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
Deferred Sales Trust
A Deferred Sales Trust (DST) is a type of financial arrangement used in real estate transactions, particularly as an alternative to a 1031 exchange. In a traditional 1031 exchange, also known as a like-kind exchange,… Read More
Delayed Exchange
A Delayed Exchange is a tax-deferment strategy that allows an investor to dispose of a property and subsequently acquire another property to defer capital gain taxes. This method is under Section 1031 of the U.S.… Read More
Depreciable Property
Depreciable property refers to certain types of real or personal property that have a useful life of more than one year and are used in a trade or business or held for investment purposes. This… Read More
Depreciation
Depreciation is a term used in the 1031 exchange industry to refer to the reduction in the value of a property over time due to wear and tear, deterioration, and obsolescence. It is an accounting… Read More
Depreciation Recapture
Depreciation recapture is a tax concept that can come into play when a property owner sells an asset that has been depreciated for tax purposes. In the context of a 1031 exchange, which allows for… Read More
Designated Entity
A Designated Entity refers to the party who is identified and set up to receive the “like-kind” property on behalf of the exchanger. This arrangement is often made to comply with the “no actual or… Read More
Direct Deed
In a 1031 exchange, a Direct Deed is a legal instrument used in the process of a tax-deferred exchange under Section 1031 of the U.S. Internal Revenue Code. The term refers to the method of… Read More
Direct Deeding
Direct deeding refers to the process by which property is directly deeded from the seller to the buyer. This process is facilitated by a Qualified Intermediary (QI), who handles all of the necessary documentation to… Read More
Disposition
A disposition refers to the sale or relinquishment of the property that the owner is looking to exchange. The 1031 exchange, also known as a like-kind exchange or a Starker exchange, allows an investor to… 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
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
Exchange
A 1031 exchange is a strategy in the U.S. real estate industry used to defer paying capital gains taxes when selling a property. It gets its name from Section 1031 of the U.S. Internal Revenue… Read More
TIC Terms
Foreclosure
Foreclosure refers to the legal process by which a lender attempts to recover the balance of a loan from a borrower who has stopped making payments. This process is conducted by forcing the sale of… Read More
Guarantor
A guarantor is an individual or entity that ensures or guarantees the loan obligations of another individual or entity, typically the borrower. A guarantor steps in and becomes legally responsible for paying the debt or… Read More
Heir
An heir is a person who is legally entitled to inherit the assets or property of another individual upon their death. This is often due to familial relations or specified in a legal document like… Read More
Holdover Tenant
A Holdover Tenant refers to a tenant who continues to occupy a property after their lease has expired but without the landlord’s explicit permission to do so. In general, holdover tenants can be problematic for… Read More
Homeowner’s Association (HOA)
A Homeowners’ Association (HOA) is an organization in a subdivision, planned community, or condominium that makes and enforces rules for the properties and their residents. An HOA can play a significant role in preserving property… Read More
Intestate
Intestate refers to dying without having made a valid will or other binding declaration. When someone dies intestate, it means that they have not left instructions regarding the distribution of their assets, including real estate… Read More
Joint Tenancy
Joint Tenancy is a legal term used in the real estate investment industry to describe a specific form of ownership by two or more parties. It has certain characteristics that distinguish it from other types… Read More
Jointly And Severally
Jointly and severally is a legal term that is used to describe a situation where two or more parties are responsible together and individually for a particular obligation or liability. In the context of tenants… 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
Landlord’s Lien
A Landlord’s Lien is a legal concept within the real estate industry that refers to a security interest or legal right that a landlord has over the tenant’s personal property. This lien can be used… Read More
Late Fee
A Late Fee refers to a charge that is added to a regular payment when it is not paid on time. Late fees are typically stipulated in a lease or mortgage agreement and serve as… 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
DST Terms
Independent Trustee
The role of an Independent Trustee within a Delaware Statutory Trust (DST) is multifaceted, serving to enhance the integrity and function of the trust structure, especially in investment scenarios. Here’s an expanded view of the… 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
Investment Trust
