DST vs. TIC: Comparing Co-Ownership Structures for 1031 Investors

When real estate investors complete a 1031 exchange and want to move into passive ownership, two structures dominate the conversation: Delaware Statutory Trusts (DSTs) and Tenant-in-Common (TIC) arrangements. Both allow fractional ownership of institutional-grade property and both qualify as “like-kind” replacement property under Section 1031. But the similarities largely end there. Understanding the practical differences can save investors and their advisors significant time, cost, and risk.

What Is a DST?

A DST is a separate legal trust that holds title to one or more properties. Investors purchase a beneficial interest in the trust rather than direct title to real estate. Because the trust itself is the sole owner, DSTs can accommodate up to 499 investors under IRS guidelines, and the trustee (sponsor) handles all major decisions on behalf of the group. Investors receive their pro-rata share of income and depreciation but have no vote in day-to-day management.

What Is a TIC?

A TIC structure gives each investor an actual, undivided fractional interest in the real property itself, recorded on the deed. TIC ownership is capped at 35 investors per property. Because each owner holds direct title, major decisions such as refinancing, selling, or changing property management typically require unanimous or majority consent from all co-owners, depending on the operating agreement.

Key Differences That Matter

Decision-making is the starting point. In a DST, the sponsor and trustee manage the asset, so investors give up control in exchange for simplicity and no unanimous-consent requirements. In a TIC, co-owners generally must agree on major decisions, which can create friction as the group grows.

Financing works differently as well. DST properties are usually financed with a single non-recourse loan already in place before investors buy in, meaning individual investors do not need to qualify for a mortgage. TIC investors, by contrast, often must qualify individually or jointly for financing, which lenders can find cumbersome with larger ownership groups.

Minimum investment amounts tend to be lower for DSTs, often starting around $25,000 to $100,000, making it easier to diversify exchange proceeds across multiple properties or sponsors. TIC minimums are typically higher given the smaller investor pool sharing the same asset.

Liability exposure differs too. TIC owners hold direct title and can carry personal liability tied to the property and its financing. DST investors, holding only a beneficial trust interest, are generally insulated from direct liability associated with the underlying real estate.

Which Structure Fits Which Investor?

Investors who want a truly passive, hands-off experience and easier access to non-recourse financing often gravitate toward DSTs. Those who want more direct control over major property decisions, and who are comfortable coordinating with a small group of co-owners, may prefer the TIC structure. Many advisors also point out that DSTs can be easier to combine with other exchange proceeds, since smaller minimums allow for more diversification across property types and sponsors.

The Bottom Line

Neither structure is universally better. The right choice depends on an investor’s appetite for control, financing preferences, liability tolerance, and diversification goals. Because both DSTs and TICs carry specific IRS requirements and structural nuances, investors should work closely with a qualified intermediary, CPA, and real estate tax advisor before selecting a replacement property structure for a 1031 exchange.

Tax Treatment: How DSTs and TICs Are Handled Under Section 1031

Both DSTs and TICs are recognized by the IRS as replacement property that qualifies for tax deferral under Section 1031, provided the exchange otherwise meets the like-kind, timing, and value requirements. DST interests are addressed specifically in IRS Revenue Ruling 2004-86, which confirms that a beneficial interest in a properly structured trust is treated as direct ownership of real estate for exchange purposes. TIC interests have long been treated as direct fractional ownership, provided the arrangement avoids being reclassified as a partnership, which is why most sponsors follow the guidelines outlined in Revenue Procedure 2002-22 when structuring co-ownership agreements. Investors should confirm with their CPA and qualified intermediary that any DST or TIC offering they consider has been structured to preserve 1031 eligibility.

Frequently Asked Questions

Can you combine a DST and a TIC in the same 1031 exchange?

Yes. Investors can split exchange proceeds across a DST and a TIC, or across multiple DSTs and TICs, as long as the total value and equity requirements of the exchange are met and each piece is properly identified within the 45-day window.

Is a DST safer than a TIC?

Safer is relative. DSTs generally limit personal liability and remove management burden, but investors give up control and DST interests are illiquid for the life of the hold. TICs expose owners to direct liability and require group consensus, but give investors a more direct claim on the asset. Each carries a different risk profile rather than one being universally safer.

What is the minimum investment for a DST versus a TIC?

DST minimums are typically much lower, often in the range of $25,000 to $100,000, which allows investors to spread exchange proceeds across several properties or sponsors. TIC minimums are usually higher because ownership is limited to a smaller pool of co-owners sharing the same asset.

Do DSTs and TICs require accredited investor status?

Most DST and TIC offerings are sold as private placements and are limited to accredited investors, since they involve securities or real estate interests offered under exemptions from full SEC registration. Investors should review the offering’s Private Placement Memorandum to confirm eligibility requirements.

Talk to a 1031 Exchange Specialist

Choosing between a DST and a TIC is one of the most consequential decisions in a 1031 exchange, and the right answer depends on details specific to your situation, timeline, and goals. Medalist Diversified works with CPAs, financial advisors, and 1031 investors to evaluate replacement property options and identify structures suited to each client’s control, liability, and diversification preferences. Schedule a free consultation with our team to review your exchange timeline and discuss whether a DST, a TIC, or a combination of both makes sense for your portfolio.