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
Exchange Accommodation Titleholder (EAT)
An Exchange Accommodation Titleholder (EAT) is an entity used in a specific type of 1031 exchange known as a reverse exchange. Under Section 1031 of the Internal Revenue Code, a taxpayer may defer capital gains… Read More
Exchange Agreement
In a 1031 exchange, an exchange agreement is a legal document that outlines the terms and conditions of the exchange between the taxpayer (also known as the “exchanger”) and the qualified intermediary (QI) or accommodator… Read More
Exchange Funds Account
An exchange funds account refers to an account held by a neutral third party, also known as a qualified intermediary (QI), during the process of a 1031 exchange. This type of exchange is based on… Read More
Exchange Period
The Exchange Period refers to the time frame during which a taxpayer who has sold a property must acquire a replacement property to complete the exchange. This period is defined by IRS code Section 1031.… Read More
Exchangor / Exchanger
An exchangor or exchanger refers to an individual or entity that is selling a property and planning to use the proceeds from that sale to purchase a like-kind property as part of a 1031 exchange.… Read More
Excluded Property
Excluded Property refers to certain types of property that are not eligible for a 1031 exchange. This is based on Section 1031 of the U.S. Internal Revenue Code, which allows for the deferment of paying… 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
Forward Exchange
A Forward Exchange is a common type of like-kind exchange under U.S. Internal Revenue Code Section 1031. It allows the deferral of capital gains taxes when an investment property is sold and a similar property… Read More
Fractional Interest
In the real estate investment industry, a fractional interest refers to the portion of an investment in a piece of real property that is less than full ownership. This is when an investor owns a… Read More
Fractional Ownership
Fractional ownership is a type of shared property ownership where multiple individuals have rights to use the property, and each owner holds a certain percentage or “fraction” of the asset. In this investment strategy, the… Read More
Fully Taxable Exchange
In the 1031 exchange industry, a fully taxable exchange refers to a situation where an investor disposes of a property without following the rules that would allow for a tax-deferred exchange under Section 1031 of… Read More
Identification Period
In the context of a 1031 exchange (a tax-deferred exchange), the Identification Period is a specific, IRS-designated period during which the taxpayer who is selling their property (referred to as the “Relinquished Property”) must identify… Read More
TIC Terms
Lease Option
A lease option is a contract that allows a tenant the right to purchase a property during or at the end of a rental period. It’s a common real estate investment strategy that combines elements… Read More
Lease Purchase
A Lease Purchase is a financial arrangement that combines elements of a traditional lease with the option of purchasing the property at the end of the lease term or during a specified period within 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
Leasehold
Leasehold refers to a property tenure where a person, the leaseholder or lessee, is given the right to occupy and use a property for a set period of time. This is accomplished through a lease… Read More
Lien
A lien refers to a legal claim or right that a lender or creditor has over a property until a debt that the property owner owes is paid off. When a property owner takes out… 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
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
Multiple Listing Service (MLS)
Multiple Listing Service (MLS) is a critical tool within the real estate investment industry, primarily used in the United States and Canada. It’s a service that gathers, compiles, and disseminates information about real estate properties… Read More
Non-Accredited Investor
In the realm of real estate investment, the term non-accredited investor refers to an individual who does not meet the specific financial criteria established by the Securities and Exchange Commission (SEC) for accredited investor status.… Read More
Notice To Quit
In the real estate investment industry and landlord-tenant relationships, a Notice to Quit is a formal written notice given by a landlord to a tenant indicating that the tenant must vacate the rented premises within… Read More
Option Fee
An Option Fee is a sum of money paid by a potential buyer to a seller for the exclusive right to purchase a property at a later date. This fee gives the buyer the “option”… Read More
Partition
A partition refers to the division of co-owned property. When multiple people own property as tenants in common (TIC), each has an undivided interest in the whole property. Over time, one or more co-owners may… Read More
DST Terms
Offering Price
The Offering Price generally refers to the price at which units or beneficial interests in the trust are offered to potential investors. It represents the amount an investor is expected to pay to acquire a… Read More
Principal
In a Real Estate Investment Trusts (REITs) and Delaware Statutory Trusts (DSTs), the term principal is a key financial concept that refers to the original amount of money invested by an individual or entity. It… Read More
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
Public Offering
A Public Offering in the Delaware Statutory Trust (DST) industry refers to the sale of beneficial interests in a DST to the general public. This type of offering allows investors to buy a stake in… Read More
Qualified Institutional Buyer (QIB)
A Qualified Institutional Buyer (QIB) is a term primarily associated with Rule 144A of the United States Securities Act of 1933. A QIB is typically a large institutional investor, like a bank, insurance company, or pension… Read More
Real Estate Investment Trust (REIT)
A Real Estate Investment Trust (REIT) is a company that owns, operates, or finances income-generating real estate in a range of property sectors. These real estate companies have to meet a number of requirements to… Read More
Redemption
