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
Mortgage Boot
A term referring to the U.S. Internal Revenue Code Section 1031, Mortgage Boot refers to additional financing that can create an imbalance in an exchange of like-kind properties. In a 1031 exchange, a taxpayer can… Read More
Multi-Asset Exchange
A Multi-Asset Exchange refers to the swapping of various types of assets that meet the criteria for a tax-deferred exchange under Section 1031 of the U.S. Internal Revenue Code. A traditional 1031 exchange allows investors… Read More
Net Investment Income Tax (NIIT)
The Net Investment Income Tax (NIIT) is a tax imposed on individuals, estates, and trusts that have certain investment income above specified threshold amounts. Introduced as part of the Health Care and Education Reconciliation Act… 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
Nominee
Nominee is often used to describe an entity or individual who temporarily holds title to a property on behalf of the actual owner (the taxpayer) during the process of the exchange. The use of a… Read More
Non-Like-Kind Exchange
A 1031 exchange, named after Section 1031 of the U.S. Internal Revenue Code, allows investors to defer paying capital gains taxes on an investment property when it is sold, as long as another “like-kind property”… Read More
Non-Recourse Loan
A Non-Recourse Loan is a type of loan where the lender is only entitled to repayment from the profits of the property that the loan is being used for, and not from other assets of… 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
Passive Income
Passive income refers to the earnings an individual receives from a real estate investment in which they are not actively involved on a daily basis. This can come from rental income from properties, dividends from… Read More
Personal Property
Personal property refers to assets other than real estate that can potentially be exchanged for tax deferral benefits. Section 1031 of the Internal Revenue Code allows for the deferral of capital gains taxes on the… Read More
Personal Property Exchange
A Personal Property Exchange refers to the exchange of certain types of non-real estate personal property assets in a transaction that seeks to take advantage of Section 1031 of the U.S. Internal Revenue Code. This… Read More
Phase 1 (Down Leg)
The term “Down Leg” refers to the sale or relinquishment of the investor’s original or “relinquished” property. The 1031 exchange allows an investor to defer capital gains taxes by selling one investment property and acquiring… Read More
TIC Terms
Right Of Survivorship
Right of Survivorship is a legal concept widely used in the real estate investment industry, primarily in joint ownership or tenancy situations. When two or more individuals jointly own a property with the Right of… 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
Security Deposit
Security Deposit is defined as a sum of money paid by a tenant to a landlord before occupying a rental property. This deposit acts as a form of financial protection for the landlord, ensuring that potential… Read More
Sublease
A sublease is a lease agreement in which the current tenant leases all or part of a rental property to another party, known as the subtenant or sublessee. This often occurs when the initial tenant… Read More
Tenancy At Will
Tenancy At Will is a type of tenancy agreement that can be especially pertinent for landlords and investors. This is a leasehold estate that either the landlord or the tenant can terminate at any time… Read More
Tenancy By The Entirety
Tenancy by the Entirety (TBE) is a form of real estate ownership that is available only to married couples, and in some jurisdictions, to couples in a civil union or domestic partnership. It is commonly… Read More
Tenancy For Years
Tenancy for Years is a legal term related to real estate, specifically in the context of leasing or rental agreements. A tenancy for years refers to a leasehold estate that lasts for a definite, fixed… Read More
Tenancy In Common
Tenancy in Common (TIC) is a form of ownership in the real estate investment industry where multiple parties can hold an interest in a single property. Each tenant or owner has an undivided, separate interest… Read More
Tenant
In the real estate investment industry, a tenant holds significant importance as an occupier of the property, facilitating various aspects of investment outcomes. Tenants occupy and utilize spaces such as residential, commercial, or industrial properties… Read More
Tenant Improvement
Tenant Improvement (often abbreviated as TI) refers to the customized alterations a building owner makes to rental space as part of a lease agreement, to configure the space for the needs of that specific tenant.… Read More
Tenants In Common
Tenants in Common (TIC) is a term specifically used within the real estate investment industry to refer to a specific form of co-ownership or joint ownership of real estate property. In a TIC arrangement, multiple… Read More
TIC Account
A TIC account generally refers to the ownership records, account information, and investment details connected to a tenant-in-common, or TIC, real estate investment. In a TIC structure, multiple investors each own a fractional interest in… Read More
DST Terms
Transfer
Transfer refers to the process by which a beneficial interest in the trust is sold or conveyed from one party to another within a Delaware Statutory Trust. This is a flexible type of trust created… Read More
Trust Agreement
A Trust Agreement is a foundational legal document that creates and governs the operation of a Delaware Statutory Trust. The DST is a legally recognized trust set up for the purpose of business, especially investment… Read More
