DST vs. NNN: Which Replacement Property Is Right for You?

Delaware Statutory Trusts and triple-net leases are two of the most popular replacement property structures — but they serve very different investor profiles.

When you're in the middle of a 1031 exchange with 45 days ticking away, two replacement property structures come up constantly: Delaware Statutory Trusts (DSTs) and triple-net (NNN) leases. Both are popular. Both are IRS-approved for 1031 purposes. And both are wildly different in terms of what you're actually buying and what life looks like after the exchange closes.

Here's what you need to know about each, and which fits which investor profile.

Delaware Statutory Trusts (DSTs)

A DST is a legal entity that holds real property. When you invest in a DST as part of a 1031 exchange, you're purchasing a fractional beneficial interest in that trust — which the IRS confirmed qualifies as like-kind real property for 1031 purposes in Revenue Ruling 2004-86.

In practice, DSTs typically hold institutional-grade properties: Class A apartment communities, industrial distribution centers, medical office buildings, and retail centers anchored by national tenants. The properties are professionally managed by the DST sponsor.

What you're actually buying

A passive, fractional ownership stake in a large commercial property. You receive your proportional share of rental income and eventually participate in the proceeds when the DST sells the property — typically on a 5–10 year hold period set by the sponsor.

Minimum investment

Most DSTs have minimums of $50,000–$100,000 per investor. This means a seller with $1M in exchange proceeds can split across four or five DSTs, achieving instant geographic and asset-class diversification.

What you give up

Control. DST investors cannot direct the management of the property, make capital improvement decisions, force a sale, or negotiate tenant leases. You are entirely passive. The "seven deadly sins" of DST regulations prohibit investors from contributing additional capital, renegotiating leases, or acquiring new properties within the trust.

Best for

• Investors who want to exit active management entirely ("mailbox money")
• Sellers with large equity who need to identify quickly across multiple assets
• Those consolidating many properties into a clean diversified position
• Older investors in estate-planning mode (DST interests receive a stepped-up cost basis at death)

Triple-Net (NNN) Leases

A triple-net lease is a lease structure in which the tenant pays property taxes, insurance, and maintenance costs in addition to base rent. You own the property outright in fee simple — not fractionally — and lease it to a single commercial tenant.

NNN properties are commonly occupied by credit tenants: Walgreens, Dollar General, Starbucks, McDonald's, 7-Eleven, and other national brands that sign long-term leases (10–20 years) with annual rent escalations.

What you're actually buying

Direct fee-simple ownership of a commercial property with a long-term, mostly hands-off lease. You receive monthly rent. You own the land and building. You control your exit — you can sell, exchange again, or hold indefinitely.

Management burden

Very low during the lease term — especially with an investment-grade tenant who handles taxes, insurance, and maintenance themselves. However, you are still the owner. When the lease expires, you deal with the tenant's renewal decision, re-leasing risk, and potential capital improvements to attract a new tenant.

Best for

• Investors who prefer direct ownership and control over their exit timing
• Those seeking predictable, long-term cash flow without day-to-day management
• Sellers with exchange equity in the $500K–$3M range where DST diversification math works less cleanly
• Investors who plan to do another 1031 exchange down the road and want full control of timing

Side-by-Side Comparison

The Hybrid Approach

Many experienced exchangors don't choose one or the other — they do both. A NNN property absorbs the bulk of the exchange proceeds (preserving full control and direct ownership), while one or two DST positions absorb the remaining proceeds to satisfy the equal-or-greater replacement value requirement and eliminate any boot exposure.

This hybrid approach is particularly powerful for sellers who have a primary replacement property already identified but need to place additional proceeds by day 45.

Ready to start your 1031 exchange?

AI-powered compliance, automated deadline alerts, and a licensed QI expert — starting at $1,495 flat. No hidden fees.

More from the blog