Redemption refers to the act of an investor exiting an investment, usually a real estate investment trust (REIT), private real estate fund, or a Delaware statutory trust (DST). This process involves selling the investor’s shares… Read More
Regulatory Compliance
Regulatory compliance refers to the obligation of DST sponsors, managers, and stakeholders to adhere to the legal, regulatory, and procedural standards set forth by the state of Delaware and any other applicable federal regulations concerning… Read More
Restatement
Restatement refers to the action or process of modifying, amending, or updating the trust agreement or governing document of a DST. Delaware Statutory Trusts are legal entities that allow for fractional ownership of real estate… 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
Risk Management
Risk management is the systematic process of identifying, evaluating, prioritizing, and addressing potential financial, operational, and external threats associated with real estate investments. The primary objective is to protect the investor’s capital, achieve expected returns,… Read More
Securities and Exchange Commission (SEC)
The Securities and Exchange Commission (SEC) plays a pivotal role in the oversight and regulation of various sectors within the financial industry, including real estate investments. The SEC is a U.S. federal agency responsible for… Read More
REIT Terms
Non-Traded REIT
A Non-Traded REIT stands for a Non-Traded Real Estate Investment Trust. It is a type of REIT (Real Estate Investment Trust) that is not listed on a national securities exchange, which means that it is… Read More
Occupancy Rate
The Occupancy Rate is a metric used to evaluate the extent to which rental property is utilized. It is typically expressed as a percentage and represents the proportion of rented or occupied units to 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
Operating Partnership Unit (Op Unit)
In the Real Estate Investment Trusts (REITs) industry, an Operating Partnership Unit (Op Unit) is a type of ownership interest. Here’s a detailed explanation: Real Estate Investment Trusts (REITs): REITs are entities that own, operate,… Read More
Percentage Rent
Particularly in the context of retail and commercial leases, percentage rent is a rental arrangement where the tenant pays a base rent plus a percentage of their gross income (or gross sales) to the landlord.… Read More
Principal
In a Real Estate Investment Trusts (REITs) and Delaware Statutory Trusts (DSTs), the term principal is a key financial concept that refers to the original amount of money invested by an individual or entity. It… Read More
Private REIT
A Private REIT (Real Estate Investment Trust) is a type of REIT that is not publicly traded on a stock exchange. It is, as the name suggests, private. Structure: Like all REITs, a Private REIT… Read More
Property Management
Property Management refers to the administration, oversight, and operation of real property, either residential or commercial, on behalf of the property owner. The primary role of a property manager is to serve as an intermediary… Read More
Publicly Traded REIT
A Publicly Traded REIT refers to a Real Estate Investment Trust that has shares listed and traded on a recognized stock exchange. REITs are companies that own, operate, or finance income-producing real estate across a… Read More
Real Estate Cycle
The real estate cycle refers to the recurring fluctuations in the growth, stability, decline, and recovery of real estate markets over time. Just as with many other types of economic cycles, the real estate cycle… Read More
Redemption
Redemption refers to the act of an investor exiting an investment, usually a real estate investment trust (REIT), private real estate fund, or a Delaware statutory trust (DST). This process involves selling the investor’s shares… Read More
Refinancing
Refinancing refers to the process of obtaining a new mortgage to replace the original mortgage on a property. This is typically done to take advantage of better loan terms or to extract equity from the… Read More
NNN Terms
Option To Renew
Option to Renew refers to a provision commonly found in lease agreements that allows the tenant the right, but not the obligation, to extend the term of the lease for an additional period. This provision… Read More
Percentage Rent
Particularly in the context of retail and commercial leases, percentage rent is a rental arrangement where the tenant pays a base rent plus a percentage of their gross income (or gross sales) to the landlord.… Read More
Personal Guarantee
A Personal Guarantee refers to a commitment made by an individual (often a business owner, principal, or major stakeholder) to be personally liable for the repayment of debt or the performance of contractual obligations, typically… Read More
Pro Rata Share
Pro Rata Share refers to an investor’s proportional share or allocation of a particular item, based on their ownership interest in a property or investment entity. This term is commonly used to determine how certain… Read More
Property Management
Property Management refers to the administration, oversight, and operation of real property, either residential or commercial, on behalf of the property owner. The primary role of a property manager is to serve as an intermediary… Read More
Property Tax
Property Tax is a recurrent tax levied by local or state government entities on the value of real estate properties, both land and improvements thereon, owned by individuals or entities. In the real estate investment context,… Read More
Recapture Clause
A recapture clause is a provision in a commercial real estate lease agreement that allows the landlord to reclaim some or all of a property’s space under certain conditions. This clause is commonly found in… Read More
Renewal Option
A Renewal Option is a provision commonly found in leases, especially long-term commercial leases. This provision gives the tenant the right, but not the obligation, to renew the lease under specified terms upon the expiration… Read More
Rent
Rent in the real estate investment industry is essential, acting as a pivotal source of income and value determination for investors and landlords. Investors primarily purchase properties with the expectation of leasing them out to… Read More
Rent Abatement
