Reference/Frequently Asked Questions
Questions, answered plainly.
The most common questions we receive about Delaware Statutory Trusts, sponsor due diligence, illiquidity, 1031 exchange mechanics, and how 1031 DST Hub operates.
What is a Delaware Statutory Trust?
A Delaware Statutory Trust (DST) is a legal entity formed under Delaware law that holds title to investment real estate on behalf of fractional beneficial owners. The IRS recognized DSTs as a permissible 1031 exchange vehicle in Revenue Ruling 2004-86. A taxpayer can exchange relinquished real property for a beneficial interest in a DST without recognizing gain or loss under Section 1031, provided the trust complies with the seven prohibitions of Rev. Rul. 2004-86 (no new capital, no refinancing, no reinvestment, no material improvements, no new leases except a narrow exception, no asset disposition by investors, and no investor direction of trust cash).
Are DSTs eligible for 1031 exchange?
Yes. A beneficial interest in a properly structured DST is treated as a direct interest in real property for federal tax purposes under Rev. Rul. 2004-86, and qualifies as like-kind replacement property under Section 1031 of the Internal Revenue Code. The exchange mechanics — 45-day identification window, 180-day acquisition deadline, qualified intermediary requirement — apply identically to a DST acquisition and to a fee-simple acquisition.
What property types do DSTs typically hold?
Most current DST inventory falls into four sectors: multifamily (garden-style apartments and build-to-rent, often in Sun Belt markets), industrial (last-mile distribution, fulfillment, light manufacturing), single-tenant net-lease (drug stores, dollar stores, fast-casual restaurants, medical office under long leases), and self-storage. Specialty sectors — student housing, senior living, medical office, hospitality, data centers — appear in offerings periodically but with less consistency. The right sector for an exchange depends on existing portfolio exposure, time horizon, and the investor's view on rate sensitivity.
What's the typical hold period for a DST investment?
DST offering memoranda typically describe a target hold period of 5 to 10 years. The sponsor retains the discretion to sell the underlying property when, in its judgment, market conditions favor an exit. Actual holds vary in both directions: sponsors may exit early in unusually favorable capital-markets environments, or extend past the target when property performance has lagged the underwriting. Investors should treat the projected hold as a planning estimate, not a contractual commitment.
How illiquid is a DST interest?
DST interests are private placements with no public secondary market. The SEC's Investor Bulletin on private placements directs investors to be prepared to hold indefinitely. Secondary-market trades exist between accredited investors but typically clear at significant discounts to net asset value, sometimes 10% to 30%. The realistic exit options during a hold are: wait for the sponsor's disposition of the underlying property, sell at a discount in the secondary market, or transfer the interest through estate planning. Investors who require liquidity should not use DSTs.
What are the four standard DST exit paths?
First, sponsor-led sale of the underlying property — the sponsor sells, distributes proceeds, and dissolves the trust. Second, a fresh 1031 exchange of the DST proceeds into new replacement property (the rolling strategy). Third, a Section 721 UPREIT conversion, available in specific REIT-sponsored DSTs, that converts the DST interest into operating-partnership units on a tax-deferred basis. Fourth, extended hold beyond the target date, with eventual sale or estate transfer. The realistic exit profile is set at the offering — not negotiable mid-hold — so it should be confirmed in writing before identification.
What fees do DST investors pay?
DST fees layer in several categories: offering and organizational costs (5% to 10% of equity raised, paid at offering close), acquisition fees (1% to 3% of purchase price, paid to the sponsor), ongoing asset management fees (0.5% to 1.5% of property value annually), disposition fees (1% to 2% of sale price at exit), and in some structures a promote or carried interest above a return hurdle. A useful diligence step is to compute the total fee load as a percentage of original equity over the projected hold — for a 7- to 10-year hold, total fees commonly run 15% to 25% of original equity. The investor's effective return is the gap between property economics and that fee load.
What are the seven prohibitions of Rev. Rul. 2004-86?
The Revenue Ruling that makes DSTs eligible for 1031 treatment imposes seven restrictions on what the trust may do: (1) no additional capital contributions after the offering closes, (2) no renegotiation or refinancing of trust debt, (3) no reinvestment of sale proceeds, (4) no more than minor non-structural improvements, (5) no renegotiation of existing leases or entry into new leases (with a narrow exception), (6) no disposition of trust property by investors, and (7) no direction by investors of cash held between distributions. These constraints are why a DST qualifies as like-kind real property rather than a partnership — and why the sponsor, not the investor, controls every operating decision during the hold.
Is a 1031 DST Hub calculator's tax estimate the same as a CPA's?
No. 1031 DST Hub calculators use standard federal and state rate tables for a first-pass estimate of capital gains tax, depreciation recapture, and boot. They do not account for your specific cost-basis adjustments, installment sale elections, suspended passive losses, state-specific deductions, alternative minimum tax exposure, qualified opportunity zone investments, or other individual circumstances that a CPA would incorporate. Use the calculators to understand the order of magnitude and the structure of your tax exposure. Use a licensed tax professional to compute the actual liability before making any exchange decision.
Is 1031 DST Hub a broker-dealer?
No. 1031 DST Hub is a marketing affiliate. We do not sell securities. We do not provide investment, tax, or legal advice. Securities offerings discussed on this platform are conducted exclusively by our broker-dealer partner, who is registered with FINRA and SIPC. The calculators on this platform are educational tools and do not constitute investment advice.
How does 1031 DST Hub get paid?
We are paid a flat marketing-services fee by our broker-dealer partner. The fee is set independently of investor activity. We are not paid per investor, per dollar invested, or by any commission tied to whether or how much you invest. The fee is the same whether you qualify, invest, or do neither.
What does the suitability questionnaire ask, and why?
Five short screens covering identity, accreditation path (income test, net-worth test, professional certification, or entity status), banded financial profile (income range, net worth range, liquid assets), investment context (real estate experience, time horizon, current 1031 status), and several separately recorded consents. The questionnaire pre-qualifies leads before our broker-dealer partner reaches out, so the partner spends time only with investors who meet the SEC accreditation threshold under 17 CFR Section 230.501(a). Answering the questionnaire does not commit you to any investment.
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