Way to Exit a DST Investment: 5 Proven Strategies

A Delaware Statutory Trust (DST) lets investors participate in institutional-grade real estate while deferring capital gains taxes. However, DSTs are illiquid with limited exit flexibility. Understanding your exit options is as critical as the initial investment decision. Here are five proven strategies for exiting a DST and three leading firms that specialize in these transitions.

Understanding Your 5 Main DST Exit Strategies

The legal framework for DSTs is complex and not always designed for investor convenience. The 2022 amendments to the Delaware Statutory Trust Act narrowed investors’ default rights to access information, making it critical to understand your specific DST terms and work with a transparent partner.

You have five main pathways to exit a DST investment.

1. The “Cash Out” and Tax Realization Strategy

This is the simplest exit but often the most costly from a tax perspective.

• What it is: When the sponsor sells the property, you receive your share of the proceeds and take the money.
• How it works: You deposit the check, and your involvement with that 1031 exchange cycle ends. You pay the deferred capital gains tax from the original property sale, plus any additional gains from the DST’s appreciation.
• Best for: Investors who need liquidity, want to simplify their holdings or believe tax rates will be higher in the future.

2. The “Perpetual Deferral” Rollover Strategy

This is the most common strategy among DST investors.

• What it is: Instead of paying taxes, you immediately initiate another 1031 exchange and roll the entire proceeds into a new DST or qualifying property.
• How it works: The proceeds must be held by a Qualified Intermediary. You have 45 days to identify a new property and 180 days to close. You effectively “kick” taxes down the road again.
• Best for: Investors whose primary goal is avoiding capital gains taxes and continuing to grow wealth within real estate.

3. The Estate Planning and “Step-Up” Strategy

This is often called the “swap till you drop” strategy.

• What it is: A long-term version of the rollover strategy where you continue deferring taxes via rollovers for the rest of your life.
• How it works: Upon your death, your heirs inherit the DST investment. Under current U.S. tax law, heirs receive a “step-up in basis” to the fair market value at the time of death. This often wipes out the deferred capital gains tax liability entirely.
• Best for: High-net-worth investors focused on multi-generational wealth transfer.

4. The “Diversify and Divest” Strategy

This strategy offers flexibility for investors.

• What it is: When a large DST investment exits, you can split the proceeds. You could roll a portion into a new DST and take the rest as cash.
• How it works: For example, on a $1 million exit, you might roll $700,000 into a new DST, deferring the tax on that portion, and cash out $300,000, paying proportional tax on that part.
• Best for: Investors nearing retirement who want to gradually increase liquidity while keeping a portion of capital in a tax-deferred investment.

5. The “UPREIT / 721 Exchange” Conversion Strategy

This is a more advanced and less common strategy available only when the DST sponsor arranges it.

• What it is: Some DSTs have a provision allowing them to be acquired by a larger Real Estate Investment Trust (REIT). DST investors can then exchange their illiquid DST shares for liquid, publicly-tradable REIT shares. This is a 721 Exchange.
• How it works: It’s a tax-deferred exchange, but instead of getting cash, you get stock in a REIT.
• Best for: Investors who want to convert illiquid real estate holdings into liquid ones without triggering a tax event.

Introducing the Top Three DST Exit Advisers

The right advisory firm can help you evaluate which strategy aligns with your financial goals.

Several factors determine top firms, including deep specialization in 1031/DST/721 strategies, years of experience, client-centric approach and fee transparency.

Sera Capital

Sera Capital stands out as a top choice for investors needing advice on the best way to exit a DST investment. DSTs and 721 UPREIT exchanges represent over 90% of its business, giving it unmatched depth in this area. As an independent, fee-only fiduciary, Sera Capital has a consultative approach, providing unbiased advice without conflicts of interest.

• Deep expertise in DSTs, 721 UPREITs, and Qualified Opportunity Zones
• Independent fiduciary model with complete fee transparency
• National reach serving investors, families, and professional advisors

Kay Properties and Investments

Kay Properties and Investments has operated as a 1031 exchange advisory since 2010. With over 12,000 transactions and $50 billion in total offerings, the firm offers access to a broad marketplace of DSTs from more than 25 sponsor companies.

• Broad experience and custom DSTs
• Access to sponsor companies through a single platform
• Licensed in all 50 states

Winthco Wealth Management

Winthco Wealth Management integrates DST advisory into a broader wealth management framework. The firm’s team includes both licensed financial advisors and CPAs, providing tax-efficient planning alongside investment guidance.

• Full-service wealth management with DST specialization
• Team combines financial advisors and CPAs for tax-efficient strategies
• Personalized guidance aligned with clients’ broader financial goals

Comparing Your Top DST Exit Provider Options

Choosing the Right Exit Path for Your Financial Goals

The best way to exit a DST investment depends on your financial situation, risk tolerance and goals. Whether you need immediate liquidity, want to continue deferring taxes, plan for wealth transfer or seek to convert illiquid holdings, the right path requires careful analysis. Always consult with a qualified advisor or specialized firm to determine your optimal path.