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
Cash Equivalence
Cash equivalence refers to any property or asset that is treated as cash for the purposes of the exchange. This means that the property or asset can be used to satisfy the requirement for the… 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
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
Combined Income and Capital Gain Tax Rates
Combined Income and Capital Gain Tax Rates generally refers to the total amount of tax a taxpayer would have to pay if they were to sell an asset, combining both the income tax due on… 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
Constructive Receipt
Constructive Receipt is a concept within the 1031 exchange industry, which refers to the point at which a taxpayer is considered to have gained control or access to the proceeds from the sale of a… Read More
Cooperation Clause
a cooperation clause refers to a provision that is often included in the purchase agreement between the buyer and seller of the properties being exchanged. This clause requires both parties to cooperate with each other… Read More
Cost Basis
Cost basis refers to the original value or cost of a property for tax purposes. In simpler terms, it’s what you initially paid for the property, including the purchase price and any related costs (such… 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
Deduction
The term deduction refers to a decrease in taxable income due to the expenses or losses incurred during the course of the exchange. A 1031 exchange, also known as a like-kind exchange, is a mechanism… Read More
Deemed Exchange
A deemed exchange refers to a transaction that is treated as a tax-deferred exchange under Section 1031 of the Internal Revenue Code, even though there is not a simultaneous exchange of properties between the parties… Read More
Deferred Exchange
A deferred exchange, often referred to as a 1031 exchange or a like-kind exchange, is a tax-deferred transaction that allows property owners to replace a property with another “like-kind” property while deferring the payment of… Read More
TIC Terms
Commission
A commission is a fee or payment made to a real estate agent or broker for services provided in facilitating a real estate transaction. It is usually a percentage of the property’s sale price and… Read More
Common Area
A common area is a portion of a property that is available for use by all tenants, occupants, or owners. Common areas serve the collective interests and needs of the individuals using the building or… 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
Devisee
In the realm of real estate investments, particularly when dealing with Tenants in Common (TIC) arrangements, the term devisee holds significant importance. A devisee is a person or entity that is specifically named in a… 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
Encumbrance
Encumbrance refers to any legal claim or liability that is attached to a property. It can limit the owner’s ability to use the property or transfer ownership until the encumbrance is lifted. Types of encumbrances… 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
Escrow
Escrow is a legal concept in which a financial instrument or an asset is held by a third party on behalf of two other parties that are in the process of completing a transaction. The… Read More
Eviction
Eviction is a legal process that a property owner or manager initiates to remove a tenant from a rental property. This process is typically initiated due to a violation of the terms of the lease… Read More
Executor
Understanding how an executor operates can be quite relevant in real estate investing, as they can potentially control the sale or distribution of real property after someone’s death. An executor, more generally, is a person… Read More
Force Majeure
Force Majeure is a clause that is typically included in contracts to remove liability for natural and unavoidable catastrophes that interrupt the expected course of events and restrict participants from fulfilling obligations. It essentially frees… Read More
DST Terms
Delaware Statutory Trust Agreement
A Delaware Statutory Trust agreement is the legal document that establishes the rules, structure, and operation of a Delaware Statutory Trust, often called a DST. In real estate investing, this agreement helps define how the… Read More
Delaware Statutory Trust Law
Delaware Statutory Trust law refers to the body of Delaware law that governs the formation, operation, and legal treatment of Delaware Statutory Trusts, commonly known as DSTs. These laws provide the legal framework that allows… Read More
Dissolution
Dissolution in the context of the Delaware statutory trust (DST) industry refers to the legal process by which a DST is terminated and its assets are distributed among the trust’s beneficiaries or other entities as… Read More
Distributions
Distributions in relation to Delaware Statutory Trusts (DST) are the monetary returns or payouts that the trust distributes to its beneficiaries or owners, who are typically investors. DSTs are commonly used in the real estate… 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
Duty of Care
