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# What Is a DST? Using a 1031 Exchange to Stop Being a Landlord
- URL: https://www.mortgagemomradio.com/what-is-a-dst-using-a-1031-exchange-to-stop-being-a-landlord/
- Published: 2023-08-09T21:00:00.000Z
- Updated: 2026-09-04T17:36:41.000Z
- Description: Done being a landlord but not willing to pay the capital gains? A Delaware Statutory Trust satisfies a 1031 exchange and hands management to somebody else. Debbie, securities-licensed advisor Jamie Furlong and broker Danielle Whitney Moore cover how DSTs work, what they pay, and who they rule out.
- Author: Deborah Marcoux
- Tags: Podcast, Mortgage Mom Radio, #episode-backfill

Mortgage Mom Radio • “1031 Exchange into a DST! Hands off Passive Income!” • Live show from Wednesday, August 9, 2023 • 46 minutes • Hosted by Debbie Marcoux, NMLS #237926

You're done being a landlord, but you don't want the capital gains bill that comes with selling. That's the problem a Delaware Statutory Trust is built for. Debbie is joined by Jamie Furlong, managing partner at Legacy Investments and Real Estate, and real estate broker Danielle Whitney Moore of Keller Williams, to explain what a DST actually is, how it satisfies a 1031 exchange, what it pays, and the two limitations that disqualify most people who ask about it.

## Key takeaways

- **A DST is fractional ownership of real property, classified as a security.** The Delaware Statutory Trust holds deed and title; you buy a "beneficial interest." It's a real building with a real address — self-storage, medical office, apartments, student housing — not a virtual asset. And that ownership **satisfies a 1031 exchange**, so the tax stays deferred.
- **A 1031 makes you replace the debt, not just the equity** — the piece sellers miss most often. Danielle's example: net $1.3 million and pay off $500,000 of debt, and the replacement has to be $1.8 million or more. A DST can assign debt to you, so you don't have to qualify for a new loan or bring in extra cash.
- **You have to be an accredited investor:** a net worth over $1 million outside your primary residence, or income of $200,000 single / $300,000 married. Minimum investments generally run **$50,000 to $100,000**.
- **It is illiquid and you do not control the exit.** Plan on a hold of **4 to 10 years**; the historical average across hundreds of DSTs is roughly 4 to 7\. Interests are legally transferable to another accredited investor, but there's no ready market and no set price. This is not a parking spot for money you'll need in three years.
- **Income at the time of the show:** Jamie's clients across a diversified mix of DST properties were commonly achieving about **4% net cash-on-cash** on their equity — sometimes a riskier property type yielding five blended against a lower-risk one yielding three and a half. That is modeled *after* expenses and maintenance, and DSTs fund reserve accounts so a roof or thirty water heaters don't come out of your cash flow.
- **You can split the exchange.** Buy a traditional replacement property through your agent and put the leftover proceeds into a DST to defer the rest. Or deliberately take some cash out of the exchange, pay tax on that slice, and keep the liquidity cushion you'll need over the next ten years.
- **Do not confuse the primary residence exclusion with a 1031.** If you've lived in your home two of the last five years, $250,000 of gain is excluded if you're single and $500,000 if you're married. That has nothing to do with a 1031 exchange on an investment property — Danielle says sellers mix these up constantly.

## Chapters

- 00:00Meet the guests: a securities-licensed advisor and a broker
- 03:00A real closing: four sellers, three different exit routes
- 04:00The rule sellers miss: you have to replace the debt too
- 07:00What a Delaware Statutory Trust actually is
- 09:00How beneficial interest satisfies the exchange
- 11:00Splitting an exchange between a property and a DST
- 13:00Hold period: 4 to 10 years, and you don't call the exit
- 16:00Accredited investor rules, and selling your interest
- 21:00Planning the next ten years before you list
- 24:00Q&A: who's who in a DST transaction
- 25:00Q&A: how many sponsors are out there
- 29:00Exchanging across state lines
- 35:00What a DST actually pays
- 39:00The $250K/$500K home sale exclusion is not a 1031
- 40:00Where to find the guests, and Debbie's portfolio advice

## Questions answered on this show

### “Who is actually who in a DST transaction — is the real estate agent the one investing my money?”

No, and it's an easy thing to get tangled. The real estate agent — Danielle, in this case — is the one selling your property, or selling you a replacement property, and helping with the 1031 exchange as the agent in the transaction. The securities-licensed professional — Jamie — is the one who handles the DST side: representing you as the investor, vetting the trusts and the companies that assemble them, and helping you purchase the beneficial interest. Debbie, as the lender, sits outside that triangle entirely; her role starts if you need financing on a traditional replacement property instead.

