Non-Exchange) Path
Investors purchasing DST interests with cash face no 1031 timeline constraints. Minimum investments may be lower with some sponsors. The investor still needs to meet accredited investor requirements and work through a broker-dealer, but no QI is required.
Failure to meet identification or closing deadlines in a 1031 exchange results in a failed exchange and immediate capital gains tax liability. Professional guidance from a qualified intermediary and tax advisor is essential throughout this process.
For a complete overview of using a 1031 exchange with DST properties, see the 1031 DST Exchange Guide.
Step 3: Assemble Your Professional Team
DST investing involves securities law, tax law, and real estate. Multiple licensed professionals typically coordinate to complete the transaction, and understanding each role helps investors navigate the process more effectively.
Qualified Intermediary (QI). Required for 1031 exchanges under IRC §1031 and Treasury Regulation §1.1031(k)-1(g)(4). The QI holds exchange proceeds in escrow, prepares documentation, and ensures compliance with IRS deadlines. The QI must be engaged before the relinquished property sale closes and cannot be a disqualified party such as the investor's agent, attorney, or accountant (per IRS Revenue Procedure 2000-37).
Registered Representative. A licensed securities professional, typically holding FINRA Series 7 and Series 63 or 66 registrations, presents DST offerings, evaluates suitability, and facilitates the subscription process. DST interests are securities and cannot be purchased directly from sponsors.
CPA or Tax Advisor. Reviews tax implications, evaluates depreciation benefits, and ensures the exchange structure achieves the intended deferral. May also verify accredited investor status.
Real Estate Attorney (optional but recommended). Reviews trust documents, subscription agreements, and the Private Placement Memorandum. Particularly valuable for large investments.
These professionals work in coordination. The QI holds proceeds, the registered representative presents and processes the investment, and the CPA ensures the tax strategy is sound. Investors can verify credentials through FINRA BrokerCheck.
For additional context on how these professionals coordinate in the exchange process, see the 1031 DST Exchange Guide and the Delaware Statutory Trust Learning Hub.
Step 4: Evaluate Available DST Offerings
DST sponsors create investment offerings and distribute them through broker-dealer networks. Because DSTs are offered under SEC Regulation D, they are not publicly advertised. Investors access available offerings through their registered representative or financial advisor.
Due Diligence Factors
Evaluating a DST offering requires careful review across several dimensions. Sponsor track record is a starting point: the number of completed offerings, full-cycle history, assets under management, and years in business all factor into the assessment.
Property quality is equally important: location, tenant creditworthiness, lease terms and remaining duration, occupancy rates, and property condition. The asset class affects the risk and return profile as well. Common DST property types include multifamily, industrial, retail net lease, medical office, and self-storage.
Financial structure is another critical area. Investors should examine the loan-to-value ratio, whether the debt is interest-only or amortizing, the loan maturity date, and the projected cash-on-cash yield. Higher projected returns may reflect higher risk through greater leverage, weaker tenant credit, or secondary market locations.
Fee structure requires close attention. DST sponsors are prohibited from taking a "promote" or "waterfall" fee, meaning they cannot receive a percentage of the profits. Instead, their primary revenue comes from acquisition fees and disposition fees.
Acquisition fees — charged for sourcing, evaluating, and purchasing the property — typically amount to around 2% of the equity invested. Financing fees, which cover loan origination and related costs, usually range from 0.5% to 2% of the loan amount. Organizational and offering fees, covering legal, accounting, and marketing expenses, typically range from 2% to 3% of the total equity raised.
Sales commissions, similar to a real estate agent commission, are paid to the selling group and usually amount to 5% to 6% of the equity raised. For properties with debt, the commission might be 2.5% to 3% of the total property value. A separate marketing and due diligence fee of approximately 1% is paid to the broker-dealer for researching the sponsor and the investment.
Ongoing fees cover asset management and property management, and disposition fees may apply when the property is eventually sold.
Key Documents
The Private Placement Memorandum is the most important document in any DST offering. It contains all material facts about the investment, including risk factors, fee disclosures, sponsor background, property details, and financial projections. The trust agreement governs the legal terms of the DST, and the subscription agreement represents the investor's formal commitment to purchase interests.
Diversification
Investors can split exchange proceeds across multiple DST offerings in different asset classes and geographic markets. This diversification capability is one of the practical advantages DSTs offer compared to direct property ownership, where a single exchange typically results in concentration in one asset.