Duty of Care is a legal concept prevalent in various forms of business, including the Delaware Statutory Trust industry. It refers to the obligation that a trustee or manager has to act with a certain… Read More
Duty of Loyalty
Duty of Loyalty is a fundamental aspect of the fiduciary duties that are owed by the trustees and directors in the Delaware statutory trust industry. This is based on Delaware law and it implies that… Read More
Entity Classification Election
Entity Classification Election generally refers to the choice made by an entity, such as a corporation or partnership, about how it should be classified for federal tax purposes. The term isn’t exclusive to the Delaware… 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
Exit Strategy
In the context of the Delaware Statutory Trust (DST) industry, an Exit Strategy refers to a plan outlining how investors can realize a return on their investment or exit the investment. A well-defined exit strategy… 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
Indenture
An indenture typically refers to a formal legal agreement, contract, or document between two or more parties, particularly concerning a loan or the issuance of bonds. When dealing with real estate investment, an indenture might… Read More
REIT Terms
Equity REIT
An Equity Real Estate Investment Trust, or Equity REIT, is a type of company within the real estate investment industry that owns, operates, and manages income-producing real estate. This real estate may include a wide… Read More
Gross Lease
A gross lease refers to a specific type of commercial lease arrangement where the tenant pays a fixed rental amount, and the landlord assumes responsibility for most, if not all, of the property’s operational expenses.… Read More
Gross Rent Multiplier (GRM)
The Gross Rent Multiplier (GRM) is a valuation metric used in the real estate investment industry. It’s calculated by dividing the purchase price of a property by its gross annual rental income before expenses. GRM… Read More
Ground Lease
A ground lease refers to an agreement in which a tenant is permitted to develop a piece of property during the lease period, after which the land and all improvements are turned back over to… Read More
Hybrid REIT
A Hybrid Real Estate Investment Trust (REIT) is a type of REIT that combines the investment strategies of both equity REITs and mortgage REITs. Equity REITs: These trusts invest in and own properties, generating income… Read More
Income Property
Income property refers to a property purchased or developed to earn income through renting, leasing, or price appreciation. This type of property usually provides a return on investment through either rental income or capital gains… 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 Rate Of Return (IRR)
Internal Rate of Return (IRR) is a financial metric that is widely used in the real estate investment industry to evaluate the profitability and potential returns of an investment over time. It represents the annualized… Read More
Landlord
A landlord refers to an individual, business, or entity that owns property and leases it to another party, known as a tenant, for a specified period of time. The property can be residential, commercial, or… Read More
Lease
A lease refers to a contractual arrangement between two parties: the lessor (owner or landlord) and the lessee (tenant). The lease agreement stipulates the terms and conditions under which the property (which can be residential,… Read More
Lease Rate
The Lease Rate refers to the cost of renting a particular property. It is the amount that a tenant must pay to the property owner or landlord for the right to use and occupy the… Read More
Lease Renewal
A Lease Renewal refers to the process of extending the term of a lease agreement between the landlord (which could be a real estate investor or property management company) and the tenant. This typically involves… Read More
NNN Terms
Expense Stop
An expense stop is a lease provision that limits the landlord’s obligation to pay for certain operating expenses of a property. The lease agreement will specify an expense stop, which is usually given as a… Read More
Fair Market Value
Fair Market Value (FMV) in the real estate investment industry refers to the estimated price at which a property would change hands between a willing buyer and a willing seller, both of whom are suitably… Read More
Fixed Rent
Fixed rent, in the context of the real estate investment industry, refers to a type of lease agreement where the tenant pays a pre-determined, unchanging amount of rent for a specified period of time. This… Read More
Force Majeure
Force Majeure is a clause that is typically included in contracts to remove liability for natural and unavoidable catastrophes that interrupt the expected course of events and restrict participants from fulfilling obligations. It essentially frees… Read More
Full Service Lease
A Full Service Lease (also known as a “Gross Lease”) is a type of commercial lease where the landlord is responsible for all the property-related expenses. These expenses include common expenses such as property taxes,… Read More
Gross Lease
A gross lease refers to a specific type of commercial lease arrangement where the tenant pays a fixed rental amount, and the landlord assumes responsibility for most, if not all, of the property’s operational expenses.… Read More