### “How many DST sponsors does an advisor work with?”

Roughly 50 companies in the country offer DST investments — "sponsor" is the term for the company that assembles the trust. Not all of them clear a broker-dealer's due diligence, and Jamie's firm runs a specific vetting funnel at the company, personal and broker-dealer level. Over the course of a year that leaves up to about 30 sponsors she'd actually work with, and potentially hundreds of individual DSTs available on a rolling basis. Her point: the goal isn't the biggest possible menu, it's enough quality inventory to match a client's needs — they deliberately don't work with every sponsor.

### Thinking about selling an investment property?

Talk through the financing side before you list. Call [844-935-3634](tel:8449353634) (844-WE-LEND-4), [start an application](https://www.mortgagemomradio.com/apply/), or run your numbers with the [mortgage calculators](https://www.mortgagemomradio.com/tools/). Get the weekly rundown in the [newsletter](https://www.mortgagemomradio.com/newsletter/).

Full transcript (lightly edited for clarity) 

*Auto-generated captions cleaned for readability. Commercial breaks, licensing recitations, and repeated housekeeping have been trimmed; licensing information appears at the bottom of this page. Guests: Jamie Furlong, managing partner, Legacy Investments and Real Estate; Danielle Whitney Moore, real estate broker, Keller Williams.*

### Meet the guests

**Debbie:** Welcome to Mortgage Mom Radio. I'm Debbie Marcoux, I'm the Mortgage Mom, and today we're talking about DSTs. Many of you have probably never heard of that before. I've got Danielle Whitney Moore with us from Keller Williams, and Jamie Furlong. Jamie, I'll let you say where you're from and what you do, since you've never been on the show before.

**Jamie:** Thank you for having me. I'm Jamie Furlong, managing partner of Legacy Investments and Real Estate. Like you, Debbie, and Danielle, I'm a real estate professional, but I'm licensed very differently — I hold securities licenses, which puts me in the realm of wealth managers and financial planners. What I want to talk about today is thinking long-term about your real estate investments, and how to pivot and adjust using 1031 exchanges throughout your investing career. The Delaware Statutory Trust, or DST for short, may be a tool your clients and audience leverage at some point, and I want to make sure they know how to use it and when.

### A real closing, and the rule sellers miss

**Debbie:** There are a lot of people who own investment properties and are at the point where they're ready to sell — they're kind of over it — but they're concerned about what they'd owe in taxes if they don't replace the property with a 1031 exchange. Danielle, you just closed a transaction where a client went the DST route.

**Danielle:** The recent transaction I closed had four different sellers — an aunt and uncle, a niece and a nephew — and they all wanted to go different directions with their financial future. Two of them did a standard 1031 exchange and bought other investment properties. One went the DST route, which is a lot more hands-off, and you get the option to invest in something big like a medical office or student housing that you normally wouldn't be able to access. And it's completely managed for you.

The thing a lot of people are unaware of is that when you do a 1031 exchange, *you also have to replace the debt you paid off*. Say your net proceeds on a property are $1.3 million and you also paid off $500,000 of debt in that transaction. Your next transaction has to be $1.8 million or above to replace that debt. Sometimes people aren't in a position where they want to get financing again, and they don't want to bring in an extra $500,000 in cash — that was exactly my client's situation. With a DST you have the option to invest in one that will assign debt to you as part of the trust, so you're not taking out an additional note or bringing extra cash, and you're still deferring the capital gains.

