The short answer
Buy the NNN building yourself if you want title, the full cap rate and the right to refinance or sell on your own schedule, and can carry the building through a vacancy. Choose a DST if you want no loan signature, no re-tenanting decisions and an entry as small as $100,000 per trust, and can accept that sponsor loads and a fixed structure take a slice of the yield. On a hypothetical $2,000,000, the NNN pays about $130,000 at a 6.5% cap while it is leased and nothing plus carrying costs when it is not; a DST distributing 5% pays $100,000 spread across many leases.
At a glance
| Net lease defined | Rev. Rul. 2004-86: tenant pays taxes, insurance, maintenance, repairs and utilities |
|---|---|
| DST entry | A filed Form D shows a $100,000 minimum; each offering sets its own |
| Upfront loads | Industry summaries: roughly 7–15% of equity before it reaches the property |
| Loan signature | DST: trust is the nonrecourse borrower; NNN: you qualify, sign and guarantee |
| Identification | Reg. Section 1.1031(k)-1: 3 properties, or any number within 200% of value |
| Recapture if you sell | Unrecaptured section 1250 gain taxed at up to 25% (IRS Topic 409) |
| Step-up | Section 1014: heirs take fair-market-value basis in either structure |
Cash flow: a cap rate you keep whole against a distribution paid net of loads and reserves
Take $2,000,000 of exchange equity as a hypothetical. Buying a single-tenant NNN building for cash at a 6.5% cap rate yields $130,000 a year, and because the tenant in a true net lease pays 'all taxes, assessments, fees', insurance, maintenance, repairs and utilities (the lease described in Rev. Rul. 2004-86), almost all of it reaches you while the lease runs.
The same $2,000,000 in a DST first pays the offering's loads, commonly cited around 7–15%; at 10%, $1,800,000 buys real estate. A 5% distribution is quoted on your $2,000,000, so $100,000 a year, and the ruling requires the trustee to pay out only 'available cash less reserves'.
The two yields are not the same measure. A cap rate is gross income over price on a fully leased building; a DST distribution is net cash after fees and reserves spread over many leases, so compare them only after adjusting the NNN figure for vacancy and re-leasing costs.
Control: you sign one lease and every decision, or you sign a subscription and none
An NNN owner picks the tenant, negotiates the lease, decides when to refinance and when to sell. A DST investor has no role in running the trust: in Rev. Rul. 2004-86 the trustee's activities are 'limited to the collection and distribution of income', and the trustee itself cannot re-lease, refinance or improve beyond minor work.
Control is also where the risk sits. One building with one tenant is 100% leased or 0% leased; a portfolio DST holding many leases barely notices a single vacancy, while a single-tenant DST carries the same binary risk as the building you would buy yourself, minus the control.
Personal liability differs as well. The trust's note is nonrecourse to you and 12 Del. C. Section 3803(a) limits a beneficial owner's liability to that of a corporate stockholder, while an NNN owner who signs a guaranty answers for the loan personally.
Re-tenanting and rollover: the retiree question is who funds the empty months
When an NNN lease ends or the tenant fails, you pay the taxes, insurance and upkeep the tenant used to pay, plus tenant improvements and leasing commissions to re-let, out of your own pocket, and you do the work or hire it. That is manageable at 60 with reserves and exhausting at 80 without them.
In a DST the sponsor's team does the work, but the trustee's leasing power is limited to a tenant's bankruptcy or insolvency, which is why sponsors favor multi-tenant properties, master leases or portfolios, and why a lease expiring near the loan maturity usually means a sale rather than a renewal. You trade the rollover labor for a sale date you do not choose.
Minimums, financing and the 180-day clock favor the DST; price and leverage choice favor the building
A DST subscription commonly starts at $100,000 for exchange money (one filed Form D lists a $100,000 minimum investment), so $2,000,000 can be split across several trusts, sponsors and asset classes, while an NNN purchase is one price for one building.
Debt works differently. The trust's loan exists before you invest, is nonrecourse, needs no application from you, and your allocated share counts as replacement debt because the ruling treats you as owning an undivided interest in the property and its financing; an NNN buyer applies, is underwritten and usually signs a guaranty or carve-outs. The building lets you choose the leverage; the DST fixes it.