Ground Lease
A ground lease refers to an agreement in which a tenant is permitted to develop a piece of property during the lease period, after which the land and all improvements are turned back over to… Read More
HVAC
HVAC, an acronym for Heating, Ventilation, and Air Conditioning, is a crucial part of real estate investments. It refers to the different systems used for moving air between indoor and outdoor areas, as well as… Read More
Improvements
Improvements refer to alterations, additions, or enhancements made to a property to increase its value or utility. These can include structural changes, renovations, installations, or even landscape enhancements. Improvements can be classified into two main… Read More
Index Lease
Index Lease is a term referring to a type of lease agreement where rental payments are linked to a specific price index, such as the Consumer Price Index (CPI) or another relevant economic indicator. This… Read More
Landlord
A landlord refers to an individual, business, or entity that owns property and leases it to another party, known as a tenant, for a specified period of time. The property can be residential, commercial, or… Read More
Late Payment Penalty
A Late Payment Penalty refers to a charge that is added to a mortgage or other loan payment when payment is made after the due date. The grace period and the amount of the penalty… Read More
QOF Terms
Net Asset Value (NAV)
Net Asset Value (NAV) refers to the value of an entity’s assets minus the value of its liabilities. It represents the underlying value of the property or properties within a real estate investment, such as… Read More
Non-Qualified Financial Property (NQFP)
The concept of Non-Qualified Financial Property (NQFP) is related to the Qualified Opportunity Fund (QOF) industry, which is part of the U.S. tax code and was created by the Tax Cuts and Jobs Act of… Read More
Non-Qualified Opportunity Zone Property
Non-Qualified Opportunity Zone Property is a term that refers to an investment or property that does not meet the requirements to be considered a Qualified Opportunity Zone Property within the context of the Qualified Opportunity… Read More
Offering Memorandum
In a Delaware Statutory Trusts (DSTs) and Qualified Opportunity Funds (QOFs), an Offering Memorandum (OM) is a comprehensive legal document provided to potential investors that outlines the terms, risks, and details of the investment opportunity.… Read More
Operating Agreement
An “Operating Agreement” refers to a binding legal document that outlines the structural and management regulations of a Limited Liability Company (LLC) that may be set up to take advantage of Opportunity Zone tax benefits.… Read More
Operating Expenses
Operating Expenses refers to the costs associated with the operation, maintenance, and management of a property. These are the expenses a property owner incurs to keep the property running, not including any mortgage payments or… Read More
Opportunity Zone (OZ)
An Opportunity Zone (OZ) is a designated economically distressed community where private investments, under certain conditions, may be eligible for capital gain tax incentives. The Opportunity Zone program was established by Congress in the Tax… Read More
Opportunity Zone Business (OZB)
An Opportunity Zone Business (OZB) refers to a trade or business in which substantially all of the tangible property owned or leased by the taxpayer is Opportunity Zone Business Property (OZBP) and which meets other… Read More
Original Use
The term original use refers to the initial use or placement into service of a property in a manner that qualifies it for tax benefits under these investment strategies. Here’s how it applies to each… Read More
Original Use Commencement Date
Particularly in relation to U.S. tax incentives for investing in Opportunity Zones, the term Original Use Commencement Date typically refers to the date on which a particular property located within an Opportunity Zone begins its… Read More
Pre-Existing Business
A Pre-Existing Business refers to a business that was already in operation before the designation of an area as a Qualified Opportunity Zone (QOZ). The QOF program was established by the Tax Cuts and Jobs… Read More
Preferred Return
The term Preferred Return is not exclusive to the Qualified Opportunity Fund (QOF) industry but is a concept used in various investment contexts, including private equity, real estate, and venture capital. In the context of… Read More
IRA Terms
Fixed Amortization
Fixed Amortization is a method used to calculate the payment amount required to pay off a debt (such as a mortgage or loan) in equal payments over a specified period. This method ensures that every… Read More
Fixed Annuitization
Fixed Annuitization, a term used within the IRA (Individual Retirement Account) industry, refers to a method of distributing IRA assets through a series of guaranteed payments over a specified period or over the life of… Read More
Fixed Annuity
A Fixed Annuity is a type of investment product that provides a guaranteed rate of return for a specified period of time. It’s essentially a contract between an investor and an insurance company, where the… Read More
