What Happens When You
Sell A DST?

Investors who own a Delaware Statutory Trust interest may eventually ask, “What happens when you sell a DST?” The answer depends on the specific investment, its governing documents, the sponsor’s transfer procedures, the investor’s ownership structure, and whether a qualified buyer is available.

Selling a DST interest is generally different from selling a publicly traded stock, mutual fund, or REIT. A DST interest is typically a private, illiquid investment that does not trade on a national securities exchange or have a continuously quoted market price.

A potential sale may involve document review, valuation analysis, buyer qualification, sponsor or trustee approval, custodian coordination, transfer paperwork, and confirmation that the ownership records have been properly updated.

A sale is not guaranteed, and the process can vary significantly from one DST investment to another.

What Happens When You
Sell A DST Interest?

When an investor decides to sell a DST interest, the position generally must first be identified and reviewed to determine whether a transfer may be permitted.

The investor, financial advisor, sponsor, transfer administrator, or potential buyer may review the DST documents, ownership records, registration type, number of units held, current account statements, transfer restrictions, and applicable qualification requirements.

If the interest may be transferable and a potential buyer is available, the parties may negotiate economic terms and begin the required transfer process. The transaction may remain subject to sponsor, trustee, custodian, or transfer-administrator approval.

The seller typically receives proceeds only after the applicable conditions have been satisfied and the transfer has been completed. The timing and final price cannot be assumed in advance.

Why Is Selling A DST
Different From Selling A Stock?

DST interests are generally private investments rather than publicly traded securities. There is usually no public order book, real-time bid, standardized exchange price, or guaranteed market of buyers.

The SEC explains that private-placement investments may be highly illiquid, may be difficult to resell, and may require an investor to hold the investment indefinitely if a buyer cannot be found. SEC Investor Bulletin

A DST interest may also be subject to contractual transfer restrictions, sponsor review, buyer eligibility requirements, or other procedures that do not apply to the sale of a security traded on a public exchange.

The value of the real estate owned by the DST and the value available for a private transfer of the individual interest are related but separate considerations.

For additional background, see AIL’s article on the DST secondary market .

Identify The DST
Interest You Own

The first step is to identify the specific DST investment and confirm the investor’s current ownership position.

Helpful information may include a recent account statement, subscription records, ownership documentation, sponsor correspondence, distribution statements, and the name of the custodian or financial institution holding the interest.

The review may need to confirm the DST sponsor, property or portfolio, number of units held, registration type, ownership percentage, account number, and whether the interest is held individually, through an IRA, through a trust, or through another entity.

Accurate ownership information helps determine which transfer procedures and parties may need to be involved.

Review The DST
Transfer Restrictions

The DST’s governing documents and offering materials may describe whether transfers are permitted and what conditions apply.

Potential requirements may include prior written consent, sponsor or trustee approval, buyer qualification, transfer forms, administrative fees, suitability review, custodial approval, or restrictions on transferring only a portion of the interest.

The applicable transfer requirements can vary depending on the sponsor, investment structure, offering exemption, ownership registration, and terms of the specific DST.

An investor should not assume that the transfer process for one DST will be identical to the process for another DST, even if both investments own similar types of real estate.

Determine Whether
A Buyer Is Available

A transfer generally requires a willing and qualified buyer. Unlike a publicly traded investment, there may not be a standing market of buyers prepared to purchase the interest immediately.

A potential buyer may evaluate the underlying properties, sponsor, financing, distribution history, remaining investment term, transfer restrictions, available documentation, and current demand for the particular DST.

Depending on the offering structure and applicable securities-law exemption, a prospective buyer may need to satisfy accredited-investor, sophistication, suitability, or other eligibility requirements.

The SEC explains that resales of restricted securities may require an available exemption from registration and may be subject to conditions under applicable securities laws. SEC Rule 144 overview

The availability of a buyer is never guaranteed simply because the investor owns a DST interest.

Evaluate The Potential
Transfer Value

A potential transfer price may be influenced by the investment’s characteristics and the level of buyer demand available at the time of review.

Factors may include the value and performance of the underlying property, occupancy, tenants, lease terms, financing, distributions, sponsor, remaining anticipated hold period, and expectations regarding a future property sale.

Broader real-estate and capital-market conditions may also affect the analysis. Interest rates, financing availability, property valuations, and demand for the property type can influence how a buyer evaluates the DST interest.

