Investing in a Land Delaware Statutory Trust (DST)—a type of DST that holds raw or undeveloped land—can offer unique advantages and drawbacks compared to traditional DSTs holding income-generating properties like multifamily or industrial assets.
June 29, 2025
By Al DiNicola, AIF®
1031 Tax Deferred Exchange Specialists & DST Advisor
NAMCOA® – Naples Asset Management Company®, LLC
Securities offered through MSC-BD, LLC, Member of FINRA/SIPC
The Land DST strategy was developed in response to consistent requests from advisors and producers for a 1031-compliant way to access long-standing land investment expertise. AS with all DST the strategy offers accredited investors a way to defer capital gains taxes while participating in the growth-focused appreciation of land located in high-demand U.S. markets.
This DST strategy was developed to meet growing demand for 1031 exchange solutions tied to land. There appears to be an alignment between the rising investor appetite for tax-advantaged, passive alternatives. In addition, sponsors who are vertically integrated and seeking to secure opportunities have introduced land DST offerings. In additional and potentially a greater need would be Builder demand for off-balance sheet treatment of land. The key would be in the sponsors’ ability to source, entitle, and exit strategic land positions.
Builder mandates. Many larger (public) builders wish to secure land without the land appearing on their balance sheet until the builder is ready to start construction. This means that builders are seeking an alternative in securing the land while the builders acquire all the entitlements for development. This may be a period of 3-5 years. The structure, maybe the DST sponsor at a specific point in time, enters into a forward purchase contract with the builder for the land. Once under contract the builder may proceed in obtaining all the entitlements for the property. One all the entitlements are in place the property may be referenced as shovel ready. This is the point where the DST would be sold to the builder.
Sponsors of smaller projects (Senior housing for example) may use the same strategy.
Here’s a breakdown of the pros and cons of investing in a Land DST:
Pros of Investing in a Land DST
- 1031 Exchange Eligibility
- Land DSTs are structured to qualify as “like-kind” property for 1031 exchanges, allowing investors to defer capital gains taxes upon sale of prior investment property.
- Low Management Responsibility
- As with all DSTs, land DSTs are passive investments. No landlord duties or active involvement is required from the investor.
- Portfolio Diversification
- Adds asset class diversification to a real estate portfolio, especially if most current holdings are in income-generating assets.
- Potential for Long-Term Appreciation
- Land often appreciates overtime, particularly if located in areas of projected development or population growth.
- Depending on the prearranged agreement with the developer or builder there may be entitlements obtained that add value during the holding period as referenced above.
- Estate Planning Benefits
- DSTs can simplify estate planning and offer a step-up in basis upon death of the owner, minimizing capital gains for heirs.
- Lower Entry Point
- Fractional ownership allows investors to participate in land investments that would otherwise require large capital outlays.
Cons of Investing in a Land DST
- No Current Income
- Land DSTs typically generate no rental income, as the property is undeveloped. Investors must be comfortable with a zero-cash-flow investment.
- Illiquidity
- DSTs are long-term, illiquid investments. Exiting early is difficult and may result in a loss of capital. Many DST will have stated exits at 7-10 years. The exit for Land may be 3-5 years.
- Market and Entitlement Risk
- The value of raw land is speculative and heavily dependent on zoning changes, entitlement approvals, or future buyer demand. As noted above, certain offerings require the builder (under prearranged purchase contract) to acquire entitlements.
- Long Investment Horizon
- Appreciation or a profitable exit might take years. If market or local conditions shift, the projected timeline could be extended.
- Limited Control
- Investors cannot influence development, management, or disposition decisions due to the DST structure.
- No Depreciation Benefits
- Unlike improved property, land cannot be depreciated, so investors receive no tax shelter from depreciation losses. If an investor is moving into a land DST, the investor will carry forward any basis into the new DST. There would be no depreciable component.
Best Use Cases
- Investors seeking 1031 exchange tax deferral and not in need of regular income.
- Long-term investors are comfortable with speculative growth and zero cash flow.
- Those aiming for capital preservation with appreciation potential rather than yield.
NAMCOA® is a SEC registered investment advisory firm that provides comprehensive portfolio management, financial planning, and fiduciary decision-making services on behalf of retirement plan sponsors. Our Difference is summarized by our fiduciary approach which enables us to better meet portfolio and retirement plan objectives, resulting in stronger risk adjusted returns for investors and peace of mind for Clients. We also focus on alternative real estate investment. Many real estate investors are seeking tax deferred solutions utilizing §1031 exchanges or Opportunity Zones.
DSTs are not for all investors. The acquisition of a DST is for accredited investors only. Contact your investment adviser for additional details on how a DST may be a solution to your 1031 Exchange and suited for your investment future. For more information on how to properly set up an IRC 1031Tax Deferred Exchange or if you are an accredited investor and would like additional information on a DST contact Al DiNicola at 239-691-8098 or email adinicola@namcoa.com.
This is not an offer to purchase or solicitation to purchase any security, as such be made only through an offering memorandum or prospectus. Investing in securities, real estate, or any investment, whether public or private, involves risk, including but not limited to the potential of losing some or all of your investment dollars when you invest in securities. You should review any planned financial transactions that may have tax or legal implications with your personal tax or legal advisor. NAMCOA, LLC is a Registered Investment Advisor, regulated by SEC (Securities and Exchange Commission). Our corporate office is located at 999 Vanderbilt Beach Road, Suite 200, Naples Florida 34108. Securities Offered through MSC-BD, LLC, Member of FINRA/SIPC. 5 Centerpointe Drive, Ste. 400 Lake Oswego, OR, 97035MSC-BD, LLC and NAMCOA are independently owned and are not affiliated.
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