1031 Exchange vs. DST: Which Is Right for You?

If you’re a Los Angeles real estate investor, the choice between a traditional 1031 exchange and a Delaware Statutory Trust (DST) depends on whether you want hands-on control or fully passive income. A standard 1031 lets you swap one investment property for another and manage it yourself, while a DST allows you to own fractional shares in professionally managed properties—perfect for investors ready to step back from active landlord duties. Both strategies defer capital gains taxes, but DSTs are ideal for retirees or anyone seeking diversification without day-to-day management.

What’s the Difference Between a 1031 Exchange and a DST?

• 1031 Exchange: The tax-deferral framework. You sell one investment property and buy another of equal or greater value, managing it directly.

• DST: A passive investment option within a 1031 exchange. You purchase a fractional interest in a trust-owned property managed by a sponsor.

When to Choose a Traditional 1031

Go traditional if you:

• Want direct control over property management and tenants.

• Aim for potentially higher returns through hands-on decisions.

• Are actively growing your real estate portfolio.

Drawbacks: Requires active management, handling financing, and possible tenant challenges.

When a DST Makes More Sense

Go with a DST if you:

• Want passive income without landlord responsibilities.

• Prefer diversification across multiple property types or locations.

• Value lower liability and no decision-making stress.

Drawbacks: Less control over sales or operations, fixed holding periods (usually 5–10 years).

Los Angeles Example

An LA heir inherited a multifamily building. Instead of managing it, they used a DST in a 1031 exchange, deferring taxes and earning steady monthly income—without ever taking a tenant call.

How to Decide

• For active growth & control: Stick with a traditional 1031.

• For retirement, lifestyle freedom, & diversification: A DST might be your best option.

Already own property in Los Angeles? Find out what it’s worth before planning your tax-deferral strategy: Click here for your free home value estimate.

Have questions about 1031 exchanges or DST investments in Los Angeles? The Borges Real Estate Team has helped investors successfully defer taxes and grow their portfolios. Let’s talk.