Understanding Availability and Timing of DSTs as Replacement Property
Investors are surprised and intrigued at how selling one investment property may enable the investor to diversify into several replacement properties. This article explains how DSTs qualify as replacement property, how investors can use multiple DSTs for diversification, and why availability and timing are critical to a successful 1031 exchange.
February 26, 2026
By Al DiNicola, AIF®
Adinicola@namcoa.com
Private Fund Advisor/DST 1031 Specialist
NAMCOA® – Naples Asset Management Company®, LLC
Securities offered through MSC-BD, LLC, Member of FINRA/SIPC
Beyond their passive structure, DSTs provide a major strategic advantage: the ability to diversify 1031 exchange proceeds across multiple properties, asset classes, and markets—all within a single exchange.
Investors may be hard pressed to be in a position to sell one property and then replace the one property with multiple other traditional real estate properties. Delaware Statutory Trusts (DSTs) have become one of the most widely used replacement property options for investors completing a 1031 exchange. They offer a way to reinvest sale proceeds into institutional-quality real estate while eliminating the burden of active property management.
What Is a DST and Why Does It Qualify for a 1031 Exchange?
As a refresher, a Delaware Statutory Trust is a legal ownership structure that allows multiple investors to hold fractional interests in large, professionally managed real estate assets. Under guidance from the Internal Revenue Service, properly structured DST interests are treated as direct ownership of real estate, not securities. This allows DSTs to qualify as like-kind replacement property under Section 1031 of the Internal Revenue Code.
DSTs are not recommended for every investor. By structure only accredited investors may utilize a DST, (there ae a few exceptions to this rule). By exchanging into DSTs (via 1031), investors can defer realize all the benefits of tax deferral. This includes capital gains taxes, depreciation recapture and potential net investment income tax (NIIT). There may also be state income taxes deferred as well. WE have recently written on this topic. (SeeX).
DSTs are commonly used by many different types and styles of investors. Many recent articles have pointed to the retiring or aging landlords (aka baby boomers) who are ready to uncomplicate their lives. There are also investors seeking passive income via a DST as direct cash investors. Accredited investors may participate in real estate investing for under $100,000 and receive tax favored distributions. There are also owners selling highly appreciated property that may utilize the 1031/DST combination. Investors transitioning out of active management also enjoy the passive nature of the DST structure.
Using Multiple DSTs to Diversify 1031 Exchange Proceeds
One of the most powerful benefits of DSTs is the ability to split exchange proceeds across multiple offerings. Unlike purchasing a single replacement property, DSTs allow investors to create a diversified real estate portfolio while maintaining full tax deferral. We actively engage in discussion with all potential investors on the suitability of multiple replacement properties. Granted there is more due diligence (and paperwork) on our part creating a potentially diversified portfolio for investor consideration.
How Diversification Works with DSTs
An investor can allocate exchange proceeds among multiple DSTs that differ by:
- Geographic location (different states or regions)
- Asset type (multifamily, industrial, medical office, retail, self-storage, etc.)
- Tenant profile (single-tenant vs. multi-tenant)
- Lease structure (triple-net vs. operating properties)
- Sponsor and management team
- Hold period and exit strategy
Example of a Diversified DST Allocation
When we first bring up the topic of acquiring more than one replacement property some investors are intrigued at the suggestion. As an advisor a one for one (sale and acquisition) appears to be the easiest transaction to make. Granted there is less paperwork. However, the benefits of exploring a diversified portfolio should be part of the process even though moving back to a single replacement may be the final destination. An investor completing a $1,000,000 §1031 exchange might allocate:
- $300,000 into a multifamily DST
- $250,000 into an industrial logistics DST
- $250,000 into a medical office DST
- $200,000 into a necessity-based retail DST
This approach spreads risk across multiple properties and markets while preserving full tax deferral.
Risk Management Benefits of Multiple DSTs
Occasionally you may hear the terms don’t put all your eggs in one basket. We track about 70 DSTs at a given time. Our research and analysis enable us to add value to investors seeking investment advice. Using multiple DSTs can help reduce several common risks associated with single-property exchanges, including:
- Tenant risk – One vacancy does not impact the entire portfolio
- Market risk – Exposure is spread across multiple geographic areas
- Asset concentration risk – Performance is not tied to one property type
- Exit timing risk – Properties may sell at different times instead of all at once
For many investors, this strategy transforms a concentrated real estate position into a more resilient, institutionally diversified portfolio.
DST Availability: Why Timing Is Critical
We covered in previous posts the strict timing requirement of the IRS regarding the 1031 process and will amplify below. Having DST offerings prepackaged enables advisors and more importantly investors to maximize the time and review process. DST offerings are finite. Each DST has:
- A limited equity raise
- A specific number of available ownership interests
- A closing date that may occur quickly once fully subscribed
Highly desirable DSTs, such as those with long-term leases, strong sponsors, or attractive financing, can become fully subscribed in a very short time. Because of this, DST availability can change rapidly, and inventory is not guaranteed at any given moment. All cash DSTs have become more popular for a number of reasons. The loan to value (LTV) also has become more conservative and may create some stress for investors needing high replacement LTV.
1031 Exchange Timing Rules and DST Considerations
Every 1031 exchange is governed by strict IRS deadlines. The 45 days to identify replacement properties and a total of 180 days to complete the acquisition. DST-specific timing considerations include availability during the 45-day identification window. This may enable an investor with the ability to reserve allocations early, potentially prior to the investor closing on the relinquished property. Naturally the coordination with the qualified intermediary and sponsor is critical. There can also be backup options if a DST fills before closing.
Many investors identify multiple DSTs—often more than they plan to acquire—to protect against availability and timing risks. This may require the 200% rule rather than the three-property rule.
Best Practices for Using DSTs in a 1031 Exchange
Experienced investors often follow these best practices:
- Review DST options before closing on the sale of the relinquished property
- Identify multiple DSTs across asset classes and sponsors
- Include backup DSTs in the identification list
- Work with professionals who specialize in DSTs and 1031 exchanges
Advance planning is especially important during periods of limited DST inventory.
Final Thoughts
DSTs provide a flexible and efficient solution for investors completing a §1031 exchange. By using multiple DSTs as replacement property, investors can reduce concentration risk, achieve diversification, and transition into passive real estate ownership—while deferring taxes.
Because DST inventory is limited and §1031 deadlines are unforgiving, availability and timing must be addressed early in the process. With proper planning, DSTs can play a central role in a smooth and successful exchange strategy.
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, 97035. MSC-BD, LLC and NAMCOA are independently owned and are not affiliated.
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