Guide · Replacement Options

Best 1031 Exchange Investments: Every Option Ranked by Effort and Risk

The most-read thread on this subject is an investor with $500,000 of equity in one rental asking what to exchange into — and getting a hundred confident, contradictory answers. The contradiction is the point: these options don't differ mainly by return, they differ by how many hours they cost you, how concentrated the risk is, how much control you surrender, and whether you can ever exchange out again. Here is the whole menu on those axes.

By Casmir Mason — Founder & CEO, North Pine Capital (a CRE sponsor — affiliation disclosed)
Last reviewed September 2026
Educational — not tax, legal, or investment advice
The short version

“Best” is a fit question, not a yield question. Since 2018 only real property qualifies — REIT shares, mutual funds and partnership interests are out. The menu, by effort: active property (full control, real work) → single-tenant NNN (~$1M+, hours a year, one-tenant risk) → TIC → DST (~$100k, zero effort, zero control, 8–12% load) → DST → 721 UPREIT (diversified, but a one-way door out of §1031 forever). Pick from your constraints: hours, control, debt to replace, and whether you want to exchange again. Run the numbers in the calculator.

Why “best” is the wrong question

Search this phrase and page one can't agree on what you asked: one result ranks the best exchange companies, another the best properties, another the best alternatives to exchanging at all. That incoherence is a fair reflection of the underlying problem — “best” has no meaning until you say best for what. An exchanger with a demanding job and a 15-year horizon and an exchanger who wants to keep operating buildings are not choosing between good and bad options; they are choosing different points on a trade-off curve.

So this page ranks nothing by projected return, which would be both unknowable and, from a sponsor's website, worthless to you. It ranks the options on four things you can actually evaluate before you commit: your hours, concentration of risk, control retained, and whether the door stays open — that last one being the axis almost nobody weighs until it's shut.

What actually qualifies

One threshold fact governs the whole menu. Since the 2017 tax act, IRC §1031 applies only to real property held for productive use in a trade or business or for investment — personal property exchanges (equipment, artwork, vehicles) were eliminated for exchanges completed after 2017. Within real property, like-kind is extremely broad: an apartment building is like-kind to raw land, to a strip centre, to a ranch, to a leasehold with 30 or more years remaining. The common worry — that you must swap apartments for apartments — is simply not the rule.

What the breadth doesn't cover is entity interests. §1031 expressly excludes stocks, bonds, notes, securities, and interests in a partnership. This is why the qualifying structures below (DSTs, TICs) are built specifically to be treated as direct real property ownership rather than as interests in an entity — the tax characterization, not the marketing label, is what admits them.

The menu, ranked

Ordered by effort, lowest effort last. Minimums are practical market ranges, not rules, and every figure here ages — verify current terms deal by deal.

OptionYour timePractical minimumConcentrationControlExchange out again?
Active property (multifamily, retail, industrial)High — a second job or a manager to superviseYour market's entry priceModerate — multiple tenantsTotalYes
Improvement / build-to-suitVery high — construction inside 180 daysDeal-specificHigh — execution riskTotalYes
Single-tenant NNNLow — hours per year~$1M equity (30–40% down)High — one tenant is 100% of incomeTotalYes
Ground leaseVery low~$1M+High, but land residual underneathTotalYes
Tenancy-in-common (TIC)Low — but co-owner consent required~$100k+Single asset, sharedShared — and clunkyYes
Delaware Statutory Trust (DST)None~$100k, sometimes lessDiversifiable across several trustsNoneYes — on the sponsor's timing
DST → 721 UPREITNoneVia the DSTLow — whole REIT portfolioNoneNo — permanent exit from §1031

Another active property

The default, and for a lot of people still the right answer. You keep complete control of financing, capital decisions, hold period, and the next exchange; you capture the operating upside that passive structures give away; and you pay no sponsor load. What you keep as well is the work — leasing, capex, tenants, and the 2am call — either directly or by supervising a manager, which is itself a job. The honest version of this choice is that it isn't passive and shouldn't be sold as such, and that most exchangers arriving at this site are here precisely because they've decided the work isn't worth it anymore. If the work is fine by you, everything below is a solution to a problem you don't have. Underwrite with the NOI, cap rate and DSCR method, and if the replacement is bought from family or a related entity, mind the two-year related-party rule.

