Glossary
This glossary provides clear definitions for common terms related to 1031 exchanges, DSTs, TICs, and other real estate investment strategies. It is designed to help investors quickly understand the language used throughout the exchange process and when reviewing potential replacement property options.
If you are researching tax-deferral strategies or comparing passive investment solutions, the definitions below can serve as a useful reference. Our goal is to make industry terminology easier to understand so you can move forward with greater clarity and confidence.
1031 Terms
Basis
In the context of a 1031 exchange, “basis” refers to the original purchase price of the property that is being sold, plus any capital improvements made to the property during the time the owner held… Read More
Basis Swap
A Basis Swap is a type of transaction that can be used in a 1031 exchange, which is a tax-deferred exchange of like-kind properties that allows real estate investors to defer paying capital gains taxes… Read More
Boot
Boot refers to the cash or fair market value of any additional property that an investor receives as part of the exchange that is not like-kind. This can occur when the property that is being… Read More
Boot Netting Rules
The term “boot” refers to the cash or non-like-kind property received in an exchange. Ideally, in a 1031 exchange, a taxpayer wants to avoid receiving any boot because it can trigger a taxable event. The… Read More
Build-to-Suit Exchange
A Build-to-Suit Exchange, also known as a “Construction Exchange” or a “Build-to-Suit Improvement Exchange,” is a type of 1031 exchange that allows a taxpayer to use the proceeds from the sale of a relinquished property… Read More
Built-to-Suit Exchange
A Built-to-Suit Exchange, also known as an Improvement or Construction 1031 Exchange, is a specific type of tax-deferred exchange permitted under Section 1031 of the Internal Revenue Code. This exchange allows investors to use their… Read More
Business Assets
In terms of a 1031 exchange, which refers to Section 1031 of the U.S. Internal Revenue Code, business assets typically means assets or properties held for use in a trade or business or for investment.… Read More
Capital Gain
Capital gain, within the context of the real estate investment industry, refers to the increase in the value of a real estate property or investment over time. This increase in value, when the property is… Read More
Capital Gain or Loss
Capital gain or loss in the real estate investment industry refers to the difference in the purchase price and the selling price of real property. A capital gain occurs when you sell a real estate… Read More
Capital Gain Tax
Capital Gain Tax in the context of the real estate investment industry refers to a type of tax that is levied on the profit (the capital gain) realized from the sale of a real estate… Read More
Capital Gains
Capital gains refer to the increase in value of a real estate property over the period of ownership. When the property is sold, the difference between the purchase price (adjusted for improvements, if any) and… Read More
Capital Improvements
Capital Improvements refer to any significant expenses incurred to enhance the value, extend the lifespan, or adapt a property for a new use. These are substantial, non-recurring expenses that are not part of regular maintenance… Read More
TIC Terms
Assignment
Assignment typically refers to the act of transferring one’s ownership interest in a property to another party. A TIC agreement usually involves multiple parties, each of whom owns an undivided share of the entire property,… Read More
Beneficiary
The term beneficiary refers to the individual or entity designated by the account or property holder to receive the assets upon the death of the owner. The role of a beneficiary is crucial in estate… Read More
Broker
A broker is a professional who acts as an intermediary between buyers and sellers of real estate. The broker’s primary job is to facilitate a transaction between these parties. There are several types of real… Read More
Capital Gain
Capital gain, within the context of the real estate investment industry, refers to the increase in the value of a real estate property or investment over time. This increase in value, when the property is… Read More
Capital Gain or Loss
Capital gain or loss in the real estate investment industry refers to the difference in the purchase price and the selling price of real property. A capital gain occurs when you sell a real estate… Read More
Capital Gain Tax
Capital Gain Tax in the context of the real estate investment industry refers to a type of tax that is levied on the profit (the capital gain) realized from the sale of a real estate… Read More
Capital Gains
Capital gains refer to the increase in value of a real estate property over the period of ownership. When the property is sold, the difference between the purchase price (adjusted for improvements, if any) and… Read More
Capital Losses
Capital losses refer to the decrease in the value of a property or an investment below its purchase price. A capital loss occurs when a property is sold for less than the original purchase price,… Read More
Closing
In the real estate investment industry, “closing” refers to the final steps in a property transaction where the title of the property is transferred from the seller to the buyer. It’s the culmination of the… Read More
Closing Costs
Closing costs refer to the fees and expenses incurred during the transfer of property ownership from a seller to a buyer. They are paid at the closing of the real estate transaction. However, they are… Read More
Co-Tenancy
Co-tenancy, as part of Tenants in Common (TIC), refers to a legal arrangement where two or more parties share ownership rights in a single property. This form of ownership allows each tenant in common to… Read More