**Debbie:** And with rates higher than they've been in a very long time, there are a lot of people who want to sell an investment property but don't feel like buying a new one would give them the same return — the cash flow might not cover the new payment on a like-for-like property. That's why I liked this topic. There are also a lot of baby boomers holding a lot of real estate who don't want to stay hands-on maintaining it and collecting rent, but don't want to get stuck with the tax burden either.

### What a DST actually is

**Jamie:** The Delaware Statutory Trust is classified by regulators as a security, primarily because it's a passive investment. Like buying stock in a company, that stock entitles you to certain benefits, but you're not the decision maker — you're not in the boardroom calling the shots. DSTs create a similar buy-in opportunity. We're talking about real property, bricks and sticks with a physical address, deeded and titled — but the deed and title are in the name of the trust. That entity provides some protection to the investors and removes any management obligation from them.

There's a long suitability process to determine whether this kind of investing is right for you. Once that's determined, I can show you an inventory of DST properties I think might fit — a self-storage building, a medical office, an apartment complex, whatever makes sense based on where we are in the market.

When you buy into one of these, you receive what we call a beneficial interest, and that ownership satisfies your 1031 exchange. That's really important. When you sell your rental and reinvest in a DST, taxes can be deferred. And that ownership entitles you to the benefits you're used to: monthly income — there are tenants, there are leases, people are paying rent; bills get paid, debt service gets paid if there's a mortgage, and net proceeds are distributed to the owners. Other potential benefits include tax write-offs and a depreciation allocation depending on your basis. When the property eventually sells, net proceeds are distributed based on percentage ownership.

So it looks and feels a lot like what our clients are used to as real estate investors. The key difference is that they're passive. All management and decision-making is handled by the trustee, also referred to as the sponsor. Our clients go on vacation and hang out with their grandchildren instead of fixing toilets and taking calls from tenants.

**Jamie:** And you don't have to invest *only* in a DST as part of your exchange. If we find a replacement property that's less than what you need to spend to defer your taxes, you can take those extra funds and invest the rest into a DST — do both as part of the same exchange.

**Danielle:** Most DSTs have a minimum somewhere between $50,000 and $100,000\. So if your client has a couple hundred thousand left over, this lets them defer the tax and invest in two things at once.

**Debbie:** I like it because somebody who's just done taking care of a property but doesn't want to be hammered with the tax liability still owns property. It's just a percentage of the property. You're still an owner, you're still getting your share of the monthly income, you're still getting the same benefits — but you're completely hands-off. You're receiving a check every month for your portion.

### Hold period: this is not a parking spot

**Debbie:** This is not just a place to park your money. How long is somebody's money in if they buy into this?

**Jamie:** That's a really important consideration, and it includes hold period and illiquidity. By its very nature, real estate is a long-term, relatively illiquid investment. If you want your money out, it requires that you sell the property. DSTs are the same way — and that decision to sell is not made by you. You do not call me a month later, a week later, two years later and say you want out.

To be a suitable investor in a DST, you need to be comfortable with an investment period that could be **4 to 10 years**. Looking back at how long hundreds of these have been held, the historical average is about 4 to 7 years. So we're really going to talk about liquidity — your budget, your balance sheet, your net worth — and whether this kind of long-term hold fits your lifestyle and your investment goals.

**Debbie:** Is it possible to sell the share you bought in? Say it's a medical building and the majority owners aren't ready to sell — they may never sell. Can somebody put their share up for sale?

**Jamie:** The ownership is legally transferable. But we should introduce the phrase *accredited investor* — that's a suitability requirement for investing in DSTs. It means a net worth of a million dollars outside of your primary residence, or income of $200,000 if you're single, $300,000 if you're married. So if you're invested in a DST and you find someone else who's an accredited investor and wants to buy your ownership, that is fine, and the players in the space can help with the paperwork.

Here's what we don't know: who's going to buy it, and what price they'll pay you. And there are a lot of limitations on who can help you find a buyer because of securities laws. But yes, it's transferable if you find someone interested and you agree on a price.

**Debbie:** So if I say I'd like to put $100,000 into a DST but I really only want to be in for three or four years, do you have that information?