A private-market price may be below the investor’s original investment, an estimated net asset value, or another reference value. A discount may reflect limited liquidity, transfer restrictions, buyer risk, financing considerations, and the time required to hold the investment.

The estimated value of the underlying real estate does not automatically equal the price available for an individual DST interest in a private transaction.

Complete Buyer And
Sponsor Review

If the investor and potential buyer agree on preliminary economic terms, the transaction may move into a more formal review process.

The buyer may review the available investment documents, financial information, property information, transfer restrictions, ownership records, and other materials needed to evaluate the position.

The sponsor, trustee, transfer administrator, or custodian may also need to confirm that the proposed transfer is permitted and that the buyer satisfies applicable requirements.

A preliminary indication of interest or proposed price does not guarantee that the transaction will close. The transaction may remain subject to due diligence, documentation, approval, eligibility, and other conditions.

Complete The DST
Transfer Documents

A completed transfer may require documents signed by the seller, buyer, sponsor, trustee, custodian, or other parties involved in administering the investment.

Documents may include an assignment agreement, transfer request, buyer qualification materials, tax forms, account-registration documents, identity-verification materials, and sponsor-specific forms.

Additional documentation may be required when the DST is held in an IRA, trust, estate, partnership, limited liability company, or other registration.

The transfer is generally not complete merely because the parties have agreed on a price. The applicable records may need to be updated and the transfer formally accepted by the responsible parties.

Receive The Sale
Proceeds

Payment timing depends on the transaction documents and the procedures of the sponsor, transfer administrator, custodian, and buyer.

In some transactions, payment may be released after the transfer has been accepted and the buyer’s ownership has been confirmed. In other transactions, additional processing steps may be required before funds can be delivered.

The investor should review the transaction documents carefully to understand the purchase price, applicable fees, payment timing, conditions to closing, and any circumstances that could delay or prevent completion.

A completed transfer may also have tax, retirement-account, estate, or reporting consequences that should be reviewed with qualified professional advisors.

Is A DST Interest
A Security?

A DST beneficial interest is commonly offered as a private security, although the exact classification and transfer requirements depend on the offering structure, governing documents, and applicable federal and state laws.

A DST interest may have been issued through a registered offering or an exemption from registration, such as Regulation D. The offering documents should be reviewed to determine what restrictions and procedures apply to a proposed resale.

A private resale may also require an available exemption from registration or compliance with other securities-law requirements. The SEC’s materials on private secondary markets explain that resale restrictions may apply to securities acquired in exempt offerings. SEC private secondary-market guidance

The fact that a DST may receive specific tax treatment does not eliminate the need to analyze the securities-law requirements applicable to a transfer.

Investors and potential buyers should consult qualified securities counsel when questions arise regarding the legality or structure of a proposed transfer.

What Are The Tax
Consequences Of Selling A DST?

The tax consequences of selling a DST interest depend on the ownership structure, purchase price, adjusted basis, debt, distributions, transaction expenses, holding period, and the investor’s individual circumstances.

A sale may result in taxable gain or loss, and the tax treatment may differ depending on whether the interest is held individually, through an IRA, through a trust, or through another entity.

Certain DST arrangements may qualify for specific treatment under Section 1031. IRS Revenue Ruling 2004-86 addresses a particular DST structure and concludes that, under the facts described in the ruling, an interest in the DST may qualify as replacement property in a properly structured exchange. IRS Revenue Ruling 2004-86

A properly structured deferred exchange may also involve a 45-day identification period and a 180-day completion period. Those deadlines apply to qualifying exchanges and should not be assumed to apply automatically to every sale or transfer of a DST interest. IRS like-kind exchange guidance

Investors considering a 1031 exchange should speak with a qualified intermediary and tax advisor before taking steps that could affect the exchange.

What Happens If The DST
Is Held In An IRA?

Selling a DST held through an IRA or other retirement account may require additional coordination with the account custodian.

The custodian may need to approve the transaction, review the buyer and seller documentation, confirm the registration, process the transfer, and receive or distribute proceeds according to the account’s procedures.

The process may be different from selling a DST registered directly in an individual’s name. Investors should not assume that the sponsor’s ordinary transfer procedure will apply without modification to a retirement account.

Retirement-account, tax, and transfer questions should be reviewed with the applicable custodian and qualified professional advisors before proceeding.

What Happens If The DST
Was Inherited?

