DST vs Direct Title Security: Shared Beneficial Interest or Your Own Deed

Both qualify for a 1031, but for opposite reasons

A DST interest qualifies because the trust is passive. Rev. Rul. 2004-86 holds that an owner of a properly limited Delaware statutory trust is treated as owning an undivided fractional interest in the real estate, so the interest is like-kind to the property you sold. The same ruling says that if the trustee could sell and buy new property, enter new leases, renegotiate or refinance the debt, or make more than minor non-structural changes, the trust would become a business entity, taxed as a partnership with two or more owners.

A direct title security qualifies because there is no one else in the entity. Under Reg. section 301.7701-3(b)(1)(ii) a domestic LLC with a single owner is disregarded unless it elects otherwise, so for federal tax purposes you own the property directly. We tie each direct title security to a specific property with a physical address, title ownership and a registered CUSIP number, and deliver it with a private placement memorandum, a customized supplement and a subscription agreement.

That one difference, shared and frozen against sole and flexible, drives every comparison below.

Control: the trustee's hands are tied by design, while your LLC can refinance, re-lease and sell

In a DST you vote on nothing that changes the property's terms, because the trustee itself cannot change them. The loan, the leases and the hold were set before the offering opened, and traditional DSTs involve co-investors and sponsor-led exit strategies. Our answer on who controls a DST covers what investors can and cannot decide.

With our direct title securities, you keep full decision-making authority: when to sell, when to refinance for liquidity, or whether to move into a 721 exchange, with no co-owners. Section 721 lets you contribute property to a partnership for an interest in it without recognizing gain, which is how an UPREIT contribution works; it is also a one-way step out of the 1031 chain, as our 721 UPREIT page explains.

Control cuts both ways. The DST's restrictions protect its tax status; your freedom in an LLC means a later refinance, a sale outside an exchange or a change in use is your decision and your tax consequence.

Financing and debt replacement: pre-arranged trust debt against custom financing on your property

If the property you sold carried a mortgage, Reg. section 1.1031(d)-2 treats the debt you are relieved of as cash received unless you take on equal debt or add cash. A leveraged DST solves this by allocating a share of its existing loan to your interest. The traditional DSTs we place have loans already secured, with no personal loan liability for investors.

For direct title securities, we offer custom financing options designed to meet exchange needs without traditional bank involvement or personal liability. Loan-to-value, rate and term vary by offering, so ask for them in the offering documents before you size the purchase.

Either way, the debt you take on counts toward replacement only if it is in place at closing, and nonrecourse debt is still part of your amount realized when the property is later sold, as the Supreme Court held in Commissioner v. Tufts.

Size, concentration and management: a slice of a large asset or the whole of a small one

The DSTs we place typically have minimums between $100,000 and $250,000 per trust, and we help allocate across several trusts. Each trust holds stabilized assets such as multifamily, medical office, self-storage or industrial property, with full-service management in place, so the investor's job ends at subscription.

Our direct title securities are single-family rentals priced between $250,000 and $500,000 in metro areas we select for job growth, schools and rental demand, triple-net leased with monthly payments for the lease term. One house is one tenant and one market, so a large exchange placed entirely in direct title properties means several deeds, each with its own lease to watch. We pair each property with a professional property manager for leasing, maintenance and tenant service.

Neither structure lists its interests on an exchange. DST interests are generally held until the sponsor sells; a direct title property can be sold whenever you find a buyer, which is a market sale on your timeline rather than a secondary trade in a security.

• Pick a DST when you want diversified, institutional-size real estate and no decisions.
• Pick a direct title security when you want your own deed, your own exit date and a property you can refinance.
• Combine them when the exchange is large: trusts for scale, direct title for the slice you want to control. See splitting an exchange.

Estate planning and the next exchange: what you and your heirs can do with each

Both structures receive a basis adjustment to fair market value at death under section 1014, so the deferred gain can disappear for heirs either way. The difference is what the heirs inherit: DST interests can be divided among heirs by number of units, while a single LLC owning one house is either kept together, sold, or distributed with a deed or membership transfer.

When a DST property is sold, you can exchange your share of proceeds into new property, as our page on DST sale and the next 1031 describes, but only when the sponsor sells. With direct title, you can start the next exchange when you choose, provided the property has been held for investment.