An Investment Trust refers to a legally recognized trust that’s created for the purpose of business, especially investment. Delaware Statutory Trusts are often used for investment purposes, including holding, managing, administering, investing, or operating a… Read More
Legal Opinion
A legal opinion is a written statement provided by an attorney or law firm that offers an analysis or conclusion regarding a legal matter or transaction related to a real estate investment. It often serves… 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 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
Liquidation
Liquidation refers to the process of selling off assets, typically real estate properties, to convert them into cash. This might occur for various reasons, such as to pay off debts, realize gains, or wind down… Read More
Merger
A merger, in the Delaware Statutory Trust (DST) industry, is the legal process in which one or more trusts combine to form a new entity or one trust absorbs another. This can be part of… Read More
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
Note
The term note refers to a debt instrument or a promise to pay a specified amount of money, either on demand or at a future specified date. DSTs are often used in the real estate… 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
REIT Terms
Lease Term
A Lease Term refers to the period for which a lease agreement is valid between the landlord and tenant. It is a specific duration of time during which the tenant has the legal right to… Read More
Lease Termination
In the real estate investment industry, Lease Termination refers to the ending of a lease agreement between the landlord (often the real estate investor or owner) and the tenant before the originally agreed-upon expiration date.… Read More
LTV
LTV stands for “Loan-to-Value.” It’s a ratio that compares the amount of a loan to the appraised value or market value of the property that will secure the loan. Essentially, it represents the percentage of… Read More
Market Value
Market Value refers to the most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and… Read More
Mixed-Use Property
Mixed-use property refers to a real estate development that combines different uses within a single property, typically blending residential, commercial, cultural, institutional, or industrial functions. This can be a highly efficient use of space and… Read More
Mortgage
A mortgage refers to a legal agreement by which a financial institution, such as a bank or mortgage lender, lends money to a borrower at interest. In exchange, the lender takes the title of the… Read More
Mortgage REIT
A Mortgage Real Estate Investment Trust (REIT) is a type of company within the real estate investment industry that focuses on owning, financing, or investing in mortgages and mortgage-related securities. Unlike Equity REITs, which directly… Read More
Mortgage-Backed Securities
Mortgage-Backed Securities (MBS) are a type of investment product that plays a significant role in the real estate investment industry. Mortgage-Backed Securities (MBS) are financial instruments that are backed by a pool of mortgages, typically… Read More
Multi-Family Property
A Multi-Family Property refers to a type of residential property that consists of multiple individual housing units within a single building or complex. These units may be condominiums, apartments, townhouses, or other similar housing structures… Read More
Net Lease
A net lease is a lease agreement where the tenant is responsible for paying not only the rent but also some or all of the property’s operating expenses. These expenses may include property taxes, insurance,… Read More
Net Operating Income (NOI)
Net Operating Income (NOI) is a key metric in the real estate investment industry that represents the total revenue generated from a property, minus the operating expenses. It is used to evaluate the profitability and… Read More
NOI Margin
NOI, or Net Operating Income represents the total income a property generates after accounting for all operational expenses, but before accounting for mortgage interest and capital expenditures. It gives an investor or property owner a clear… Read More
NNN Terms
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
Leasehold Improvements
Leasehold improvements, also known as tenant improvements, are alterations made to a rental property to suit the needs of a tenant. Within the real estate investment industry, these are specific changes or additions that a… Read More
Lessee
A Lessee refers to a person, entity, or party that leases or rents a property from the owner. The lease agreement is a contract that outlines the terms and conditions of the rental, including the… Read More
Lessor
Lessor plays a crucial role, particularly in lease agreements. A lessor is the individual, corporation, or entity that holds legal ownership of a property and provides another party, referred to as the lessee, with the… Read More
Letter Of Credit
A Letter of Credit (LC) is a financial instrument issued by a bank or financial institution. It serves as a guarantee of a buyer’s payment to a seller within a specified timeframe and for a… Read More
Maintenance
Maintenance refers to the regular, ongoing care and upkeep of a property to ensure that it remains in good condition and functions as intended. This includes tasks such as repairing broken fixtures, painting, cleaning, landscaping,… Read More
