DST vs. TIC: Why More Investors Choose DSTs

If you’re a real estate investor planning a 1031 exchange, you’ve likely encountered the terms Delaware Statutory Trust (DST) and Tenants-in-Common (TIC). At first glance, these ownership structures may seem similar. Both allow multiple investors to hold fractional interests in large, income-generating commercial properties while qualifying for 1031 exchanges.

However, the details reveal significant differences that can affect your investment experience, decision-making flexibility, and overall returns. Understanding these distinctions is essential in choosing the right structure for your financial goals. Spoiler alert DSTs often emerge as the clear winner for most 1031 investors.

By the end of this guide, you will have a clear understanding of DSTs and TICs, their features, and why DSTs are frequently the preferred solution in today’s real estate investment landscape.

Quick Definitions DST vs TIC

Before we analyze the differences, let's start with clear definitions.

What is a DST?

A Delaware Statutory Trust (DST) is a legal trust structure recognized by the IRS under Revenue Ruling 2004-86. Investors purchase fractional beneficial interests in the trust, which owns and operates income-producing real estate. DSTs qualify as like-kind property for 1031 exchanges. These are fully passive investments managed entirely by a professional sponsor.

What is a TIC?

A Tenants-in-Common (TIC) structure allows up to 35 individual investors to jointly own fractional interests in a property, with each holding a direct deeded title. Unlike DSTs, TIC investors share ownership and decision-making responsibilities for the property. While they also qualify for 1031 exchanges, they come with greater complexity and active involvement requirements.

Why DSTs Are Often the Better Choice

While both DSTs and TICs provide pathways for co-ownership of institutional-grade real estate, the structural benefits of DSTs make them far more practical and advantageous for most investors.

1. Truly Passive Ownership

One of the most significant advantages of DSTs is their fully passive nature. When you invest in a DST, the professional sponsor (manager) handles all aspects of property management from leases and tenant relations to repairs and any decisions regarding sale or refinancing.

On the other hand, TIC investments require active participation from all owners. Major property decisions mandate unanimous investor approval, which can lead to delays or conflicts, especially during times of crisis.

With DSTs, you enjoy peace of mind and the ability to focus on other priorities while still benefiting from income and potential appreciation.

2. Larger Institutional Properties

DSTs have the capacity to attract hundreds of investors, allowing them to purchase high-value properties that would typically be inaccessible for TIC investors. Examples of these include

• Amazon-leased distribution centers

• Tesla service centers

• Medical offices with long-term leases

TICs, restricted to a maximum of 35 investors, are better suited for smaller-scale properties, limiting diversification potential.

3. Simplified Financing

Lender requirements are significantly simpler for DSTs than for TICs. With a DST, the trust (not individual investors) signs the loan. This straightforward approach reassures lenders by reducing complexity and mitigating underwriting delays.

TICs, however, require each investor to undergo individual underwriting for loans which can lead to logistical bottlenecks or, in some cases, jeopardize the entire deal.

4. Easier Estate Planning

For investors thinking about wealth transfer and legacy, DSTs offer significant estate planning advantages. Your fractional share in the trust can easily be divided among heirs and beneficiaries without complex legal restructuring.

Additionally, certain DSTs allow for conversion into Operating Partnership (OP) units in a Real Estate Investment Trust (REIT) through a 721 exchange. This not only provides liquidity but also enables the step-up in cost basis for heirs a vital tool for tax efficiency.

5. Resilience During Downturns

TIC structures can become especially challenging during economic downturns or property crises. Any decision to sell, refinance, or restructure debt requires unanimous approval from all investors. This process can become paralyzed as differing opinions arise among co-owners.

DSTs avoid this issue entirely, as the sponsor handles such decisions independently. This centralized approach ensures swift action, protecting the investment and mitigating potential losses.

6. More Scalable Investment Opportunities

The scalability of DSTs is another game-changer. With lower minimum investment requirements, they enable individuals to diversify, spreading their investment across multiple DSTs and properties. TICs, with their limited investor pool, often lack this scalability.

Why TICs Still Have a Purpose

While DSTs dominate modern 1031 exchanges, TICs remain relevant in niche scenarios. Some investors prefer TICs for legal or estate-driven purposes, such as those who want direct deeded ownership or specific property veto rights. But in general, for investors seeking tax deferral, passive income, and a simple way to hold real estate, DSTs are the superior choice.

Make the Right Choice for Your 1031 Exchange

Both DSTs and TICs qualify for 1031 exchanges and offer unique benefits. However, for those looking for tax efficiency, peace of mind, and scalable, passive investments, Delaware Statutory Trusts stand out for their simplicity, resilience, and flexibility.

If you’re considering a 1031 exchange and want help evaluating your options, our team at Medalist REIT is here for you. We specialize in connecting investors with DST opportunities that match their goals and offer tools for straightforward estate planning and liquidity.

Contact us today at solution@medalistreit.com to schedule a free strategy call and explore how DSTs can transform your portfolio.