If you’re a farmer, rancher, or rural landowner looking to reinvest the proceeds from selling property, you may be weighing the options between Delaware Statutory Trusts (DSTs) and Real Estate Investment Trusts (REITs). Both are ways to invest in real estate without the day-to-day hassles of being a landlord. But there are key differences – especially when it comes to taxes, income, and control – that can make a big impact on your wealth. In this deep dive, we’ll explain what DSTs and REITs are, how they differ, and why DSTs can often be the better solution for those planning to enjoy many more years of retirement (in other words, if you’re not on your deathbed just yet).

What is a REIT?

A Real Estate Investment Trust (REIT) is essentially a company that owns or finances income-producing real estate. Think of a REIT like a stock-backed co-op, but instead of grain or cattle, the company’s business is owning properties like apartments, offices, shopping centers, or hotels.

Investors can buy shares of a REIT (many are publicly traded on stock exchanges), and in return they receive a portion of the income the properties generate in the form of dividends. By law, REITs must pay out at least 90% of their taxable income to shareholders as dividends, which often makes them reliable income generators for investors.

REITs offer instant diversification – your one investment gives you a slice of a whole portfolio of properties in different locations and sectors. They are also liquid (easy to buy and sell quickly on the market) and managed by professional teams, meaning you don’t have to worry about handling tenants or repairs.

In short, a REIT is a hands-off, stock-like way to invest in real estate. However, as we’ll see, this convenience comes with some trade-offs in taxes and control.

What is a DST?

A Delaware Statutory Trust (DST) is a legal trust structure that allows multiple investors to pool their money to purchase a specific piece (or pieces) of real estate. Unlike a REIT, when you invest in a DST you aren’t buying shares of a company – you’re buying a fractional ownership of actual property held by the trust.

DST investments are typically passive: a professional sponsor manages the property (handling tenants, maintenance, etc.), and you simply collect your share of the rental income without any landlord headaches.

Importantly, a DST qualifies as direct real estate ownership in the eyes of the IRS. That means if you sell your farm or ranch, you can reinvest the proceeds into a DST as a “like-kind” property via a 1031 exchange and defer capital gains taxes.

In essence, a DST gives you the benefits of owning investment property – income, tax breaks, and a tangible asset – without having to run it yourself.

Key Differences:

Which has 1031 Exchange Eligibility?

The biggest difference is the ability to use a 1031 exchange. DSTs are 1031 exchange-friendly because you’re considered to own real property. You can sell your land, reinvest into a DST, and defer paying capital gains taxes. When the DST’s property sells, you can roll again into another 1031.

REITs, on the other hand, are not eligible for 1031 exchanges. If you sell your land and buy a REIT, you’ll have to pay the capital gains taxes first because buying REIT stock is treated like buying any other stock, not like-kind real estate.

That means choosing a REIT often results in a large upfront tax bill, while a DST lets you keep nearly all your money working for you.

What about 721 UPREITs?
This is where things get a little more advanced. A 721 UPREIT (Umbrella Partnership Real Estate Investment Trust) is a structure that allows you to contribute property (or sometimes DST interests) into an operating partnership in exchange for “operating partnership units.” Over time, those units can be converted into REIT shares.

Think of a 721 as a “bridge” between a DST and a REIT. For example, you might do a 1031 exchange into a DST, then later that DST merges into an UPREIT. At that point, you trade your DST interest for REIT shares. The benefit is that you were able to defer your taxes initially through the 1031 into the DST. The downside is that once you’re in the REIT via a 721, you can’t 1031 exchange again — your tax deferral path ends there.

Why do people use 721 UPREITs? Usually for liquidity and diversification. They want the ability to eventually turn their real estate holding into REIT shares, which can later be sold on the market for cash. But you give up the ability to keep exchanging forward and stacking depreciation benefits, which is why many landowners prefer to stick with DSTs unless they truly want the “final stop” of liquidity in a REIT.

In short, a 721 UPREIT can be a useful tool, but it’s not a replacement for the ongoing tax advantages of DSTs. For farmers and ranchers looking to maximize deferral and income for the long haul, DSTs typically remain the better fit.

Which Has Tax Benefits and Depreciation?

When you own property directly (or through a DST), you get depreciation deductions that offset rental income. With a DST, you receive your share of these write-offs, often lowering or even eliminating the taxes on the income you receive.

REIT investors don’t get that benefit. The REIT company takes depreciation itself, but when it pays you dividends, those are typically taxed as ordinary income – often at a much higher rate.

DSTs also allow you to continue deferring capital gains through 1031 exchanges until you pass away, at which point your heirs may receive a step-up in basis, wiping out the deferred taxes. That advantage doesn’t exist with REITs.

Whats the Ownership and Control Stucture?

DSTs give you a direct stake in a specific property. You know exactly what you’re invested in, and you can choose properties that fit your preferences – farmland, apartments, self-storage, etc.

REITs give you virtually no control. You’re investing in a company that decides what to buy and sell, and the portfolio may shift in ways you wouldn’t choose.

Which are more Diversified?

REITs naturally provide broad diversification. DSTs tend to be concentrated in one or a handful of properties. However, many investors achieve diversification by spreading their money across multiple DSTs in different sectors and regions.

Whats The Liquidity and Time Horizon of Each?

REITs are liquid – you can sell them any day the market is open. DSTs are illiquid – typically you’re in for 5 to 10 years. For landowners who’ve held property for decades, this longer time horizon often feels natural.

Whats Minimum Investment?

REITs can be bought with just a few hundred dollars. DSTs usually require at least $100,000 and are limited to accredited investors. For land sellers, though, this higher bar often isn’t an issue since you’re already working with larger sums.

Why Do DSTs Often Come Out Ahead For Landowners?

If you’re not planning to simply hold property until death, DSTs often provide a far better solution than REITs. You can defer taxes, shelter income with depreciation, and keep your nest egg intact and working for you.

REITs are fine for small, liquid, stock-like investments, but they don’t help if you’re sitting on a large capital gain from selling your farm or ranch. They can’t defer your taxes, they can’t give you depreciation benefits, and they offer no say in what you own.

For someone with years ahead to enjoy retirement, DSTs offer a compelling bridge from active landownership to passive investment income – letting you keep more of what’s yours and still collect steady checks.

Conclusion

Both DSTs and REITs have their place, but for rural landowners, DSTs align far better with the goals of tax deferral, income, and legacy planning. Unless you’re at the end of the road and simply planning to pass land straight to heirs, a DST is likely the smarter, more tax-efficient path.