“Sharpening Your Portfolio IQ: The New Semester of Alternative Investment Strategies” ~ Part 1

Over the years we have received requests from investors (poten­tial­ly Fresh­man investors as ref­er­enced in the pre­vi­ous post). Every day new investors are seek­ing poten­tial solu­tions to defer­ring cap­i­tal gains on the sale of appre­ci­at­ed invest­ment real estate. We want to review the top­ics most searched by poten­tial investors regard­ing Delaware statu­to­ry trust and Sec­tion 1031 tax deferred exchanges.

Sep­tem­ber 6, 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

Here is the list of the most fre­quent­ly searched top­ics and ques­tions asked by poten­tial investors inter­est­ed in Delaware Statu­to­ry Trusts (DSTs) and §1031 tax-deferred exchanges:

• How DSTs Qual­i­fy for 1031 exchange
• Ben­e­fits of DST
• Draw­backs and Risks
• Invest­ment mechan­ics and due dili­gence
• Typ­i­cal returns and min­i­mum
• Estate plan strate­gies

In this post we will address the How & the Ben­e­fits. Future post will address the addi­tion­al top­ics.

How DSTs Qual­i­fy for §1031 Exchanges

There occa­sion­al­ly is gen­er­al con­fu­sion with the terms DST and 1031.  Some investors when start­ing their research think there is an option to use one or the oth­er.  What comes first? On a week­ly basis with have the oppor­tu­ni­ty to clar­i­fy the asso­ci­a­tion with both top­ics.  First, Sec­tion 1031 has been around for over 100 years. Although there have been a few mod­i­fi­ca­tions to the pro­gram. Delaware Statu­to­ry Trust (DST) inter­est has been in exis­tence for just over 20 years. DSTs meets the IRS require­ments for “like-kind” replace­ment prop­er­ty. In 2024 there was Rev­enue Rul­ing 2004–86 and under this pro­vi­sion DST became an accept­able alter­nate for replace­ment prop­er­ties under Sec­tion 1031. The pop­u­lar­i­ty for DSTs since 2004 has increased cash invest­ment but also for sat­is­fy­ing the replace­ment require­ments for the 1031 exchange. While there are some effi­cien­cies with DST there are no short cuts when using as a replace­ment alter­na­tive in a 1031 exchange. The sell­er of the invest­ment real estate should include in the pur­chase and sales con­tract for the relin­quished prop­er­ty the seller’s inten­tion to enter into a 1031 tax deferred exchange. There is the need to use the ser­vices of a Qual­i­fied Inter­me­di­aries (QI). Occa­sion­al­ly QI may be ref­er­ences as an accom­moda­tor.  You can­not use an escrow agent, title com­pa­ny or attor­neys unless they also are a QIs. An investor can­not take con­struc­tive receipt of any of the pro­ceeds from the sale of the relin­quished prop­er­ty. Any cash that is received is called boot and sub­ject to cap­i­tal gains. In addi­tion, any debt not replaced is con­sid­ered mort­gage boot.  All pro­ceeds need to go from the clos­ing of the prop­er­ty direct­ly to the QI. Once the QI has the funds that is the start of the 45-day iden­ti­fi­ca­tion peri­od and 180-day exchange time­line. Investors need to observe the dead­lines in the 45-days to iden­ti­fy replace­ment prop­er­ties and then close with­in a total of 180 days of the sale of the relin­quished prop­er­ty.

We do mon­i­tor and con­duct due dili­gence on many DSTs offered in the mar­ket­place for accred­it­ed investors. At any giv­en time, we have access to over 70 prop­er­ties (offered by mul­ti­ple spon­sors) in a vari­ety of asset class­es and geo­graph­ic loca­tions.

 Ben­e­fits of DSTs

There are ben­e­fits (and draw­backs we will review lat­er) in eval­u­at­ing if a DST aligns with the investor’s goals.  First and fore­most is that DSTs are for accred­it­ed investors only. The SEC is cur­rent­ly con­sid­er­ing to per­mit non-accred­it­ed investors to invest in pri­vate equi­ties and alter­na­tives invest­ments.  

SIDE BAR: HR 3339, the “Equal Oppor­tu­ni­ty for All Investors Act” passed in the House by a unan­i­mous voice vote on July 21, 2025. If passed by the Sen­ate, the bill would require the Secu­ri­ties and Exchange Com­mis­sion (SEC) to estab­lish a new test of finan­cial knowl­edge through which any per­son could become an “accred­it­ed investor,” allow­ing them to freely invest in com­plex assets like pri­vate cred­it and equi­ty, ven­ture cap­i­tal, and hedge funds.

DSTs pro­vide pas­sive own­er­ship which may trans­late to reliev­ing the headaches of deal­ing with ten­ants and han­dling main­te­nance issues. There may even be headaches deal­ing with your prop­er­ty man­ag­er. DST pro­vides access to insti­tu­tion­al-qual­i­ty assets (e.g., com­mer­cial, indus­tri­al, mul­ti­fam­i­ly). These assets are typ­i­cal­ly out­side the reach of most investors. The frac­tion­al own­er­ship and port­fo­lio diver­si­fi­ca­tion is obtain­able based on the rel­a­tive­ly low entrance lev­el. Typ­i­cal­ly, $100,000 for 1031 exchanges. This may enable an investor to diver­si­fy into sev­er­al exchange prop­er­ties in a vari­ety of states or vari­ety of asset class­es. There are also the advan­tages of estate plan­ning. Like all real estate that will be passed on or inher­it­ed there is a poten­tial step-up in basis. This may elim­i­nate deferred tax­es alto­geth­er upon the death of the investors.

Final Take on Part 1

We have briefly cov­ered How DSTs qual­i­fy for 1031 exchanges and the ben­e­fits of DSTs. There are many aspects of these ele­ments and there may be many more ques­tions.  We will next cov­er Draw­backs and Risk as well as the Invest­ment Mechan­ics and Due Dili­gence. Our goal has always been to inter­act with poten­tial investors and focused on under­stand­ing how DSTs func­tion with­in the 1031 exchange, the pros and cons, and how to eval­u­ate spon­sors and finan­cials. Our real expe­ri­ence under­scores that select­ing high-qual­i­ty spon­sors and under­stand­ing struc­tur­al lim­i­ta­tions are crit­i­cal to suc­cess.

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As always please con­tact us for a com­pli­men­ta­ry con­sul­ta­tion.

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.

Alter­na­tive invest­ments and DSTs are not for all investors.  The acqui­si­tion of a cer­tain alter­na­tive invest­ments includ­ing DSTs 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.

Thank you.

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