Past performance of any DST sponsor or offering is not indicative of future results. All DST investments carry risk, including potential loss of principal. Investors should read the PPM carefully and consult their financial advisor before committing capital.
To understand the risks involved in DST investments, see DST Investment Risks and Problems. For broader DST education, visit the Delaware Statutory Trust Learning Hub.
Step 5: Complete Subscription and Fund the Investment
Once an investor and their registered representative have selected one or more DST offerings, the subscription and funding process begins.
Minimum Investment Requirements
Typical DST minimum investments are $100,000 for 1031 exchange investors. Some sponsors offer lower minimums in the range of $25,000 to $50,000 for cash (non-exchange) investors. Minimums vary by offering and sponsor.
The Subscription Process
The investor completes a subscription agreement and suitability questionnaire. The registered representative submits the subscription package to their broker-dealer for review and approval. The broker-dealer confirms the investor's accredited status and evaluates suitability. Once approved, the DST sponsor formally accepts the subscription.
For 1031 exchanges, the QI wires exchange proceeds directly to the DST closing agent. For cash purchases, the investor wires funds directly. At no point in a 1031 exchange does the investor take possession of the exchange proceeds.
Typical Closing Timeline
Subscription review and approval generally takes 3 to 7 business days. Funding and closing typically require an additional 3 to 5 business days after approval. The total timeline from subscription to close is approximately one to two weeks. This speed is particularly useful for 1031 exchange investors compared to acquiring direct replacement property, which can take weeks or months to negotiate and close.
After Closing
Investors receive confirmation of their beneficial interest ownership. They are entitled to a pro-rata share of income distributions, which are typically paid monthly or quarterly. For tax reporting, investors receive a Form 1099 annually reporting their share of income, depreciation, and other tax items, which are reported on Schedule E of the investor's tax return. Sponsors provide periodic updates on property performance throughout the holding period.
Minimum investments and closing timelines vary by sponsor and offering. The figures above represent common industry ranges. Investors should consult their registered representative for specific offering details. For more on the exchange closing process, see the 1031 DST Exchange Guide.
Step 6: Ongoing Ownership and Exit Planning
DST investments are passive by design. The trust structure, governed by the restrictions in IRS Revenue Ruling 2004-86, requires that the sponsor or trustee handle all property management decisions. Investors do not participate in day-to-day operations, tenant relations, maintenance, or capital expenditure decisions.
Distributions and Tax Reporting
Investors typically receive monthly or quarterly distributions representing their pro-rata share of net rental income. Distribution amounts are not guaranteed and can fluctuate based on property performance, occupancy, and operating expenses. For tax purposes, investors receive a Form 1099 annually reporting their share of income, depreciation deductions, and other relevant tax items, which are filed on Schedule E. DST income is generally treated as passive income.
Hold Period
DST properties are generally held for 5 to 10 years. The sponsor controls the timing of any property sale or refinancing event. Investors have no ability to force a sale or control the exit timeline.
Exit Options When the Property Is Sold
When the DST sponsor sells the underlying property, investors have several options. They may execute another 1031 exchange, rolling proceeds into another DST or direct property to continue deferring capital gains taxes. Some DSTs offer a 721 exchange (UPREIT) option, allowing investors to contribute their interests into a Real Estate Investment Trust operating partnership in exchange for OP units. This transaction is tax-deferred under IRC Section 721 and can provide diversification, potential liquidity, and elimination of personal debt obligations. OP units may later convert to REIT shares, though that conversion triggers a taxable event. Alternatively, investors may cash out and pay applicable capital gains and depreciation recapture taxes.
DST interests are illiquid. There is no established secondary market. If an investor needs to exit before the sponsor sells the property, options are extremely limited.
Distribution amounts, hold periods, and exit options vary by offering. None are guaranteed. For a comprehensive review of exit strategies, see DST Exit Strategies and 721 Exchange via DST.
Common Mistakes to Avoid When Investing in a DST
Not engaging a Qualified Intermediary before the relinquished property sale closes.
In a 1031 exchange, the QI must be in place before the sale of the relinquished property closes. If the investor takes constructive receipt of the proceeds, the exchange cannot proceed. This is an unrecoverable error.
Missing the 45-day identification deadline.
The identification period begins the day after the relinquished property closes, and no extensions are available. Pre-identifying potential DST offerings before the sale closes helps investors avoid rushed decisions under deadline pressure.
