Advisor's Guide: Positioning DSTs in a 1031 Exchange
For financial advisors working with real estate investors, the 1031 exchange window is one of the highest-stakes moments in a client relationship. Timelines are tight, emotions run high, and the pressure to identify replacement property fast can lead clients into deals that don't serve their long-term goals.
Delaware Statutory Trusts (DSTs) belong in that conversation — but how you introduce them matters enormously. Get the timing and framing right, and DSTs become a natural fit. Introduce them too late or too clinically, and they feel like a fallback.
Here is a practical guide for advisors who want to position DSTs with confidence.
Understand What Your Client Is Actually Trying to Escape
Most 1031 exchange clients aren't just trying to defer taxes — they're trying to escape something. It might be the 3 a.m. call about a broken HVAC unit. A difficult tenant. The burden of active property management after a health event. A partnership that has run its course.
Before you discuss DSTs, do the work to understand what your client wants less of. The most effective DST conversations start not with structure, but with relief.
Advisor Prompt: Ask your client: 'Beyond the tax deferral, what would your ideal real estate life look like five years from now?' Their answer will tell you whether a DST is the right vehicle.
Common profiles that are strong DST candidates include:
• Retirees or pre-retirees looking to simplify their portfolio while preserving income
• Active property owners who are experiencing landlord fatigue
• Investors liquidating appreciated property after a major life event (divorce, estate, partnership dissolution)
• Clients who want continued real estate exposure without geographic concentration
Introduce DSTs Early — Before the Clock Starts
One of the most common mistakes advisors make is introducing DSTs only after a property is already sold. At that point, your client has 45 days to identify replacement property and 180 days to close. You're working against the clock.
The better approach is to plant the seed well before the transaction closes. If a client is considering a sale, that's the moment to open a conversation about what their options look like on the other side — including DSTs as a potential replacement property solution.
Early introduction gives you three advantages:
• Your client has time to review offering materials without feeling rushed
• They can consult their CPA or tax counsel without it affecting the timeline
• You position yourself as a proactive advisor, not a reactive one
Key Point: DSTs are replacement property under IRC Section 1031. They are not an alternative to a 1031 exchange — they are a vehicle within one. Frame them that way.
The Three Conversations That Build DST Confidence
Advisors who position DSTs well tend to organize their client conversations around three distinct topics:
1. The Structure Conversation
Explain how a DST works in plain language. A DST allows multiple investors to hold fractional beneficial interests in institutional-grade real estate — commercial properties, net lease assets, industrial facilities — through a trust structure that the IRS recognizes as valid replacement property in a 1031 exchange. The investor receives their proportional share of rental income and, upon disposition, their share of sale proceeds.
No active management. No title in their name. No landlord responsibilities.
2. The Sponsor Conversation
Not all DST sponsors are created equal. Help your client understand that the quality, experience, and investment discipline of the sponsor matters as much as the property itself. Encourage them to ask: How does this sponsor select properties? What is their track record? Are they transparent about how they structure deals?
At Medalist Diversified, our investment framework runs every potential acquisition through three gates before it reaches investors: Gate I evaluates tenant credit quality, Gate II evaluates metro market discipline, and Gate III assesses structural simplicity. That discipline protects investors from offerings that are priced to sell rather than structured to perform.
3. The Risk Conversation
DSTs are illiquid, non-traded investments. Investors must meet accredited investor standards. There is no guarantee of income, and distributions can vary. Exit timing is determined by the sponsor, not the investor. These are real constraints that belong in the conversation — not buried in a disclosure.
Advisors who lead with transparency on risk tend to encounter less objection downstream. Clients who feel informed, not sold, become long-term advocates.
Handling the Most Common Objections
"I don't want to give up control."
Acknowledge it directly. DSTs are, by definition, passive. The tradeoff is that your client exchanges operational control for professional management, institutional-quality assets, and freedom from landlord obligations. For many investors, that is not a sacrifice — it is the entire point.
"What if I need the money?"
Be honest that DSTs are illiquid. The typical hold period is five to ten years, and early exit options are extremely limited. If liquidity is a near-term concern, a DST may not be the right fit — or may only be appropriate for a portion of the exchange proceeds.
"I've never heard of this sponsor."
Point your client to the due diligence ecosystem: third-party firms like FactRight conduct independent reviews of DST sponsors and offerings. Reputable sponsors welcome scrutiny. Medalist Diversified, Inc. (NASDAQ: MDRR) is the only publicly traded DST sponsor platform in the United States — our structure creates a level of transparency and accountability that most private sponsors cannot offer.
How to Match the Investor to the Offering
Not every DST offering suits every client. Before recommending a specific offering, evaluate alignment across four dimensions:
• Income need: Does the projected distribution rate match what the client needs from this investment?
• Hold tolerance: Can the client realistically remain invested through the expected hold period?
• Concentration: Does this offering add geographic or sector diversification to their broader portfolio, or does it compound existing exposure?
• Tax basis: What is the client's adjusted basis in the relinquished property, and how does it affect equity reinvestment requirements under the exchange rules?
A DST should never be positioned as a generic solution. It should be positioned as the right solution for this client, at this moment, given what they are trying to accomplish.
The Bottom Line for Advisors
The 1031 exchange window is a moment of genuine vulnerability for your client. They have already sold. The clock is running. And they are counting on you to help them land in the right place.
DSTs, when positioned correctly, solve real problems: they preserve tax deferral, eliminate active management obligations, provide access to institutional-quality assets, and deliver passive income. But the positioning has to come from a place of genuine fit — not product availability.
The advisors who do this well ask more questions than they answer in that first conversation. They introduce DSTs early, they explain the structure clearly, and they let the right offering speak for itself.
Medalist Diversified supports broker-dealers and advisors with a full suite of due diligence materials, offering documents, and investor education resources for our active DST programs. To learn more or request materials, visit medalistdst.com or contact our advisor relations team directly.