Market Rent
Market Rent is the amount of rent that a property would likely command in the open market, based on comparable rental rates for similar properties in the same location or area. It represents the most… Read More
Modified Gross Lease
A Modified Gross Lease (also known as a Modified Net Lease) is a type of commercial lease where both the landlord and tenant share some of the property’s operating expenses. Under a Modified Gross Lease,… Read More
Net Lease
A net lease is a lease agreement where the tenant is responsible for paying not only the rent but also some or all of the property’s operating expenses. These expenses may include property taxes, insurance,… Read More
Net Operating Income (NOI)
Net Operating Income (NOI) is a key metric in the real estate investment industry that represents the total revenue generated from a property, minus the operating expenses. It is used to evaluate the profitability and… Read More
Non-Disturbance Clause
A Non-Disturbance Clause is a provision commonly found in real estate agreements, particularly in commercial leases and financing arrangements. It aims to protect tenants and other parties with an interest in the property in the… 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
QOF Terms
Private Placement
A Private Placement refers to the sale of securities or investment opportunities in a real estate venture to a select group of investors rather than the general public. This is often done to raise capital… Read More
Pro Rata
Pro rata is a Latin term that means “in proportion.” Pro rata is often used to describe the allocation or distribution of funds or benefits in proportion to each investor’s stake or investment. The QOF is… Read More
Qualified Opportunity Fund (QOF)
A Qualified Opportunity Fund (QOF) is a vital component within the Qualified Opportunity Zone (QOZ) program, which was established by the Tax Cuts and Jobs Act of 2017 in the United States. The QOZ program… Read More
Qualified Opportunity Zone (QOZ) Business
A Qualified Opportunity Zone (QOZ) Business is part of the broader Qualified Opportunity Fund (QOF) industry, which stems from the Tax Cuts and Jobs Act of 2017 in the United States. This regulation was established… Read More
Qualified Opportunity Zone (QOZ) Business Property
Qualified Opportunity Zone (QOZ) Business Property is a term that is integral to the Qualified Opportunity Fund (QOF) industry in the United States. Established through the Tax Cuts and Jobs Act of 2017, QOFs are… Read More
Qualified Opportunity Zone (QOZ) Fund
A Qualified Opportunity Zone (QOZ) Fund is a critical component within the Qualified Opportunity Fund industry, established as a part of the Tax Cuts and Jobs Act in 2017 in the United States. A QOZ… Read More
Qualified Opportunity Zone (QOZ) Partnership
A Qualified Opportunity Zone (QOZ) Partnership is a significant concept in the Qualified Opportunity Fund (QOF) industry, part of a U.S. tax incentive to encourage investment in economically distressed communities, known as Qualified Opportunity Zones… Read More
Qualified Opportunity Zone (QOZ) Stock
Qualified Opportunity Zone (QOZ) Stock is a concept linked to the Qualified Opportunity Fund (QOF) industry, a part of a U.S. federal program established to encourage investment in economically distressed communities known as Qualified Opportunity… Read More
Qualified Opportunity Zone Property (QOZP)
The Qualified Opportunity Zone Property (QOZP) is a significant concept in the Qualified Opportunity Fund (QOF) industry, which emerged from the Tax Cuts and Jobs Act of 2017 in the United States. A Qualified Opportunity… Read More
Related Party
In a 1031 exchange and Qualified Opportunity Funds (QOFs), the term related party refers to individuals or entities that have a close relationship with the taxpayer, such that transactions between them may not be considered… Read More
Return On Investment (ROI)
Return on Investment (ROI) is a key performance metric commonly used in various industries, including real estate investment, to evaluate the profitability and efficiency of an investment. In the context of the real estate investment… Read More
Shareholder
A shareholder in the Qualified Opportunity Fund industry is an investor who has a stake in a QOF, aiming to reap tax benefits while also contributing to the economic development of distressed communities designated as… Read More
IRA Terms
Nondeductible Contribution
A nondeductible contribution in the context of the Individual Retirement Account (IRA) industry refers to money that you put into an IRA for which you cannot take a tax deduction. Different types of IRAs have… Read More
Passive Management
Passive Management refers to an investment strategy that emphasizes minimizing buying and selling actions, aiming instead to mirror the performance of a specific market index or benchmark. This approach contrasts with active management, which involves… Read More
Prohibited Transaction
A Prohibited Transaction refers to certain types of dealings between the IRA and disqualified persons. The Internal Revenue Service (IRS) has set forth rules to ensure that IRAs are used primarily for retirement purposes and… Read More