Co-Tenant
A co-tenant is a person who shares an interest in the same property with one or more other people. This term is often used in the real estate industry and in legal contexts. Co-tenancy is… Read More
DST Terms
Capital Gain or Loss
Capital gain or loss in the real estate investment industry refers to the difference in the purchase price and the selling price of real property. A capital gain occurs when you sell a real estate… Read More
Capital Gain Tax
Capital Gain Tax in the context of the real estate investment industry refers to a type of tax that is levied on the profit (the capital gain) realized from the sale of a real estate… Read More
Capitalization Rate
The capitalization rate, often just called the cap rate, is a metric that is widely used in the real estate investment industry to estimate the potential return on an investment property. The cap rate is… Read More
Certificate of Trust
A Certificate of Trust, in the context of a Delaware Statutory Trust (DST), is a legal document that serves as evidence of the formation and existence of the trust. It is typically filed with the… Read More
Collateralized Debt Obligation (CDO)
A Collateralized Debt Obligation (CDO) is a type of structured asset-backed security (ABS) that is commonly associated with the real estate investment industry. Originally developed for the corporate debt markets, it became widely used in… Read More
Common Unit
A Common Unit in the context of the Delaware Statutory Trust industry, typically refers to a standard share or unit of beneficial interest that an investor owns in a DST. Delaware Statutory Trusts (DSTs) are… Read More
Conversion
In the contexts of Delaware Statutory Trusts (DSTs) and Individual Retirement Accounts (IRAs), the term conversion can have multiple meanings depending on the financial processes involved. Here’s a breakdown of how conversion applies to DSTs… Read More
Corporate Governance
Corporate governance refers to the system of rules, practices, and processes by which a DST is directed and controlled. This structure involves balancing the interests of many stakeholders in a DST, which might include the… Read More
Credit Rating
A credit rating, in the context of the Delaware Statutory Trust (DST) industry, refers to an evaluation or assessment of the creditworthiness of the DST, similar to how it would apply to any business entity… Read More
Debenture
A debenture is a type of debt instrument that is not secured by physical assets or collateral. Debentures are backed only by the general creditworthiness and reputation of the issuer, whether that be a corporation,… Read More
Delaware Statutory Trust (DST)
A Delaware Statutory Trust (DST) is a legally recognized trust that is used for investment, especially in real estate. The DST is a unique entity established under the laws of the state of Delaware, USA.… Read More
Delaware Statutory Trust Act
The Delaware Statutory Trust Act is the Delaware law that authorizes the creation and operation of Delaware Statutory Trusts, often called DSTs. It provides the legal foundation for how these trusts are formed, governed, and… Read More
REIT Terms
Capital Gain or Loss
Capital gain or loss in the real estate investment industry refers to the difference in the purchase price and the selling price of real property. A capital gain occurs when you sell a real estate… Read More
Capital Gain Tax
Capital Gain Tax in the context of the real estate investment industry refers to a type of tax that is levied on the profit (the capital gain) realized from the sale of a real estate… Read More
Capitalization Rate
The capitalization rate, often just called the cap rate, is a metric that is widely used in the real estate investment industry to estimate the potential return on an investment property. The cap rate is… Read More
Cash Flow
Cash Flow refers to the net amount of money that is being transferred into and out of a property investment. This typically includes income generated from the property, such as rental payments, and subtracts any… Read More
Cash-On-Cash Return
Cash-on-cash return is a financial metric commonly used in the real estate investment industry to measure the return on investment (ROI) directly received from an investment property. It is calculated by dividing the annual pre-tax… Read More
Commercial Property
Commercial property refers to real estate properties that are primarily used for business purposes. These properties are leased out to provide workspace rather than living space, generating a steady stream of income for the property… Read More
Debt Service
Debt service generally refers to the cash that is required to cover the repayment of interest and principal on a debt for a particular period. In the context of the 1031 exchange industry, the concept… Read More
Deed
A deed is a legal document that signifies ownership of a property. The deed includes information about the seller (grantor) and buyer (grantee), as well as a detailed description of the property. When the property… Read More
Dividend
In the real estate investment industry, a dividend refers to a distribution of earnings made by a real estate investment trust (REIT) or a similar type of company to its shareholders. Dividends are usually issued… Read More
DownREIT
A DownREIT is a type of property transaction that can be used as a tax-deferred exit strategy when selling real estate. It combines the benefits of a property sale and a tax-deferred exchange. A property… Read More
DSCR
DSCR stands for Debt Service Coverage Ratio. This is a key financial metric used by lenders and investors to assess the financial health and cash flow of a real estate project. The ratio provides a… Read More
Due-On-Sale Clause
A “Due-On-Sale Clause” is a provision in a mortgage or deed of trust contract with a lender that states the loan must be paid in full upon the sale or transfer of the property. This… Read More