Form 5498
Form 5498 is an IRS form titled “IRA Contribution Information.” It’s a tax form used by financial institutions to report contributions to an individual’s Individual Retirement Arrangement (IRA), including Traditional IRAs, Roth IRAs, SIMPLE IRAs,… Read More
Form 8606
Form 8606 is a tax form used by individuals in the United States to report non-deductible contributions to their Traditional IRAs. When individuals make contributions to a Traditional IRA, they can sometimes take a tax… Read More
Immediate Annuity
An immediate annuity refers to an annuity contract that is designed to provide a stream of income almost immediately after the investment is made. Here’s how it typically works in the context of IRAs: Purchase:… Read More
Index Fund
An index fund, when used within an Individual Retirement Account (IRA) industry, refers to a type of mutual fund or exchange-traded fund (ETF) designed to follow and mirror the performance of a specific market index,… Read More
Individual Retirement Account (IRA)
An Individual Retirement Account (IRA) is a retirement savings account that offers tax advantages in the United States to encourage individuals to save for their retirement. There are several types of IRAs, each with its… Read More
Inherited IRA
An Inherited IRA, also known as a Beneficiary IRA, is a type of Individual Retirement Account that is acquired by the non-spouse beneficiary of a deceased IRA owner. It allows the beneficiary to receive the… Read More
Investment Advisor
An Investment Advisor is a professional who provides guidance and advice to clients on their retirement savings and investment strategies. Their role typically involves: Retirement Planning: Helping clients create a retirement plan, including assessing the… Read More
IRA Aggregation Rule
The IRA Aggregation Rule is a tax regulation in the United States that relates to Individual Retirement Accounts (IRAs). This rule essentially states that for certain tax purposes, all IRAs owned by an individual are… Read More
Non-spouse Beneficiary
A Non-spouse Beneficiary refers to a specific individual or entity designated to inherit assets from an Individual Retirement Account (IRA) or other retirement savings plans who is not the spouse of the account owner. When… Read More
401k Terms
Hardship Withdrawal
A Hardship Withdrawal is a feature in many 401(k) retirement plans that allows participants to withdraw funds from their accounts to meet immediate and heavy financial needs. These withdrawals may be subject to taxes and… Read More
In-service Withdrawal
In-service withdrawal is a term used in the 401(k) industry to describe a transaction allowing an employee to withdraw funds from their 401(k) plan while they are still employed. This type of withdrawal is often… Read More
Investment Options
Investment options within the 401(k) industry refer to the various types of investments that are available to participants in a 401(k) plan. These options typically include a range of asset classes to cater to the… Read More
Loan
In the 401(k) industry, a loan refers to the ability of participants to borrow money from their own 401(k) account balance. Here are some key points about 401(k) loans: Loan Limits: Typically, the maximum amount… Read More
Mutual Fund
Mutual funds within a 401(k) play a pivotal role by offering employees a convenient and relatively straightforward way to participate in the financial markets. Here’s a detailed description of mutual funds in the 401(k) industry:… Read More
Non-Discrimination Testing
Non-Discrimination Testing in a 401(k) plan refers to a series of tests required by the Internal Revenue Service (IRS) to ensure that a 401(k) plan does not unfairly favor highly compensated employees (HCEs) over non-highly… Read More
Passive Investment
Passive investment for a 401(k) plan refers to a strategy that aims to maximize returns over the long run by keeping the amount of buying and selling to a minimum. This approach is based on… Read More
Portfolio
The concept of a portfolio within the 401(k) industry is fundamental to retirement planning, and understanding its nuances is key for investors who are working towards securing their financial future. Composition of a 401(k) Portfolio:… Read More
Pre-Tax Contributions
Pre-tax contributions for a 401(k) plan refer to the money that is invested into the retirement plan before any taxes are applied to the individual’s income. Here’s how it works: Contribution: The employee elects to… Read More
Qualified Default Investment Alternative (QDIA)
A Qualified Default Investment Alternative (QDIA) is a critical component of many 401(k) retirement plans, offering a solution for participants who do not want to, or do not have the expertise to, make complex investment… Read More
Qualified Plan
A Qualified Plan in 401(k) industry is a retirement plan that meets the requirements established by the Internal Revenue Code (IRC) and the Employee Retirement Income Security Act of 1974 (ERISA), thereby qualifying for favorable… Read More
Rebalance
In a 401(k) plan, which is a retirement savings plan offered by many American employers, rebalancing refers to the process of realigning the weightings of the assets in the portfolio. Over time, as different investments… Read More