Timing matters when a deal falls through. Under Reg. Section 1.1031(k)-1 you may identify three properties of any value, or more if their total stays within 200% of what you sold, and a DST the sponsor already owns can be one of them and can close without inspections, negotiation or a loan approval before the 180th day.
Estate planning: both get the section 1014 step-up, but the heirs inherit different jobs
Under section 1014(a) property acquired from a decedent takes a basis equal to its fair market value at death, and that applies to a building and to a DST beneficial interest alike, wiping out the deferred gain and the depreciation recapture that a lifetime sale would have taxed at up to 25% for unrecaptured section 1250 gain (IRS Topic 409).
Heirs of an NNN building inherit a lease, a tenant and a sale decision, which is fine for one heir and hard for four. Heirs of a DST inherit an interest that 12 Del. C. Section 3805(a) makes personal property, so it divides among heirs without dividing the building, and section 3808(a) says an owner's death does not terminate the trust, so four heirs can each hold a quarter and each decide what to do when the trust sells.
Four questions that settle DST versus NNN
Answer these honestly and the structure usually picks itself. Then confirm the tax side with your CPA or attorney, because recapture, state tax and your other income change the numbers.
- Could you carry the building through twelve empty months, paying its taxes, insurance and re-leasing costs, without touching retirement income?
- Do you want to sign for a loan again, or do you want your debt replacement to come from a nonrecourse trust loan you never touch?
- Will $2,000,000 buy a building with a credit tenant and a long lease in a market you know, or only a weaker one, when the same money spreads across several institutional-scale DST properties?
- Do you need the sale date to be yours, for a future exchange or a planned liquidity event, or can it be the sponsor's?
Related questions
Can I put part of the exchange into an NNN building and the rest into a DST?
Yes. Identify each within 45 days under the three-property rule, close both by day 180, and use the DST for the odd remainder that would otherwise be taxable boot.
If my NNN tenant goes dark, what does that look like in a DST?
The same event in a single-tenant DST stops distributions, and the trustee can re-lease only once the tenant is bankrupt or insolvent; in a multi-tenant or portfolio DST it trims the distribution while the sponsor re-lets.
Does a DST's debt satisfy the loan I need to replace from my sale?
Your pro-rata share of the trust's nonrecourse loan counts, because Rev. Rul. 2004-86 treats you as owning an undivided interest in the property; a debt-free DST replaces none, so match the trust's leverage to your relinquished loan.
What tax do I face if I sell the NNN building later instead of exchanging again?
Long-term capital gain at 0%, 15% or 20% depending on income, unrecaptured section 1250 gain at up to 25%, and the 3.8% net investment income tax above $200,000 of modified AGI ($250,000 married filing jointly) per IRS Topics 409 and 559, plus state tax.
Is the higher headline yield on the NNN building real?
It is real while the lease is paid and disappears entirely when it is not; the DST's lower figure is already net of fees and reserves and spread across leases, so compare realized yield over a full lease cycle rather than year-one numbers.
How fast can a DST close compared with an NNN purchase?
A DST closing is a subscription: the sponsor already owns the property, the loan is in place and the trust agreement is signed, so there is no inspection period, appraisal or loan approval. That is why exchangers name a DST as a backup identification when an NNN contract might miss day 180.
Sources
Checked against these publications on September 19, 2026. Rules and figures change; confirm the current version with your CPA or attorney before you act. This page is general information, not tax or legal advice.
- SEC Form D for a net-leased portfolio DST (EDGAR, February 2021)
- Rev. Rul. 2004-86 (net lease and DST facts)
- Treas. Reg. Section 1.1031(k)-1 (identification and exchange periods)
- 26 U.S.C. Section 1014 (basis of property acquired from a decedent)
- IRS Topic 409, capital gains and losses (2025 rates)
- IRS Topic 559, net investment income tax
- Delaware Statutory Trust Act, 12 Del. C. Sections 3805, 3808
