A triple-net (NNN) property is real estate you own directly, usually leased to one tenant who pays taxes, insurance and maintenance; you keep control and can refinance or sell when you choose. A Delaware Statutory Trust (DST) lets you buy a fractional beneficial interest in a sponsor-managed property that the IRS treats as real property for 1031 purposes under Revenue Ruling 2004-86 — fully passive, but you give up control and liquidity. Both can qualify as like-kind replacement property for an LA apartment sale.
Side-by-side
| NNN (direct ownership) | DST (fractional beneficial interest) | |
|---|---|---|
| Ownership | You hold title (or your entity does) | Beneficial interest in a trust that holds title |
| Control | Full: leasing, refinancing, sale timing | None: trustee/sponsor decides; investors can't vote on operations |
| Management | Low, but you handle the tenant relationship and lease renewals | Fully passive |
| Debt | You arrange your own loan | Sponsor's loan is in place at purchase; the trustee can't renegotiate it |
| Minimum size | The whole property price | Fractional; minimums set by sponsor |
| Liquidity | Sell whenever the market allows | Generally illiquid until the sponsor sells, often years later |
| Investor eligibility | Anyone | Set by each offering; review the sponsor's offering documents |
| Identification | Counts as one property | Each DST counts as one property; useful for filling the remaining exchange value |
| Next exchange | Can 1031 again | Can 1031 again when the DST sells |
Why DSTs qualify: Revenue Ruling 2004-86
The IRS ruled that an interest in a properly structured DST is treated as a direct interest in real property, not a partnership interest, so it can be exchange replacement property. In the trust the IRS approved, the trust agreement limited the trustee's activities to collecting and distributing income. The trustee could not: 1. exchange the property for other property, or buy assets other than permitted short-term investments; 2. accept additional contributions of assets (including money); 3. renegotiate the terms of the acquisition debt; 4. renegotiate the lease or sign leases with new tenants, except in the tenant's bankruptcy or insolvency; 5. make more than minor non-structural modifications, unless required by law. The trustee also had to invest cash between distributions only in short-term government obligations or bank CDs maturing before the next distribution, and distribute all available cash, less reserves, quarterly. Industry often calls these limits the DST "seven deadly sins." They are why DSTs are so passive.
The 1031 rules that apply either way
- 45 days to identify replacement property in writing, and 180 days (or your return due date, if earlier) to close.
- Identify up to three properties, or more under the 200% or 95% rules.
- Use a qualified intermediary; don't touch the proceeds.
- To fully defer, buy equal or greater value and replace the debt (or add cash). Leftover cash or debt relief is taxable "boot."
- California requires FTB Form 3840 when you exchange California property into out-of-state replacement property.
How LA apartment sellers usually decide
- Tired of tenants but want control? NNN — single-tenant retail or industrial with a long lease.
- Want fully passive income and can accept illiquidity? DST.
- Running out of time in the 45-day window? DSTs are often used as a backup identification because they can close quickly.
- Want to keep growing? Another apartment building can still be the best answer. We compare all three on cash flow after debt and capital needs.
Risks to weigh
NNN: single-tenant credit risk, re-leasing costs and lease rollover. DST: sponsor quality, fees and load, lender terms you can't change, and no control over when it sells. Have your CPA and attorney review any offering memorandum.
Frequently asked questions
What is the difference between a DST and an NNN property?
With an NNN property you own the real estate directly and control it; the tenant pays most expenses. With a DST you own a fractional beneficial interest in a sponsor-run property and have no control, but no management duties.
Does a DST qualify for a 1031 exchange?
Yes, if structured under IRS Revenue Ruling 2004-86, which treats a DST interest as a direct interest in real property for like-kind exchange purposes.
What are the "seven deadly sins" of a DST?
It's an industry nickname for the trustee limits described in Rev. Rul. 2004-86: no new contributions, no renegotiating the debt or the lease (except in tenant bankruptcy), no exchanging or buying other property, only minor non-structural modifications, cash held only in short-term obligations, and regular distribution of available cash.
Can I sell my DST interest whenever I want?
Generally no. DST interests are typically illiquid until the sponsor sells the property, which may be years later.
Can I combine a DST and an NNN property in one exchange?
Yes. Many sellers buy an NNN property and use a DST to absorb the remaining exchange value or debt replacement, as long as it's identified within 45 days.
Do I need to be an accredited investor to buy a DST?
Eligibility is set by each offering, and many DST offerings are sold only to accredited investors. Check the offering documents and ask your advisor. NNN properties have no such requirement.
How long do I have to complete a 1031 exchange?
45 days to identify replacement property and 180 days (or your tax return due date, if earlier) to close, under IRC Section 1031 and Treasury Regulation 1.1031(k)-1.
Should I just buy another apartment building instead?
Sometimes. It keeps you in an asset class you know and may offer more upside. We compare apartments, NNN and DST options on cash flow after debt and capital needs.
Talk it through with David
If you own an apartment building in Los Angeles and want to know how this affects your sale price, net proceeds or timing, call David Saghian at (310) 401-1559 or request a free property valuation. The Saghian Group at Lyon Stahl has closed $425M+ in team sales ($325M+ personally) — here is how we count.
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This guide is general information, not legal, tax or investment advice. Rules change; confirm your situation with a California real estate attorney, CPA or qualified intermediary before acting. Last reviewed November 3, 2026.