NNN Terms
Capitalization Rate
The capitalization rate, often just called the cap rate, is a metric that is widely used in the real estate investment industry to estimate the potential return on an investment property. The cap rate is… Read More
Contingency
In the real estate investment industry, a “contingency” refers to a condition or specific event that must occur before a real estate deal can be finalized. This is typically specified in a purchase agreement or… Read More
Debt Service
Debt service generally refers to the cash that is required to cover the repayment of interest and principal on a debt for a particular period. In the context of the 1031 exchange industry, the concept… Read More
Default
A default occurs when a borrower (often the real estate investor in this context) fails to meet the obligations of a loan as specified in the loan agreement or mortgage contract. These obligations typically include… Read More
Double Net Lease
A double net lease (also known as a net-net or NN lease) is a lease agreement in which the tenant is responsible for paying two of the three typical net costs — property taxes, building… Read More
Due Diligence
Due diligence in the 1031 exchange industry involves a careful and thorough examination of all aspects of a potential real estate transaction to ensure its compliance with the requirements of a Section 1031 exchange and… Read More
Easement
An easement refers to a legal right to use another person’s land for a specific purpose. It is a form of non-possessory interest that allows the holder of the easement to use property that he… Read More
Effective Rent
Effective rent in the context of the real estate investment industry is a term that refers to the actual rent income that a landlord receives from a tenant after accounting for all incentives or concessions… Read More
Equity
Equity in the context of the 1031 exchange industry refers to the value that an investor has in a real estate property. In a 1031 exchange, this is essentially the net value of the property… Read More
Escalation Clause
An escalation clause, in the context of a triple net lease industry, is a clause in a lease contract that allows the landlord to increase the rent over time. This increase can be based on… Read More
Estoppel Certificate
An Estoppel Certificate is a legally binding document used to verify the details and status of an existing lease agreement. The purpose of this certificate is to prevent, or “estop”, one party from later asserting… Read More
Exclusive Use
Exclusive Use in the context of the real estate investment industry refers to a clause in a commercial lease that prevents the landlord from renting out space in the same property, or sometimes in a… Read More
QOF Terms
General Partner
In the context of the Qualified Opportunity Fund (QOF) industry, a General Partner refers to an individual or entity that has management authority and responsibility for the fund. The term “general partner” is commonly used… Read More
Holding Period
The holding period refers to the length of time an investor owns or holds a property before selling it. This period is crucial as it can impact the financial return on an investment in a… Read More
Intangible Property
Intangible property refers to non-physical assets that are connected to real property but do not have a physical presence. These can include legal rights, licenses, intellectual property, brand equity, goodwill, and other forms of non-physical… Read More
Interest
Interest refers to the charge for the privilege of borrowing money, typically expressed as an annual percentage rate. It can also refer to a share or a right in a property or in an investment.… Read More
Internal Revenue Code (IRC)
The Internal Revenue Code (IRC) is a comprehensive set of tax laws and regulations in the United States that governs federal income taxation. While not specific to the real estate investment industry, the IRC has… Read More
Investor
In the context of the Qualified Opportunity Fund (QOF) industry, an Investor refers to an individual or entity that contributes capital to a QOF. A QOF is an investment vehicle designed to incentivize investment in… Read More
Investor Capital
The term Investor Capital within the Qualified Opportunity Fund (QOF) industry refers to the funds that an investor allocates to a QOF, with the goal of receiving potential tax advantages. These funds are then typically… Read More
Investor Return
Investor Return in the Qualified Opportunity Fund (QOF) industry refers to the profit or financial gain that an investor realizes from investing in a QOF. A Qualified Opportunity Fund is an investment vehicle that is… Read More
Limited Liability
Limited Liability refers to a legal structure that can protect an investor’s personal assets from the financial obligations or debts of the investment entity. Here’s a bit more detailed explanation: Protection of Personal Assets: In… Read More
Limited Liability Company (LLC)
A Limited Liability Company (LLC) is a specific form of a private limited company that is often utilized within the real estate investment industry. In the realm of real estate investment, a Limited Liability Company (LLC)… Read More
Limited Partner
A Limited Partner (LP) refers to an investor who contributes capital to a real estate investment partnership, typically a Limited Partnership or a Real Estate Investment Fund. Unlike a General Partner (GP), who is responsible… Read More
Limited Partnership
A Limited Partnership (LP) refers to a legal business structure that includes at least one General Partner (GP) and one or more Limited Partners (LPs). General Partner (GP): The GP is responsible for managing the… Read More
IRA Terms
Custodian
In the Individual Retirement Account (IRA) industry, a custodian is a financial institution that holds customers’ securities for safekeeping in order to minimize the risk of theft or loss. Custodians are legally responsible for any… Read More
