Using Multiple DSTs to Diversify 1031 Exchange Proceeds

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.

Thank you.