REITs, DSTs, and UPREITs: What’s the Difference?
Four terms, one confused investor. Here’s how a 1031 exchange, a DST, an UPREIT, and a REIT actually fit together, and where each one takes you.
Ask five people to define a DST, a REIT, and an UPREIT, and you’ll likely get five different, half-right answers. That’s not surprising. These structures are related, they’re often used together, and financial media tends to treat them as interchangeable shorthand for “real estate investing.” They’re not interchangeable. Each plays a distinct role in an investor’s timeline, and understanding the difference matters before any capital moves.
Here’s what separates each one, and how they connect.
The 1031 Exchange: A Tax Strategy, Not a Product
A 1031 exchange isn’t something an investor buys. It’s a provision in the tax code that allows an investor to sell an investment property and reinvest the proceeds into “like-kind” replacement property while deferring capital gains taxes. It comes with two hard deadlines: 45 days to identify replacement property, and 180 days to close. The exchange itself doesn’t tell an investor what to buy. It just creates the tax-deferred runway to get there.
The DST: The Passive Replacement Property
A Delaware Statutory Trust lets multiple investors each hold a fractional, undivided interest in institutional-quality real estate, without becoming a landlord. Because the IRS treats DST interests as valid like-kind property, they’re one of the most common ways investors satisfy a 1031 exchange once they’re ready to step back from active property management. A sponsor handles acquisition, financing, and operations; investors receive their share of income and appreciation.
The UPREIT and the 721 Exchange: The Bridge to Liquidity
An UPREIT (an Umbrella Partnership Real Estate Investment Trust) allows a property owner or DST investor to contribute their real estate interest into a REIT’s operating partnership in exchange for OP units. This move, known as a 721 exchange, is also tax-deferred and is typically the next step after a DST: sell property, 1031 into a DST, then later convert that DST interest into OP units. OP units can generally convert into REIT shares over time, which is where real estate ownership starts to resemble a liquid investment portfolio.
The REIT: The Operating Company
A Real Estate Investment Trust is a company that owns and manages a portfolio of income-producing properties and is required to distribute at least 90% of its taxable income to shareholders. Unlike a DST, a REIT isn’t a direct 1031 replacement option on its own: investors can’t exchange straight into REIT shares. The DST-to-UPREIT path above is the typical route to REIT ownership, which brings dividend income, diversification across many properties, and, for publicly traded REITs, day-to-day liquidity that direct property and DST interests don’t offer.
The Bigger Picture
These four pieces aren’t competing options so much as stages in a progression. An investor sells a property and uses a 1031 exchange to defer taxes, reinvests into a DST for passive ownership, and may eventually use a 721 exchange to move into a REIT’s operating partnership for greater liquidity and diversification. Not every investor moves through all four stages; where someone lands depends on how much control, involvement, and liquidity they want at that point in their life.
For advisors and investors alike, knowing which stage matches a client’s goals (tax deferral, passive income, eventual liquidity, or estate simplicity) is the first step in building the right long-term real estate strategy.
Medalist Diversified, Inc. is a publicly traded DST sponsor offering institutional-quality real estate investments to accredited investors and their advisors. To learn more about our current offerings, contact our team.