An inherited DST interest may require additional documentation before a transfer can be considered.

Depending on the circumstances, documents may include a death certificate, probate records, letters of authority, trust documents, beneficiary records, estate tax materials, account statements, or other evidence establishing the current owner.

The transfer process may take longer when an estate, trust, multiple beneficiaries, or changing registration is involved.

Estate, tax, and legal questions should be discussed with the investor’s attorney, tax advisor, executor, trustee, or other qualified professional.

How Long Does It Take
To Sell A DST?

The timeline varies by investment and transaction. A private DST transfer generally does not occur immediately in the same way that a publicly traded security may be sold during market hours.

The process may include identifying the position, reviewing documents, determining potential buyer interest, negotiating terms, completing due diligence, confirming buyer eligibility, obtaining sponsor or trustee approval, and completing transfer paperwork.

Some transactions may be relatively straightforward, while others may require additional documentation, custodian coordination, estate administration, sponsor review, or resolution of ownership issues.

No specific completion timeframe can be guaranteed, and the investor should consider both the potential sale price and the time required to complete the transaction.

Mistakes To Avoid When
Selling A DST

One common mistake is assuming that all DST investments have the same transfer procedures. Requirements can vary significantly between sponsors, offerings, ownership structures, and custodians.

Another mistake is assuming that a DST can be sold at the value of the underlying real estate. The price available for an individual interest may reflect limited liquidity, transfer restrictions, financing risk, buyer demand, and the remaining investment term.

Investors should also avoid waiting until the transaction is underway to consider tax, 1031-exchange, retirement-account, estate, or legal issues. The appropriate professionals may need to be involved before important transaction steps occur.

Finally, investors should not assume that a preliminary price, buyer inquiry, or initial review guarantees a completed sale. A transaction may remain subject to documentation, approval, eligibility, due diligence, and other conditions.

Questions About
Selling A DST

Does selling a DST happen immediately?

Usually not. A private DST transfer may require document review, buyer qualification, sponsor or trustee approval, custodian coordination, and completion of transfer paperwork. The timing varies by investment and circumstances.

Who do I contact first when selling a DST?

An investor may begin with the financial advisor or registered representative who arranged the original investment, the DST sponsor, the transfer administrator, or a qualified secondary-market buyer. The most appropriate starting point depends on the specific investment and its transfer procedures.

Does the DST sponsor have to approve the sale?

Sponsor involvement varies. Some DST programs may require sponsor or trustee review, written consent, buyer qualification, transfer forms, or other administrative steps before ownership can be transferred.

Can I sell a DST to anyone?

Not necessarily. The buyer may need to satisfy requirements established by the offering documents, sponsor, custodian, securities laws, or other applicable rules. Depending on the structure, requirements may include accreditation, sophistication, suitability, or other eligibility standards.

Will I receive the full value of the underlying real estate?

Not necessarily. The price available for a private DST transfer may be affected by limited liquidity, transfer restrictions, buyer demand, financing, the remaining hold period, and the risks associated with acquiring the interest.

Can I sell a DST held in an IRA?

Potentially. A DST held in an IRA may require custodian approval, additional documentation, and coordination with the account administrator. The process may differ from the transfer of a personally registered DST interest.

Can I 1031 exchange after selling a DST?

A 1031 exchange may be possible in certain circumstances, but the transaction must be structured and timed correctly. Investors should consult a qualified intermediary and tax advisor before selling or receiving proceeds.

Is there a guaranteed buyer for a DST?

No. A potential buyer depends on the specific investment, transferability, buyer qualifications, available documentation, current market conditions, and demand for the position.

What happens if the DST cannot be sold?

If a buyer cannot be found or the transfer requirements cannot be satisfied, the investor may need to continue holding the interest until the sponsor completes a planned liquidity event or another permitted exit becomes available.

Evaluating Your
DST Sale Options

Selling a DST interest may be possible, but the process depends on the individual investment rather than the DST asset class alone.

A meaningful review should consider the governing documents, ownership records, transfer restrictions, sponsor requirements, buyer qualifications, property and financing information, remaining anticipated hold period, and current market demand.

Investors should also distinguish between the value of the underlying real estate and the price that may be available for a private transfer of the DST interest.

A potential secondary-market transaction is not guaranteed. Investors should consult their financial, tax, legal, and securities professionals before making a decision about selling or transferring a DST interest.