DSTs vs REITs: What Are the Differences for Landowners?

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 in taxes, income, and control, that can make a big impact on your wealth.

What is a REIT?

A Real Estate Investment Trust 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, apartments, offices, shopping centers, hotels.

Investors buy shares of a REIT (many are publicly traded), and in return receive dividends. By law, REITs must pay out at least 90% of their taxable income to shareholders.

REITs offer instant diversification (one investment, slice of many properties), liquidity (sell on the market any day), and professional management. The trade-offs come in taxes and control.

What is a DST?

A Delaware Statutory Trust 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.

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.

Key differences

1031 exchange eligibility

The biggest difference. DSTs are 1031 exchange-friendly. Sell your land, reinvest into a DST, defer the tax. When the DST property sells, you can roll again into another 1031.

REITs are not 1031-eligible. Buying REIT shares is treated like buying any other stock, not like-kind real estate. Going land → REIT means writing the IRS a tax check first.

What about 721 UPREITs?

A 721 UPREIT is a structure that allows you to contribute property (or DST interests) into an operating partnership in exchange for “operating partnership units.” Over time, those units can convert into REIT shares.

Think of a 721 as a bridge between a DST and a REIT. You might 1031 into a DST, then later that DST merges into an UPREIT. The benefit is initial tax deferral via the 1031. The downside: once you’re in the REIT via 721, you can’t 1031 again, your tax-deferral path ends there.

People use 721 UPREITs for liquidity and diversification, eventually convert real estate holdings into liquid REIT shares. But you give up the ability to keep exchanging forward and stacking depreciation, which is why many landowners stick with DSTs unless they truly want the “final stop” of liquidity.

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 eliminating 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.

Ownership and control

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.

Diversification

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.

Liquidity and time horizon

REITs are liquid, sell any day the market is open. DSTs are illiquid, typically 5 to 10 year holds. For landowners who’ve held property for decades, this longer time horizon often feels natural.

Minimum investment

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

Why 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, give you depreciation benefits, or offer you any 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.

Bottom line

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.