DST to 721 Strategy

DST to 721 Strategy, Urging CPAs and Real Estate Owners to Look Beyond One Size Fits All Recommendations
As the DST to 721 upREIT strategy gains momentum among financial advisors and large real estate sponsors, David Waal of Irvine Advisors, LLC is urging CPAs and real estate owners to take a closer, more critical look at when this structure truly serves the client — and when it may unintentionally limit future tax planning flexibility.
Waal, a passive real estate professional who has guided clients through hundreds of 1031 exchanges, notes a growing trend: advisors with limited real estate expertise recommending the DST to 721 pathway as a default solution.
“Many advisors are promoting the DST to 721 strategy because it increases fees for both the advisor and the sponsor,” Waal said. “At Irvine Advisors, our focus is on whether the structure aligns with the client’s long term tax planning, liquidity needs, and estate goals — not on pushing a product.”
Why CPAs and Property Owners Should Pay Attention
The DST to 721 structure unfolds in two steps:
Step 1: The investor completes a 1031 exchange into a Delaware Statutory Trust (DST).
Step 2: After a typical two year hold, the DST interests are contributed to a Real Estate Investment Trust (REIT) through an IRS Section 721 exchange.
For CPAs, this structure raises important considerations:
A 721 exchange ends the client’s ability to complete future 1031 exchanges.
REIT shares introduce liquidity, which can simplify estate equalization among heirs.
Fee structures often increase once the investor transitions into the REIT.
Future tax deferral options narrow, which may conflict with long term planning strategies.
“CPAs are often the first professionals clients turn to when evaluating a 1031 exchange,” Waal said. “Understanding the downstream implications of a 721 conversion is critical. Once a client moves into a REIT, the 1031 pathway is closed permanently.”
Why the Strategy Has Become So Widely Promoted
According to Waal, the surge in DST to 721 recommendations is driven less by investor demand and more by Wall Street distribution channels.
“Large REIT sponsors are extremely effective at raising capital,” he explained. “They’ve identified 1031 exchangers as a major source of new investment dollars. By partnering with advisors who don’t typically handle real estate, they’ve created a simple, packaged solution that funnels clients into their REITs.”
For real estate owners accustomed to controlling their assets, this shift can be significant. Once converted into REIT shares, investors no longer benefit from future 1031 opportunities.
When the DST to 721 Strategy Does Make Sense
Waal emphasizes that the strategy is not inherently flawed — it simply needs to be applied thoughtfully.
“For clients who know they won’t be doing another 1031 exchange — due to age, health, or personal preference — the 721 conversion can be a smart estate planning tool,” he said. “The liquidity of REIT shares can make dividing assets among beneficiaries far easier.”
When a DST Only Approach May Be Better
For investors who expect to continue exchanging real estate, Waal believes a traditional DST only strategy often preserves more flexibility.
DSTs typically hold properties for five to ten years, during which investors receive the potential for cash flow and participate in any appreciation. When the DST sells, the investor is again eligible for a 1031 exchange — whether into another DST or into a personally selected investment property.
“Real estate owners who want to maintain tax deferral options into another investment property or eventually exchange into a property they can use — such as a vacation rental that meets IRS investment use rules — should think carefully before committing to a 721 conversion,” Waal said.
A Planning Driven, Not Product Driven, Philosophy
Irvine Advisors positions itself as an advocate for clients navigating an increasingly sales driven investment landscape.
“Our job is to help clients — and their CPAs — understand the full picture,” Waal said. “The right strategy depends on the investor’s timeline, liquidity needs, tax exposure, and legacy goals. There is no single solution that fits everyone.”
Guiding Investors Through 1031 Exchanges & Passive Real Estate Strategies
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Contact Information
Email:
dwaal@irvineadvisorsllc.com
Phone:
(925) 788-8588
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