Deferred Annuity
A deferred annuity is a type of annuity contract that delays income payments until the investor elects to receive them. This financial product is often used for retirement planning as part of an IRA portfolio.… Read More
Designated Beneficiary
A Designated Beneficiary in the context of the Individual Retirement Account (IRA) industry is a person or entity chosen by the account holder to receive the assets or benefits of the account after the account… Read More
Direct Transfer
Direct Transfer refers to the process of moving assets from one IRA to another IRA without the account holder ever taking possession of the funds. This is also often referred to as a “trustee-to-trustee transfer.”… Read More
Diversification
Diversification refers to an investment strategy aimed at managing and reducing risk by spreading your investments across a wide range of assets. This approach involves not just investing in different asset classes like stocks, bonds,… Read More
Dollar-Cost Averaging
Dollar-Cost Averaging (DCA) is an investment strategy often used within the Individual Retirement Account (IRA) industry, as well as other investment scenarios. This strategy involves regularly investing a fixed amount of money into a specific… Read More
Early Distribution Penalty
The Early Distribution Penalty refers to a financial penalty imposed on individuals who withdraw funds from their retirement accounts, such as an Individual Retirement Account (IRA) or a 401(k) plan, before reaching a specified age.… Read More
Excess Contribution
An Excess Contribution refers to the amount of money contributed to an IRA that exceeds the allowable contribution limits set by the IRS for a given tax year. These limits can vary depending on the… Read More
Expense Ratio
The Expense Ratio refers to the total percentage of a fund’s assets that are used for administrative, management, advertising, and other expenses of the fund. This ratio is a measure of what it costs an… Read More
Fee-Based Advisor
A Fee-Based Advisor typically refers to a financial professional who provides investment advice and management services for a fee. This fee can be structured in various ways, but it is generally separate from and not… Read More
Fee-Only Advisor
A Fee-Only Advisor refers to a financial advisor who is compensated solely through direct fees paid by their clients, rather than through commissions or other forms of indirect compensation. This type of advisor typically charges… Read More
Fiduciary Duty
In a Delaware Statutory Trusts (DST) and Individual Retirement Accounts (IRA), fiduciary duty refers to the legal and ethical obligation that a fiduciary (such as a trustee, financial advisor, or investment manager) has to act… Read More
401k Terms
Diversification
Diversification refers to an investment strategy aimed at managing and reducing risk by spreading your investments across a wide range of assets. This approach involves not just investing in different asset classes like stocks, bonds,… Read More
Early Distribution Penalty
The Early Distribution Penalty refers to a financial penalty imposed on individuals who withdraw funds from their retirement accounts, such as an Individual Retirement Account (IRA) or a 401(k) plan, before reaching a specified age.… Read More
Early Withdrawal Penalty
An Early Withdrawal Penalty is a fee that you may incur if you withdraw funds from certain types of long-term savings accounts, such as Individual Retirement Accounts (IRA) and 401(k) plans, before a specific age… Read More
Elective Deferral
An Elective Deferral, as it pertains to a 401(k) retirement savings plan, is an important feature that allows employees to contribute a portion of their wages to the plan on a pre-tax basis. Here’s a… Read More
Eligibility
With a 401(k), eligibility refers to the requirements that an employee must meet in order to participate in a 401(k) plan. These requirements are set by the employer and may vary from plan to plan.… Read More
Employee Retirement Income Security Act (ERISA)
The Employee Retirement Income Security Act (ERISA) of 1974 is a federal law that sets minimum standards for most voluntarily established retirement and health plans in private industry to provide protection for individuals in these… Read More
Employer Stock
Employer stock in a 401(k) plan refers to the shares of the sponsoring employer’s own company that are offered as an investment option within the company’s 401(k) retirement plan. Employees participating in the 401(k) plan… Read More
Employer-Sponsored Retirement Plan
An employer-sponsored retirement plan is a type of investment plan that allows employees to save for retirement with help from their employer. This term can refer to several different types of plans, but one of… Read More
Enrollment
In the 401k industry, “enrollment” refers to the process by which an employee elects to participate in their employer’s 401k plan. This generally involves choosing how much of their pre-tax salary to contribute to the… Read More
Fiduciary
In the 401(k) industry, the concept of fiduciary responsibility is central to the governance and management of retirement plans. A fiduciary is typically involved in key decision-making processes that affect the plan and its participants.… Read More
Financial Advisor
A Financial Advisor is a professional who provides guidance to individuals and companies on managing their 401(k) retirement plans. Financial Advisors in this context often perform the following roles: Investment Guidance: They assist clients in… Read More
Fund Expense Ratio
The Fund Expense Ratio in the context of the 401k industry refers to the percentage of a mutual fund, index fund, or exchange-traded fund’s (ETF’s) total assets that are used for administrative, management, advertising, and… Read More