**Jamie:** That's a question you could ask about any kind of real estate investing. If you're buying a rental in Southern California and Danielle asks how long you think you'll hold it — real estate investment decisions shouldn't be emotional, they should be results-driven. The general business plan for a DST is to sell when it's profitable. Nobody has a crystal ball. What we *can* control are things like rent growth, pushing revenue and managing expenses, which increases net operating income and drives value at sale. What we can't control are interest rates, unemployment, recessions — the larger market considerations that affect timing. So it would only be speculation to tell you how long an investment period might be. It'll be as short or as long as it needs to be to drive a meaningful total return.

**Debbie:** So this is not the option for somebody who says, in four years I plan to retire and I want that cash back to use another way. This has to be money where you accept that it is not liquid and you do not know when you're getting it back.

**Jamie:** Here's how I'd handle that. We all appreciate when clients come to us *in advance* of making big changes, because that's when we can really help. What I'd love is for the property owner to have a call with all of us and for us to ask: what do the next ten years look like? What are your goals? When are you retiring? When do you need liquidity? Because when we know that, we can potentially say — now's a great time to list, Danielle gets you a great sales price, you do a 1031 and defer the taxes, and because you want to be passive, DSTs might be a good replacement property. But since you mentioned needing cash, why not take some cash out of your exchange now? It'll be exposed to taxes, but far less than a full sale would be. Have that cash cushion, and then decide whether you're comfortable with the remaining equity going into real property with an indeterminate hold period.

**Danielle:** And maybe you put part of it into traditional real estate, but a townhouse or condo that's far less hands-on than the eight-unit building you had — you're relying on the HOA for gardening and exterior maintenance. We have clients doing that: part into a condo they can sell in four years to pull money back out, and the rest into a DST to defer the taxes.

### A real building, not crypto

**Danielle:** With crypto and all the confusing things out there right now — a DST is an actual building you're investing in, with an address. You're a percentage owner in that building. It's like going out to buy 123 Main Street, except you may only own 5% of 123 Main Street.

**Debbie:** Jamie, you work with properties across the US. It doesn't have to be a property in California.

**Jamie:** The 1031 tax code lets an exchanger who owns investment property in the US exchange it for investment property anywhere in the US. You can cross state lines. And there are limitations to investing in California, including price — California real estate can be cost prohibitive, while there are great markets across the country you might want to tap into. With the lower access point of a DST, this frees the investor up to reach markets and property types they aren't experts in. You don't have to be the expert on an industrial building in Houston or an apartment building in Colorado — the sponsor is, and they put together a due diligence package, what we call a private placement memorandum, with all the information about that property and market.

**Debbie:** So the investor gets to see the numbers — the rents that came in, the expenses, the full prospectus — before putting money in. Nothing's guaranteed, but you can see past performance.

**Jamie:** You can. We live in the world of big data, and the sponsor companies pay for and have access to a lot of it, which goes into the offering materials including the appraisal. It's super important to look at those numbers, because think about the motivation: the sponsor is trying to sell you something. They're going to put together a package that looks shiny and good. It's so important to dig into the numbers and the details, and that's a big part of my job representing the investor — what are we really working with behind these beautiful pictures of a gorgeous apartment building? Depending on your level of expertise you can get pretty deep with the data; there's really no limit to what you can pick apart when deciding if a property is the right fit.

### What a DST pays

**Debbie:** Let's talk about returns. What can you expect from buying into a DST?

**Jamie:** It might not surprise you that one of the first questions people ask is how much money they're going to make. The good news is we have a lot of information to set expectations around income potential, and we absolutely want to do that — especially for the older investor living on a fixed income.

Different returns are available at different risk levels and in different property types. In DSTs you have access to a lot of commercial property types: hotels, student housing, seniors housing, apartments. There isn't anything special about DSTs when it comes to yield, except that the sponsor might have negotiated a great purchase price, and sponsors tend to be very good at management and maximizing rents and lowering expenses. Otherwise the yields should be similar to the broader market.