Not reading the Private Placement Memorandum.
The PPM contains all material risk factors, fee disclosures, and sponsor information. Investing in a DST without thoroughly reviewing the PPM is comparable to signing a contract without reading it.
Focusing only on projected year one yields.
Higher projected year one yields may come with correspondingly higher risk: greater leverage, weaker tenant credit, or less desirable property locations. Evaluating the total investment picture, including risk factors and fee loads, provides a more complete view.
Ignoring fee structures.
Upfront fees — including acquisition fees, sales commissions, financing fees, and organizational costs — can significantly reduce net returns over the holding period. Comparing total all-in costs across multiple offerings is an important part of due diligence.
Not considering future 1031 eligibility.
If a DST converts to an LLC due to a loan default or operational necessity, investors may lose the ability to execute a subsequent 1031 exchange when the property is eventually sold. This conversion would trigger the deferred capital gains taxes that the original exchange was designed to defer.
This list is educational and not exhaustive. Every investor's situation is unique. Working with experienced, licensed professionals can help avoid these and other potential issues.
Working With the Right Professionals
The DST investment process involves six key steps: confirming accredited investor status, determining whether to invest through a 1031 exchange or with cash, assembling a professional team, evaluating available offerings, completing subscription and funding, and planning for ongoing ownership and eventual exit.
The common thread across every step is the importance of qualified professional guidance. This is not a do-it-yourself transaction. A qualified intermediary, registered representative, CPA, and potentially a real estate attorney each play distinct roles in ensuring the process is executed correctly. Professionals with specific DST and 1031 exchange experience are particularly valuable given the regulatory complexity involved.
Anchor1031 guides investors through every step of the DST investment process, from accredited investor verification through closing. With 300+ completed 1031 transactions and $1.2B+ in cumulative real estate syndication experience across our team, we provide hands-on support at every stage. Browse current DST offerings or schedule a consultation to get started.
DSTs are securities. Past performance is not indicative of future results. All investments carry risk, including potential loss of principal.
This content is for educational purposes only and should not be construed as tax advice. Pursuant to IRS Circular 230, nothing herein constitutes advice regarding any federal tax issue. Investors should consult a qualified financial advisor, CPA, and attorney before making investment decisions.
Frequently Asked Questions
Who can invest in a Delaware Statutory Trust?
DST investments are generally limited to accredited investors under SEC Regulation D. To qualify, an individual must have income exceeding $200,000 (or $300,000 jointly with a spouse) in each of the two most recent years with a reasonable expectation of reaching the same level, or net worth exceeding $1 million excluding the primary residence. Holders of certain FINRA licenses (Series 7, 65, or 82) also qualify. Verification methods vary by sponsor and may include self-certification, financial documentation, or third-party verification letters from a CPA or attorney. Investors should consult their financial advisor to confirm eligibility before beginning the investment process.
How do you buy into a DST?
Purchasing DST interests requires working through a registered representative or financial advisor who holds appropriate FINRA securities licenses. DST interests are securities offered under SEC Regulation D and cannot be purchased directly from sponsors or on public exchanges. The process involves confirming accredited investor status, selecting offerings through a broker-dealer network, completing subscription agreements, and funding the investment. For 1031 exchange investors, a Qualified Intermediary wires exchange proceeds directly to the DST closing agent. Cash investors wire funds directly. The entire subscription-to-close process typically takes one to two weeks. Investors should consult a qualified financial advisor to navigate the process.
What is the downside of DST investment?
DST investments carry several important risks that investors should evaluate carefully. DST interests are illiquid with no established secondary market, meaning investors may not be able to exit before the sponsor sells the property. Investors have no control over property management decisions, sale timing, or refinancing events. Upfront fees — including acquisition fees, sales commissions, financing fees, and organizational costs — can reduce net returns. If a DST converts to an LLC due to loan default or operational necessity, investors may lose eligibility for a subsequent 1031 exchange. Distribution amounts are not guaranteed and can fluctuate based on property performance. All DST investments carry risk, including potential loss of principal. Investors should consult their CPA and financial advisor before committing capital.
What is the average return on a Delaware Statutory Trust?