Qualified Charitable Distribution (QCD)
A Qualified Charitable Distribution (QCD) is a provision in the U.S. tax code that allows individuals who are 70½ years old or older to directly transfer up to $100,000 per year from their Individual Retirement… Read More
Qualified Distribution
A Qualified Distribution refers to a distribution (withdrawal) from an account that meets certain criteria so that it is not subject to early withdrawal penalties or, in some cases, taxation. For a Roth IRA, a… Read More
Qualified Longevity Annuity Contract (QLAC)
A Qualified Longevity Annuity Contract (QLAC) is a type of financial product in the IRA (Individual Retirement Account) industry designed to provide a reliable income stream later in retirement. Here are some key points about… Read More
Rebalancing
Rebalancing refers to the process of adjusting the holdings in an IRA portfolio to ensure that they align with the investor’s desired asset allocation. Over time, due to market fluctuations and differing performances of various… Read More
Recharacterization
Recharacterization in the context of the IRA (Individual Retirement Account) refers to the process of changing the classification of one’s IRA contribution or conversion. This process allows taxpayers to undo or reverse their IRA contributions… Read More
Required Beginning Date (RBD)
The Required Beginning Date (RBD) is a term used in the Individual Retirement Account (IRA) industry in the United States. It refers to the date by which a holder of an IRA or a retirement… Read More
Required Minimum Distribution (RMD)
The term required minimum distribution (RMD) refers to the minimum amount of money that a retiree must withdraw annually from their retirement savings accounts starting at a certain age. This requirement is put in place… Read More
Risk Tolerance
Risk tolerance refers to an individual’s capacity or willingness to endure declines in the value of their investment in exchange for the potential for higher returns. This concept is crucial in retirement planning and investment… Read More
Rollover IRA
A Rollover IRA is a type of Individual Retirement Account (IRA) that allows individuals to transfer funds from another retirement account, such as a 401(k) or 403(b), into the IRA without incurring immediate tax penalties.… Read More
401k Terms
Required Minimum Distribution (RMD)
The term required minimum distribution (RMD) refers to the minimum amount of money that a retiree must withdraw annually from their retirement savings accounts starting at a certain age. This requirement is put in place… Read More
Rollover
With a 401(k) plan, which is a type of retirement savings plan sponsored by an employer, a rollover refers to the process of transferring the funds from your 401(k) account to another retirement plan or… Read More
Roth 401(k)
A Roth 401(k) is a type of retirement savings plan that blends some of the characteristics of a traditional 401(k) with those of a Roth IRA. Within the 401(k) industry, it represents a retirement savings… Read More
Safe Harbor 401(k) Plan
The Safe Harbor 401(k) Plan is a distinctive kind of retirement plan that serves as a subset within the broader 401(k) industry. Here’s a more detailed explanation of its key features: Non-Discrimination Tests: Traditional 401(k)… Read More
Salary Deferral
Salary deferral in a 401(k) plan refers to an agreement where an employee elects to have a portion of their salary paid into a 401(k) plan, instead of receiving it directly as cash compensation. This… Read More
Target-Date Fund
A target-date fund (TDF) is a type of mutual fund or exchange-traded fund (ETF) specifically designed for retirement savings, commonly found in 401(k) plans, IRAs, and other retirement accounts. These funds are structured with a… Read More
Tax Deduction
A tax deduction, within the 401(k) industry, refers to the reduction of taxable income for individuals or businesses that contribute to a 401(k) plan. Contributions to traditional 401(k) plans are typically made with pre-tax dollars,… Read More
Tax-Deferred Growth
Tax-deferred growth refers to the concept where investment earnings—such as interest, dividends, and capital gains—accumulate within these retirement accounts without being subject to taxes until the funds are eventually withdrawn. This feature is a key… Read More
Vesting
With a 401(k) plan, vesting refers to the process by which an employee earns the right to keep the employer’s contributions to their 401(k) plan. Here’s how it typically works: Employee Contributions: Any contributions that… Read More
Vesting Schedule
A vesting schedule in a 401(k) plan refers to the process by which employees earn non-forfeitable rights to employer contributions made to their 401(k) accounts. In simpler terms, it’s the timetable on which an employee… Read More
Withdrawal
In the 401(k) industry, withdrawal refers to the action of taking money out from a 401(k) plan, which is a retirement savings plan sponsored by an employer. It lets workers save and invest a portion… Read More
Year-End True-Up
The term Year-End True-Up in the 401(k) industry refers to the process of ensuring that employees receive the full employer match to which they are entitled based on their annual contributions. Throughout the year, employers… Read More