Trust Assets
Trust assets refer to the various types of property and financial assets that are held and managed within the trust. A DST is a legally recognized trust that is set up under Delaware’s statutory law,… Read More
Trust Certificate
A Trust Certificate refers to a document that serves as evidence of an investor’s beneficial interest in a DST. A DST is a legally recognized trust that is set up for the purpose of conducting… Read More
Trust Expense
A trust expense typically refers to the costs associated with the administration and operation of the trust itself. Trust expenses in a DST can include a variety of costs, such as: Management Fees: Fees paid… Read More
Trust Income
Trust Income generally refers to the income generated by the trust from its holdings and operations, which is then distributed to the beneficiaries or investors. A Delaware Statutory Trust is a legally recognized trust that… Read More
Trust Property
A Delaware Statutory Trust (DST) is a legally recognized trust that’s set up for the purpose of business, but it’s particularly well-known for its use in real estate investment. When you hear the term Trust… Read More
Trust Protector
A Trust Protector is a relatively modern concept in trust law that provides an additional layer of oversight and control over the trust. While the specific powers and duties of a Trust Protector can vary… Read More
Trust Term
The Trust Term typically refers to the duration for which the DST is established. Under Delaware statutory law, a DST is governed by the Delaware Statutory Trust Act, which is found in Chapter 38, Part… Read More
Trustee
In the realm of real estate investments, particularly involving Tenancy in Common (TIC) and Delaware Statutory Trust (DST) structures, as well as 1031 exchanges, the term trustee carries significant responsibilities. The trustee is typically an… Read More
Valuation
In Delaware Statutory Trusts (DSTs) and Qualified Opportunity Funds (QOFs), valuation refers to the detailed process of assessing and determining the current market value of the assets held within these specific investment structures. Valuation plays… Read More
Voting Trust Certificate
A Voting Trust Certificate is a document that represents the transfer of shareholders’ voting rights to trustees. In essence, a voting trust is an arrangement where the shareholders of a company transfer their shares to… Read More
REIT Terms
Title Insurance
Title insurance is a specialized type of insurance that plays a critical role in the real estate investment industry. When a person invests in real estate, they essentially purchase the legal ownership, or “title,” of… Read More
Turnkey Property
In the real estate investment industry, a turnkey property refers to a property that has been purchased, renovated, fully equipped, and is ready for immediate rental. From an investment perspective, these properties are often sold… Read More
Underwriting
Underwriting in terms of real estate investments refers to the process by which an individual or entity (usually a lender or an investor) evaluates the risks involved in a particular real estate transaction and assesses… Read More
Vacancy Rate
The Vacancy Rate refers to the percentage of all available units in a rental property, such as an apartment complex, office space, or shopping center, that are vacant or unoccupied at a particular time. It… Read More
Wholesaling
Wholesaling refers to a strategy where the wholesaler contracts a home with a seller and then finds an interested party to buy it. The wholesaler doesn’t actually purchase the property themselves; instead, they secure the… Read More
NNN Terms
UCC (Uniform Commercial Code)
The Uniform Commercial Code (UCC) is a comprehensive set of laws governing all commercial transactions in the United States. It is not a federal law but a uniformly adopted state law. Each state has adopted… Read More
Use Clause
A Use Clause refers to a provision in a lease that defines how the lessee (tenant) can use the leased premises. This clause is particularly important in commercial real estate as it outlines what activities… Read More
Utilities
Utilities in real estate investments refer to the essential services that are required for the proper functioning of real estate properties. These include: Electricity: Power supply for lighting, heating, cooling, and operating appliances. Water: Clean… Read More
Vacancy Rate
The Vacancy Rate refers to the percentage of all available units in a rental property, such as an apartment complex, office space, or shopping center, that are vacant or unoccupied at a particular time. It… Read More
Waiver
A waiver is a legal document through which a party voluntarily relinquishes a known right, claim, or privilege. The purpose of a waiver can vary, but it generally involves one party agreeing not to enforce… Read More
Warranty Of Habitability
The Warranty of Habitability in terms of real estate investments refers to a landlord’s legal obligation to ensure that a rental property is livable, safe, and sanitary for tenants. This implied warranty is a fundamental… Read More
Work Letter
A Work Letter is a document that outlines the specific construction tasks and responsibilities that a landlord will perform as part of a commercial lease agreement. The work letter defines the standards and conditions of… Read More
Yield
Yield is a measure of the income-generating potential of an investment property. It is typically expressed as a percentage and is calculated by dividing the annual rental income by the property’s purchase price or current… Read More