Rent abatement refers to a provision or clause in a lease agreement that allows for the reduction or complete cessation of rent payments for a specified period under certain conditions. These conditions can include necessary… Read More
Rent Commencement Date
The term Rent Commencement Date refers to the specific date on which a tenant’s obligation to pay rent begins under the terms of a lease agreement. This date may or may not coincide with the… Read More
Rentable Area
Rentable Area refers to the total area for which a landlord can charge tenants for occupancy. Rentable Area is a key concept primarily used in commercial real estate, such as office buildings, retail spaces, and… Read More
QOF Terms
Step-Up Basis
A step-up in basis refers to the adjusted value of an inherited asset for tax purposes. Here’s a more detailed breakdown: Basis: In tax terms, “basis” typically refers to the original value of an asset… Read More
Subscription Agreement
A subscription agreement serves as a crucial legal document that formalizes an investor’s commitment to purchase shares or interests in these specific investment vehicles. This document plays a pivotal role in the investment process, ensuring… Read More
Substantial Improvement
The concept of substantial improvement plays a crucial role in determining whether certain tax benefits are available to investors. While the term is more explicitly defined within the framework of QOFs, it can also be… Read More
Substantially-All Test
The Substantially-All Test is a requirement within the framework of the Qualified Opportunity Fund (QOF) industry, particularly in reference to investments in Opportunity Zones in the United States. Established by the Tax Cuts and Jobs… Read More
Syndication
In the Qualified Opportunity Fund (QOF) industry, syndication refers to the pooling of funds by multiple investors to invest in Qualified Opportunity Zones (QOZs). Here’s a more detailed breakdown: Qualified Opportunity Zones (QOZs): These are… Read More
Targeted Community
A Targeted Community within the context of the Qualified Opportunity Fund (QOF) industry typically refers to a specific geographic area or population that is designated as economically distressed or underdeveloped. The idea behind identifying targeted… Read More
Tax Benefits
The Qualified Opportunity Fund (QOF) industry is part of a federal program in the United States established by the Tax Cuts and Jobs Act of 2017. This program encourages investment in designated economically distressed communities,… Read More
Tax Credit
A tax credit in the realm of the Qualified Opportunity Fund (QOF) industry refers to a form of tax incentive that is intended to encourage investment in designated economically distressed communities, known as Opportunity Zones.… Read More
Tax Incentive
The Qualified Opportunity Fund (QOF) industry is related to the Opportunity Zones program in the United States, which was created by the Tax Cuts and Jobs Act of 2017. The aim of the program is… Read More
Tax Liability
Tax liability in relation to Qualified Opportunity Funds (QOFs) refers to the taxation obligation that investors have concerning the gains they have invested in these funds. QOFs are investment vehicles that are part of a… Read More
Taxable Year
A taxable year refers to the 12-month period for which an entity, such as an individual or business, reports income and expenses to the relevant tax authorities. Taxable year definitions are crucial for understanding the… Read More
Taxpayer
A taxpayer in the real estate investment industry can be either an individual or an entity that bears the responsibility of paying taxes on the income generated from their real estate investments. Individual taxpayers could… Read More
IRA Terms
Roth IRA
A Roth IRA (Individual Retirement Account) is a type of retirement savings account in the United States that offers certain tax advantages to encourage individuals to save for retirement. It was established by the Taxpayer… Read More
Rule 72(t)
Rule 72(t), under the Internal Revenue Code, allows for penalty-free early withdrawals from an individual retirement account (IRA), 401(k) or other qualified retirement plan under certain conditions. Normally, withdrawals from these accounts are penalized if… Read More
SEP-IRA
A SEP-IRA, or Simplified Employee Pension Individual Retirement Account, is a type of traditional IRA that is established by employers or self-employed individuals in the United States as a part of their retirement savings plan.… Read More
SIMPLE IRA
A SIMPLE IRA, which stands for Savings Incentive Match Plan for Employees Individual Retirement Account, is a type of retirement savings plan in the United States that allows both employees and employers to make contributions.… Read More
Spousal IRA
A Spousal IRA isn’t a specific type of IRA (Individual Retirement Account) but rather refers to the ability of a spouse to contribute to an IRA even if they do not have earned income, as… Read More
Stretch IRA
A Stretch IRA was an estate planning strategy that extended the tax-deferred status of an inherited IRA when it was passed on to a non-spouse beneficiary. It allowed the beneficiaries to take required minimum distributions… 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-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
Tax-Efficient Investing
Tax-efficient investing refers to strategies aimed at minimizing tax liabilities and maximizing after-tax returns in retirement accounts. Here’s a breakdown of its key components: Understanding IRAs: IRAs are retirement accounts with specific tax advantages. There… Read More
Tax-Loss Harvesting
Tax-loss harvesting is a strategy used in investment management, including within Individual Retirement Accounts (IRAs), to improve after-tax returns. This technique involves selling securities that have experienced a loss and replacing them with similar investments… Read More
Time Horizon
Time Horizon refers to the length of time a person plans to invest before withdrawing funds, typically for retirement. This concept is crucial in retirement planning for several reasons: Risk Tolerance: Time horizon affects an… Read More
Traditional IRA
A Traditional IRA (Individual Retirement Account) is a type of retirement savings plan that is available in the United States. It allows individuals to save money for retirement with tax-deferred growth, meaning that you don’t… Read More