DSTs and TICs can both hold 1031 replacement property, but they feel completely different to own. A DST is passive by design: the sponsor decides everything. A TIC gives co-owners a vote, and with it the work of reaching agreement.
Two people can own a piece of the same property, defer the same capital gains tax, and share almost nothing in how they hold it. Both can use a 1031 exchange - the swap that lets an investor roll the proceeds of a sold property into a like-kind replacement and put off the capital gains tax. But one holds a beneficial interest in a trust and never casts a vote, while the other holds direct title and weighs in on every major decision. That is the gap between a DST and a TIC.
How each one holds the property
A DST (Delaware Statutory Trust) holds title to the property. Investors own beneficial interests in the trust - a stake in the trust rather than in the building itself - and the sponsor makes every management decision.
A TIC (Tenancy-in-Common) gives investors direct title as co-owners. Each holds an undivided fractional interest in the property itself, and major decisions require co-owner approval.
Everything else flows from that one distinction.
Side-by-side comparison
Feature | DST | TIC |
|---|---|---|
Title | Trust holds title; investors hold beneficial interests | Investors hold title directly as tenants-in-common |
Control | None. Sponsor makes all decisions. | Co-owners vote on major decisions (sale, refinancing, capital improvements). |
Investor limit | Unlimited | Maximum 35 investors (IRS requirement) |
Decision rights | No voting rights on property operations | Supermajority approval required for major decisions (typically 50-75%) |
Financing | Sponsor arranges institutional financing; shared proportionally | Each investor may arrange individual financing, or group financing. All co-owners must agree to refinance. |
Property management | Sponsor provides or hires management | Co-owners coordinate management collectively; often contentious |
Minimum investment | Typically $100,000-$250,000 | Typically $250,000-$500,000+ |
Accreditation required | No (subject to sponsor requirements) | Yes (accredited investors required) |
Fees | 10-18% upfront plus ongoing sponsor fees | Lower sponsor fees, but coordination and legal costs can be significant |
Liquidity | Illiquid; limited secondary market at 20-40% discount | Illiquid; no active secondary market; selling requires finding a qualified replacement buyer |
Administrative burden | Minimal. Receive statements and K-1s. | Moderate to significant. May involve property decisions, budget reviews, co-owner coordination. |
Exit | Sponsor decides when to sell. Investors have no vote on timing. | Requires co-owner agreement to sell. Disagreements can delay exit. |
1031 eligibility | Eligible under Revenue Ruling 2004-86 | Eligible if properly structured as tenancy-in-common |
Market prevalence | Dominant structure since 2004 | Niche; largely replaced by DSTs |
Why the market moved to DSTs
Before Revenue Ruling 2004-86, TICs were the primary structure for fractional ownership in a 1031 exchange. When the IRS blessed DSTs as eligible replacement property that year, they became the default fast, because they solved the coordination problem that had plagued TICs.
That problem was governance. Getting 10 to 35 co-owners to agree on management, capital spending, refinancing, and exit timing proved hard in practice. Owners with different finances, risk tolerances, and time horizons deadlocked on the decisions that mattered most.
DSTs cut through it by removing investors from the decisions entirely. The tradeoff is a total loss of control, but for most passive investors that beat contentious co-owner negotiations. Today TICs are a small share of fractional 1031 activity, and most sponsors focus on DSTs.
Where a DST fits
A DST tends to suit an investor who:
- wants to be completely passive, with no co-owner coordination
- is deploying capital in the $100,000 to $500,000 range, where DST minimums are efficient
- prefers institutional-grade properties under professional sponsor management
- values the imperfect secondary market that exists for DST interests
- has no interest in attending meetings, reviewing budgets, or voting on property decisions
Where a TIC fits
A TIC can make sense for an investor who:
- wants a voice in property decisions and will coordinate with co-owners
- knows and trusts the other co-owners and shares their investment goals
- wants to arrange their own financing terms rather than accept the sponsor's leverage
- has the expertise and appetite for more hands-on involvement
- is looking at a specific deal that is only offered as a TIC
TICs work best when co-owners know each other, share the same time horizon, and agree on strategy from the outset. Without that, the coordination burden tends to outweigh the control it buys.
The real decision
The market has largely settled this comparison. DSTs dominate because they remove the governance friction that made TICs hard to run. For most investors weighing 1031 replacement options, the live question isn't DST or TIC. It's DST or direct property ownership, which carries a fundamentally different set of tradeoffs around control, fees, and return potential.
A DST hands control to the sponsor and asks nothing of the investor. A TIC gives co-owners a vote and the coordination that comes with it. Both defer the same taxes; they just get there very differently.
Frequently asked questions
What's the fundamental difference between a DST and a TIC?
A DST is a trust structure where a sponsor owns and manages the property and investors hold beneficial interests. A TIC is direct fractional property ownership where co-owners hold title and have voting rights.
Are both eligible for 1031 exchanges?
Yes. Both DST beneficial interests and TIC interests are treated as real property for 1031 purposes.
Which is more common, DST or TIC?
DSTs are far more common now, especially since the 2004 IRS ruling. TICs were popular in the early 2000s but declined after DSTs became established.
Can I convert a TIC interest into a DST?
Not directly, but you could sell a TIC interest and 1031 exchange the proceeds into a DST. That's a 1031 transaction, not a conversion.
Which has better liquidity?
Both are illiquid, but DSTs have more active secondary markets because sponsors facilitate them. TICs have limited secondary markets.