One benefit of DST income is that we're modeling a *net* cash-on-cash return — the bottom line for the investor after expenses and after maintenance. That's a big one. When you own real estate yourself and the water heater goes out or you need a new roof or you have a vacancy, that hits your bottom line hard. DSTs have reserve accounts to handle those repairs, funded a little each month, so when you need to replace thirty water heaters it comes from the reserve, not from cash flow. Cash flow tends to be more consistent because of that planning.

Right now, a lot of my clients in a diversified mix of DST properties are able to yield **4% net on their equity** or more. A lot is changing with pricing and interest rates, so yields are changing on a daily basis — the true answer would be revealed at the time you actually have an exchange and we look at the inventory then. But that's an appropriate reference point for where we're at in the market.

**Debbie:** So 4%, 4.5%, somewhere in there is about average.

**Jamie:** Sure — and maybe that's an exchanger in a riskier investment type yielding five, plus a lower-risk property type yielding three and a half, and the blended yield gets you that four. Or they stay middle of the road across the different properties they pick and land right around four.

### The home sale exclusion is not a 1031

**Danielle:** I get this question all the time. Sellers are confused between the $250,000 to $500,000 capital gains exclusion and a 1031 exchange. I had a seller tell me last week they were going to take all the proceeds from their primary residence, put it into the next one, and not owe tax.

Here's the distinction. If you sell your *primary residence* and you've lived there two out of the last five years, $250,000 of your gain is exempt from capital gains tax if you're single, $500,000 if you're married. That is completely separate from what we're talking about today, which is an *investment property* that is not your primary residence — you sell it and defer all the tax by going into a 1031 exchange, investing all of that money plus whatever debt you had on the property you sold. People are constantly confused about when they would owe capital gains, and it's very different from a primary residence to another primary residence.

### Wrap-up

**Danielle:** I'm Danielle Whitney Moore, a real estate broker. My team is Team Whitney — teamwhitney.com. We handle mainly the Los Angeles area; my office is in Rancho Palos Verdes, so Long Beach, Rancho Palos Verdes, San Pedro is our primary market, but we just finished a transaction in Big Bear and I was out in San Bernardino yesterday. I do have a team, so we can go farther to serve people if necessary.

**Jamie:** Jamie Furlong, managing partner at Legacy Investments and Real Estate — legacyire.com. Physically located in Sacramento with a colleague in San Diego, but we have clients all over the country. Last week I was at a tax conference on a panel of CPAs talking about estate planning, and the moderator said, "All of my clients made their wealth in real estate. How do we address estate planning and real estate investing?" That's what our company is designed to help you start thinking about. For a lot of investors, later in life being passive sounds pretty nice. Earlier in life, you call Danielle — Danielle's going to help you get rich. We strive to help with capital preservation and the potential for consistent income. It really is about laying out all the options, making a long-term plan, and having the right people on your team.

**Debbie:** I say it week after week: the most important thing you can do for your retirement is to get into real estate and start building your portfolio. Buy one, don't sell it, rent it out, buy another one. You need that real estate for retirement in the future. And this is proof of it — eventually you start to sell that portfolio and move into DSTs where somebody else takes care of it for you. If anybody has questions, you can call the Mortgage Mom any time at 844-935-3634\. Ladies, thank you so much for your time today. Bye-bye.

Debbie Marcoux is licensed by the Department of Financial Protection and Innovation under the California Residential Mortgage Lending Act, NMLS ID #237926, and additionally licensed in AZ (0941504), FL, GA, HI, ID, IL, NV, NC, OR, TN, TX, and WA. Rates and figures discussed were current as of the air date of August 9, 2023, reflect national conforming averages, and are not an offer of credit or a rate quote. Debbie Marcoux is not a financial advisor; consult qualified professionals about your individual situation.

Delaware Statutory Trusts are securities and were discussed on this episode by a guest holding securities licenses. Nothing on this page is an offer to sell or a solicitation to buy any security. DST investments carry material risks including illiquidity, loss of principal, general market conditions, interest rate risk and financing risk, up to and including loss of the entire invested amount. Consult your own tax, legal and securities professionals before investing.