Single-tenant net lease

The classic middle path, and the one most often mis-sold as a bond. A national tenant on a 10–25 year triple net lease pays the taxes, insurance, and maintenance, leaving you a deed, an income stream, and a few hours a year. You keep control, refinancing, and exit timing — everything a DST asks you to surrender. The costs are equally specific: one tenant means no such thing as 92% occupancy, practical entry is around $1M of equity once lenders' 30–40% down payments are accounted for, income is nominally fixed against inflation, and the whole thing ends at lease expiry when the “bond” becomes a building again. It's the best fit for exchangers who want passivity without giving up ownership — provided they underwrite it properly, which is a real discipline: see the full diligence checklist.

Tenancy-in-common

A TIC gives each co-owner a deeded, undivided fractional interest in one property — qualifying for the same reason a DST does, as direct real property rather than an entity interest, along the lines set out in Rev. Proc. 2002-22. Lower minimums than whole-property ownership, and unlike a DST you hold actual title with voting rights. The catch is that those rights cut both ways: major decisions typically require unanimous or supermajority co-owner approval, the co-ownership group is capped at a manageable number, lenders dislike the structure, and selling a fractional interest is genuinely hard. TICs were the dominant fractional product before DSTs largely displaced them, and that displacement happened for a reason — but they remain the right tool where you want fractional access and a vote.

Delaware Statutory Trust

The most passive qualifying option that exists, by construction. Under Rev. Rul. 2004-86 a properly structured DST is a grantor trust, so you're treated as owning an undivided interest in the underlying real estate — which is what makes it like-kind. Practically: roughly $100,000 minimums let you split one exchange across several trusts and property types, institutional assets you couldn't buy alone, non-recourse debt already in place at the trust level for debt replacement, exact-dollar sizing that solves the “my proceeds don't match any building” problem, and zero management.

And the price of all that, stated plainly: an 8–12% upfront load plus ongoing fees, no control and no vote — the same rules that grant grantor-trust treatment forbid the trustee from refinancing or raising capital — illiquidity with no real secondary market, and an exit on the sponsor's clock, typically five to ten years. Which sponsor you pick matters more than which building, so the diligence sits in the sponsor guide; who sells it to you and what they earn is in the broker guide; the complete anatomy is the DST pillar.

The 721 UPREIT: the one-way door

Some sponsors structure DSTs intended to be contributed, after a holding period, into a REIT's operating partnership under IRC §721 — you exchange your property interest for OP units, without triggering tax at that moment. The appeal is real: a single asset becomes a diversified institutional portfolio, and REIT sponsors typically provide a redemption programme, which is far more liquidity than a DST offers.

Then the part that deserves its own section. Once you hold OP units, you cannot 1031 out of them — ever. Partnership interests are excluded from §1031, so the deferral you have been rolling forward, potentially for decades, loses its exit. Converting OP units to REIT shares is generally a taxable event, and from then on your basis step-up at death is the only remaining escape. That may well be the right destination for a final-stage investor who wants diversification and liquidity and is done exchanging. It is a poor destination for someone who assumed they could keep deferring. Whether a 721 option is optional or effectively baked in should be read in the PPM before subscribing, never discovered later: the mechanics are in can you 1031 into a REIT.

Land, farmland, and mineral interests

Because like-kind is so broad for real property, the menu is wider than the brochures suggest. Raw land is fully like-kind — zero management, no depreciation, no income, pure appreciation bet. Farmland and timberland work, typically leased to an operator, offering low-effort ownership with genuine inflation characteristics. Mineral, oil and gas royalty interests can qualify where state law and the instrument characterise them as interests in real property rather than personal property — a determination that turns on the specific interest and jurisdiction, so it needs your CPA and counsel rather than a general rule. Conservation easements, water rights, and long leaseholds (30+ years remaining) similarly qualify. An improvement exchange deserves its own mention: exchange funds can build on or improve a replacement property through an accommodation titleholder, but every dollar of improvement must be completed and received inside the 180 days to count, which makes it the highest-execution-risk option on the board.

What fails the like-kind test

Worth knowing precisely, because these are the mistakes people nearly make. REIT shares — a security, however real the underlying buildings. Mutual funds or ETFs, including anything marketed as a real estate fund. Interests in an LP or LLC treated as a partnership — expressly excluded, which is why syndications don't qualify even though DSTs do; if you want the syndication route, that's an after-tax investment, not an exchange. Your primary residence and second homes held for personal use, which live under §121 instead — with a narrow combination available in some fact patterns. Property held primarily for resale — flips and new-build-for-sale inventory are dealer property, not investment property. And foreign real estate, which is not like-kind to US real estate. The pattern: if what you receive is a claim on an entity rather than an interest in dirt, it fails.

