DST
vs
TIC
A DST (Delaware Statutory Trust) and a TIC (Tenants-in-Common) are both fractional ownership structures that qualify for 1031 exchanges, but a DST is fully passive with a single trust decision-maker while a TIC requires unanimous co-owner consent for major decisions.
TL;DR
Choose a DST for passive 1031 replacement with no operational role. Choose a TIC when you want a small-group co-ownership with meaningful decision rights and are willing to manage partner dynamics.
What is DST?
A Delaware Statutory Trust (DST) is a Delaware-law trust that holds real estate and sells fractional beneficial interests to investors. Under IRS Rev. Rul. 2004-86, DST interests qualify as like-kind property. The DST trustee — typically a sponsor-affiliated entity — controls all operational and disposition decisions. Investors are fully passive.
What is TIC?
A Tenants-in-Common (TIC) structure is a form of direct fractional real property ownership. Each owner holds an undivided percentage interest in the entire property and has voting rights on major decisions. TIC owners can sell, finance, or 1031-exchange their share independently, but major operational and disposition decisions typically require unanimous consent.
Side by side
DST vs TIC — the differences.
| Dimension | DST | TIC |
|---|---|---|
| Legal structure | Delaware statutory trust; investors hold beneficial interests | Direct real-property co-ownership; each owner holds an undivided % |
| 1031 eligibility | Yes (Rev. Rul. 2004-86) | Yes (direct real-property) |
| Investor role | Fully passive — no operational or disposition rights | Active — voting rights on major decisions |
| Decision-making | Sponsor/trustee controls everything | Typically requires unanimous or supermajority consent |
| Number of investors | Up to 499 (IRS guidance) | Historically capped informally at 35 for practical reasons |
| Minimum investment | Usually $50K–$100K per offering | Varies by deal; often $500K+ in institutional TICs |
| Typical hold period | 5–10 years (sponsor-controlled) | Investor-controlled — no fixed term |
| Financing | Pre-arranged at the DST level; non-recourse to investors | Joint financing or individual share financing possible |
| Liquidity | Essentially zero until sponsor exits | Sell your share independently if a buyer is found |
| Fee load | 10–17% typical all-in (sponsor + broker-dealer) | Lower structural fees; individual diligence costs |
| Best for | Passive 1031 replacements, backup identification, small-equity diversification | Small-group partnerships with aligned long-term intent |
When to use DST
- You want truly passive ownership with no operational responsibility
- You need a 1031 backup identification in case a primary deal falls out on day 43
- Your exchange proceeds are too small to buy institutional property directly
- You are moving out of active ownership into retirement-stage passive income
- You want diversification across multiple sponsors and markets with one exchange
When to use TIC
- You want meaningful decision rights and can handle co-owner dynamics
- You're partnering with 2–4 known co-owners you trust operationally
- You want lower structural fees and are willing to coordinate diligence
- You're unwinding a partnership via drop-and-swap into fractional ownership
- The property is large enough that individual ownership isn't feasible
Verdict
For the vast majority of 1031 buyers, DSTs are the default passive replacement and a TIC is a niche structure for small-group co-ownership of a specific property. DSTs win on operational simplicity and access; TICs win on control and lower recurring fees.
Frequently asked questions
Is a DST or TIC better for a 1031 exchange?
Both are like-kind property for 1031 purposes. A DST is better for passive, low-friction replacement; a TIC is better when you want active decision rights.
Can I convert a DST to a TIC?
No. DST interests are beneficial interests in a trust, not direct real property. Some DST sponsors offer a 721 UPREIT exit that converts DST interests into REIT operating-partnership units, but that is different from converting to a TIC.
What happens to my DST interest at sponsor exit?
When the sponsor sells the property, investors receive pro-rata net proceeds. Options: take cash (taxable), 1031 into another DST or direct property, or (with some sponsors) 721-exchange into REIT OP units.
How many TIC co-owners can there be?
There is no statutory limit, but practical TIC structures are typically 2–35 co-owners. The IRS's 2002 Rev. Proc. 2002-22 outlines safe-harbor conditions for TIC treatment, historically interpreted to support up to 35 co-owners.