DST projected cash-on-cash yields vary by asset class, sponsor, leverage, and market conditions. Returns are not standardized and vary significantly across offerings. Higher projected returns may reflect higher risk through greater leverage, weaker tenant credit, or less desirable property locations. Investors should evaluate the total investment picture rather than focusing solely on projected yield. Distribution amounts are not guaranteed and past performance is not indicative of future results. All DST investments carry risk, including potential loss of principal. Investors should review the Private Placement Memorandum carefully and consult their financial advisor and CPA before making investment decisions.
What are the pros and cons of a DST?
Potential advantages of DST investments include qualification as like-kind replacement property for 1031 exchanges, passive ownership with no property management responsibilities, the ability to diversify across multiple properties and asset classes, access to institutional-quality real estate, and potential monthly or quarterly income distributions. Potential disadvantages include illiquidity with no secondary market, no investor control over operations or sale timing, upfront fees including acquisition fees, sales commissions, financing fees, and organizational costs, risk of losing 1031 eligibility if the DST converts to an LLC, and the general risks inherent in real estate investing including potential loss of principal. Investors should consult their financial advisor and CPA to evaluate whether DSTs align with their specific financial goals and risk tolerance.
Summary: The DST Investment Process
Investing in a Delaware Statutory Trust is a multi-step process that requires coordination among several licensed professionals. From confirming accredited investor status through completing subscription and planning for exit, each step involves regulatory requirements and professional oversight.
The most important decision an investor can make is assembling a qualified team of professionals with specific DST and 1031 exchange experience. This ensures compliance with securities regulations, IRS requirements, and proper due diligence throughout the investment lifecycle.
About the Author
Thomas Wall, Partner
Thomas Wall is a Partner at Anchor1031, where he specializes in educating clients about 1031 exchanges, private real estate offerings, and REITs. With nearly a decade of experience in alternative investments and real estate, Mr. Wall has helped investors through hundreds of 1031 exchanges, placing over $230M of equity into real estate.
Related Articles
1031 DST Exchange Guide
Complete guide to using Delaware Statutory Trusts as replacement property in a 1031 exchange.
DST Investment Risks and Problems
Understand the risks, fee structures, and potential problems before committing capital to a DST investment.
DST Exit Strategies
Explore all available exit options including 1031 re-exchange, 721 UPREIT conversions, and cash-out strategies.
Ready to Explore DST Investment Options?
Connect with a DST specialist through our advisor network to discuss whether DST investing may align with your financial goals.
Disclosure
Tax Complexity and Investment Risk
Tax laws and regulations, including but not limited to Internal Revenue Code Section 1031, bonus depreciation rules, cost segregation studies, and other tax strategies, contain complex concepts that may vary depending on individual circumstances. Tax consequences related to real estate investments, depreciation benefits, and other tax strategies discussed herein may vary significantly based on each investor's specific situation and current tax legislation. Anchor1031, LLC and Great Point Capital, LLC make no representation or warranty of any kind with respect to the tax consequences of your investment or that the IRS will not challenge any such treatment. You should consult with and rely on your own tax advisor about all tax aspects with respect to your particular circumstances. Please note that Anchor1031 and Great Point Capital, LLC do not provide tax advice.
The information contained in this article is for general educational purposes only and does not constitute legal, tax, investment, or financial advice. This content is not a recommendation or offer to buy or sell securities. The content is provided as general information and should not be relied upon as a substitute for professional consultation with qualified legal, tax, or financial advisors.
Tax laws, regulations, and IRS guidance regarding 1031 exchanges, opportunity zone investments, and related real estate strategies are complex and subject to change. Information herein may include forward-looking statements, hypothetical information, calculations, or financial estimates that are inherently uncertain. Past performance is never indicative of future performance. The information presented may not reflect the most current legal developments, regulatory changes, or interpretations. Individual circumstances vary significantly, and strategies that may be appropriate for one investor may not be suitable for another.
All real estate investments, including 1031 exchanges and opportunity zone investments, are speculative and involve substantial risk. There can be no assurance that any investor will not suffer significant losses, and a loss of part or all of the principal value may occur. Before making any investment decisions or implementing any 1031 exchange strategies, readers should consult with their own qualified legal, tax, and financial professionals who can provide advice tailored to their specific circumstances. Prospective investors should not proceed unless they can readily bear the consequences of potential losses.
While the author is a partner at Anchor1031, the views expressed are educational in nature and do not guarantee any particular outcome or create any obligations on behalf of the firm or author. Neither Anchor1031 nor the author assumes any liability for actions taken based on the information provided herein.