The fit test

Four questions, answered honestly, narrow the menu faster than any comparison of projected yields. How many hours a year do you actually want to spend? If the answer is zero, you are choosing between a DST and a net-lease property with a manager, and the rest is noise. Do you need to replace debt? A relinquished mortgage you paid off has to be matched or it becomes mortgage boot — DSTs arrive with debt already in place, which is a genuine mechanical advantage over finding a lender inside 45 days. Do you ever want to exchange again? If yes, the 721 route is off the table and everything else stays on it. Will your proceeds actually fit? A $700,000 equity position doesn't buy a credit-tenant net-lease building but splits neatly across trusts — and the three-property rule lets you combine approaches in one exchange, which is what a large share of exchangers ultimately do: a property for control, a DST for the remainder, and a backup identified in case the first one fails diligence.

The trap to avoid is letting the 45-day clock pick for you. Deferral is a benefit, not an obligation, and an exchange that forces you into a property you'd never otherwise buy has converted a tax saving into a worse asset — occasionally a partial exchange, an installment-sale alternative such as a deferred sales trust, or simply paying the tax is the better outcome. Start the search before the relinquished sale closes, model the actual numbers in the calculator, and choose from constraints rather than from a yield someone quoted you.

Frequently asked questions

There is no best replacement property in the abstract, because the options differ on axes that have nothing to do with return: how many hours a year they cost you, how concentrated the risk is, how much control you keep, and whether you can exchange out of them again later. Ranked by effort, the realistic menu runs from another actively managed building (highest effort, full control) through single-tenant net lease (low effort, one-tenant concentration) and tenancy-in-common, to a Delaware Statutory Trust (zero effort, zero control, fees and an exit on the sponsor's clock). The right answer is whichever one matches your time, your need for control, and your debt-replacement requirement — so start from those constraints rather than from a yield.
Nothing, if your goal is to stay invested in real estate and defer the full gain — that is the one thing a like-kind exchange does better than any alternative. Other structures are better at different goals. An installment sale spreads the tax over years while letting you exit real estate. A charitable remainder trust suits donors wanting income and a deduction. A Qualified Opportunity Fund can defer gain from any asset class, not just real property. Simply paying the tax is genuinely better when the bill is small, the basis is high, or a forced exchange would push you into a property you would not otherwise buy. And doing nothing beats all of them if you would hold the property anyway — deferral is only valuable if you were going to sell.
It is a colloquialism with no statutory meaning, and people use it for two quite different structures. Most often it refers to an installment sale under IRC Section 453 — seller financing that spreads the gain across the years you receive payments, which softens the tax without requiring you to buy a replacement property. Less often it refers to investing the gain in a Qualified Opportunity Fund, which defers capital gain from any asset type. Neither one is a like-kind exchange: neither defers the full gain indefinitely, both have their own timing rules, and depreciation recapture generally cannot be spread the way capital gain can under an installment sale. Treat the phrase as a signal that someone is describing a tax-softening alternative, then ask which statute they actually mean.
Not into a fund in the ordinary sense. IRC Section 1031 excludes stocks, bonds, securities, and partnership interests, so shares in a REIT, an interest in a real estate LP or LLC that is treated as a partnership, and units in a mutual fund all fail the like-kind test even when the underlying assets are real estate. Products marketed as 1031 exchange funds are generally Delaware Statutory Trusts, which qualify for a specific reason: under Rev. Rul. 2004-86 a properly structured DST is a grantor trust, so each investor is treated as owning an undivided interest in the real property itself rather than a security interest in an entity. Tenancy-in-common interests qualify for the same essential reason. The label on the brochure is not what decides it — the tax characterization is.
The exchange itself has no minimum; the replacement options do, and they vary by an order of magnitude. Delaware Statutory Trust interests commonly start around $100,000, and sometimes lower, which makes them the accessible end and the reason they absorb so many smaller exchanges. Tenancy-in-common interests sit in a similar range. Single-tenant net lease is effectively a $1 million-plus equity decision once you account for the 30% to 40% down payment such deals require. Actively managed property depends entirely on your market. Separately from any minimum, remember the arithmetic that actually governs a full deferral: you generally need to reinvest all of your net proceeds and replace the debt you paid off, or the shortfall becomes taxable boot.
A Delaware Statutory Trust, unambiguously — you receive distributions and a tax package and make no decisions at all, because the structure legally prohibits investor voting and prohibits the trustee from refinancing or raising new capital. That total passivity is the product and also the cost: no control, a fee load commonly running 8% to 12% upfront, illiquidity, and an exit that happens when the sponsor sells rather than when you want out. A single-tenant net lease property is the next step along and a genuinely different trade: a few hours a year of monitoring in exchange for keeping the deed, the refinancing option, and control of your own exit timing. Most exchangers choosing between them are really choosing between zero hours and zero control.