Maximizing Investment Opportunities with DSTs and 721 UpREIT Structures

A Seamless 1031 Exchange Experience with WMS Wealth Management

At WMS Wealth Management, we are dedicated to guiding investors through a smooth and efficient exchange process. Our expertise ensures you select the most effective exchange strategies while gaining access to top-tier replacement properties from the most trusted providers in the industry.

With over 25 years of experience in the 1031 Exchange sector, we have successfully assisted countless investors in navigating the complexities of tax-advantaged real estate investing. Our commitment to fiduciary responsibility means your financial goals are our highest priority. Additionally, by eliminating commissions, we align our interests with yours, maximizing your savings and optimizing your investment potential. Contact us today for a detailed property comparison.

Understanding 721 UpREIT Options in Delaware Statutory Trusts (DSTs)

Delaware Statutory Trusts (DSTs) have become an attractive option for real estate investors looking to generate passive income and benefit from tax-deferred exchanges. A key advantage of certain DSTs is the ability to transition into a Real Estate Investment Trust (REIT) through a 721 UpREIT structure. However, not all 721 UpREIT options provide the same benefits. Below, we explore the differences between mandatory and elective 721 UpREIT structures, the significance of REIT underwriting, and the value of expert guidance in navigating these investment strategies.

What is an UpREIT?

An UpREIT allows property owners to contribute real estate to a REIT, providing tax deferral, liquidity, and diversification. Investors can take advantage of this by first using a 1031 Exchange to invest in a DST property and later transitioning to a REIT through a 721 exchange.



Designed for accredited investors, an UpREIT enables individuals to exchange real estate for Operating Partnership (OP) units in a REIT. This tax-deferred transaction converts property ownership into REIT shares. Unlike a traditional 1031 Exchange, proceeds from OP unit or REIT share sales cannot be reinvested through another 1031 Exchange. However, an UpREIT does not require the "like-kind" relationship mandated by a 1031 Exchange and has no strict time constraints.

The Four-Step UpREIT Process:

1. The investor sells a fee-simple property through a 1031 Exchange.
2. The investor selects a DST property intended for future REIT conversion.
3. The DST property is absorbed by the REIT.

   The investor converts OP units into REIT shares.

The Importance of REIT Underwriting

Before investing in a DST with a 721 UpREIT option, understanding REIT underwriting is crucial. This process evaluates the financial strength of the REIT and the quality of its assets. Key factors to assess include:

• Asset Quality – Properties in prime locations with strong fundamentals typically generate more stable returns.
• Management Expertise – A skilled and experienced management team significantly influences a REIT’s success.
• Financial Performance – Investors should analyze key indicators such as Funds from Operations (FFO), Net Asset Value (NAV), and debt ratios to evaluate financial stability.

Thorough due diligence is essential to making well-informed investment decisions and mitigating potential risks.

 The Value of Diversification

One of the primary benefits of transitioning a DST into a REIT is increased diversification. While DSTs typically focus on a single asset or property type, REITs provide exposure to a broader range of real estate sectors, including:

• Residential
• Commercial
• Industrial



This diversification helps reduce investment risk and serves as a hedge against economic fluctuations and inflation.

 Navigating Alternative Investments with WMS Wealth Management

Tax-advantaged investment strategies such as 1031 Exchanges and 721 UpREITs require specialized expertise. WMS Wealth Management is committed to helping investors understand and implement key strategies, including:

• 1031 Exchanges – A tax-deferral strategy for reinvesting in like-kind properties.
• Qualified Opportunity Zones – Investments in designated areas that offer significant tax incentives, including capital gains tax deferral and elimination.



Given the complexities of these investment vehicles, working with experienced professionals ensures compliance, maximizes returns, and enhances portfolio diversification.

Understanding the Risks: The Importance of Professional Guidance

Despite the advantages of 1031 Exchanges, investors must navigate strict deadlines and regulatory requirements. Errors—such as missing time constraints or selecting unsuitable replacement properties—can lead to substantial tax liabilities.

By working with WMS Wealth Management, investors benefit from:



• Access to high-quality investment opportunities with strong growth potential.
• Regulatory compliance to safeguard tax advantages.
• Risk mitigation strategies tailored to DSTs, UpREITs, and 1031 Exchanges.