A Guide to DSTs

What Is a DST and How Does It Work?

DSTs are legal entities created under Delaware law that allow investors to co-own high-quality, income-generating real estate. The trust holds title to the asset, while investors hold fractional ownership, known as a beneficial interest. This structure qualifies as “like-kind” property under IRS Section 1031.

Pooling Capital Into Institutional Assets

Because DSTs allow multiple investors to pool their capital, they can acquire large-scale, institutional-grade assets, properties that would typically be out of reach for a single buyer. This could include medical buildings, industrial parks, or Class A multifamily communities.

Passive Income, No Management

Investors don’t have to worry about managing tenants or fixing plumbing issues. DSTs use net-lease or triple-net-lease arrangements, which provide reliable monthly income without hands-on involvement.

How DSTs Help You Navigate a 1031 Exchange

Completing a successful 1031 exchange requires careful planning, swift execution, and strict compliance with IRS timelines. DSTs are often the most efficient and strategic tool to make it all work, especially when you’re facing pressure.

Meeting 1031 Exchange Requirements

The IRS provides a 45-day window to identify replacement properties and 180 days to close. Because DSTs are pre-acquired and ready for purchase, they allow investors to meet these timelines without delay, making them a dependable exchange vehicle.

Why DSTs Solve Timing Problems

If you’re in the middle of a sale and haven’t found your next property, DSTs offer a quick and easy solution. There’s no need to negotiate contracts or do property tours. Just select from a sponsor’s vetted offerings.

Choosing a 1031 Exchange Strategy That Works

Not every DST is exactly the same. Some focus on income, others on appreciation or tax efficiency. At Breakwater Exchange, we help clients match their objectives: cash flow, preservation, or growth, with the right DST investment strategy.

DSTs Are Structured to Align with IRS Rules

DSTs are attractive because they simplify the legal and financial complexity of a 1031 exchange. However, they come with important rules that investors need to understand before diving in.

What Is a Qualified Intermediary?

To comply with 1031 exchange requirements, you cannot touch the proceeds from your sale. That’s where a qualified intermediary (QI) comes in. A QI holds the funds, facilitates the transaction, and ensures you remain IRS-compliant. Breakwater Exchange partners with trusted QIs to guide every step.

DST Restrictions You Need to Know

DSTs are designed to be passive. That means no refinancing, no capital calls, and no renegotiation of leases. These limitations exist to preserve the integrity of the tax deferral and ensure investors aren’t materially participating in the management of the asset.

When a DST Might Be the Best Move

DSTs are incredibly versatile and can solve a variety of challenges for investors. Whether you’re nearing retirement, need diversification, or just want to simplify your exchange, a DST might be the perfect fit.

Investors Who Want to Retire from Active Management: If you’re done with landlord duties but still want real estate exposure, DSTs give you ownership in high-quality assets, without the headaches. We help investors make the transition with confidence and clarity.
Those Facing a Tight Identification Deadline: Selling a property but still undecided on your next investment? DSTs can close in 3–5 business days. Breakwater Exchange ensures these timelines are met so you don’t jeopardize your exchange.
Portfolio Diversifiers: DSTs are perfect for spreading risk. We often guide clients to allocate proceeds across several DSTs, such as different markets, sectors, and tenant profiles, to create a more resilient investment strategy.

From tax deferral to stress-free management, DSTs offer a powerful tool for building wealth. Breakwater Exchange brings deep experience, industry relationships, and fiduciary care to help you make the most of your exchange. Discover more.

Our Traditional DSTs

The Real Reason DSTs Are Gaining Popularity

More and more investors are turning to DSTs as part of their long-term strategy. With built-in management, IRS compliance, and access to top-tier assets, they’re an obvious choice for many looking to grow and preserve wealth.

Why DSTs Are Surging in Popularity

The appeal is clear: DSTs make 1031 exchanges easier, more predictable, and more passive. Investors like the consistency of returns and the ability to step away from active management. At Breakwater Exchange, we’ve helped countless clients implement DSTs that fit both their lifestyle and financial targets.

Avoid These Common Pitfalls When Choosing a DST

DSTs are simple in structure, but selecting the wrong one can derail your investment. Knowing what to avoid can be just as important as knowing what to pursue.

Don’t Pick Based on Yield Alone: High returns might look attractive, but they don’t always mean the DST is solid. We dig deeper, examining sponsor history, asset quality, tenant strength, and long-term viability before recommending any DST.
Don’t Wait Until the Last Minute: Waiting to pick a DST puts you at risk. Great options fill up fast. We help clients prepare early so they have access to top-performing DSTs when their window opens.
Work with an Independent Broker Like Breakwater Exchange: Not all brokers are helpful. Some push DSTs that offer them higher commissions. At Breakwater Exchange, we act in your best interest, bringing independent guidance, full transparency, and access to a wider network of opportunities.

Passive 1031 Exchange Options

Not every investor wants to be involved in the day-to-day management of real estate. Fortunately, several passive 1031 exchange options are designed to preserve your capital gains deferral while freeing you from the headaches of active ownership. These options offer flexibility, diversification, and professional management.

Delaware Statutory Trusts (DSTs): DSTs let investors purchase fractional interests in institutional-grade properties. All operations are handled by a professional sponsor, providing predictable income without hands-on management.
Triple-Net Lease Properties (NNN): These properties shift most expenses, like taxes, insurance, and maintenance, to the tenant, giving you steady, passive cash flow with minimal involvement.
Direct Title Securities: A hybrid option where you own a property through a single-member LLC but still enjoy passive income via net leases. Breakwater Exchange helps structure these for full 1031 eligibility.
Managed TIC Investments: Though more complex, Tenancy-in-Common structures allow shared ownership in commercial assets. A third-party property manager handles all operations on behalf of the group.
Cash-Out DSTs (Zero Structures): For those needing liquidity or efficient debt replacement, these DSTs offer tax-deferral benefits while locking in gains without monthly distributions.

Discover Your Ideal DST Strategy With Breakwater Exchange

DSTs have fundamentally changed the way investors approach 1031 exchanges. They remove many of the barriers that used to complicate this process, like timing, management, and property access, by offering a packaged solution that’s both IRS-compliant and investor-friendly.

At Breakwater Exchange, we go beyond simply matching you to a product. We take the time to understand your financial goals, build a strategy around your timeline, and guide you through the exchange with confidence. From early-stage planning to post-close review, our team stands by your side. Get in touch with our team today to begin building a tax-efficient, hands-off DST real estate 1031 portfolio with trusted experts by your side.