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GLOSSARY

  1. Accredited Investor: An individual or entity that meets certain criteria, typically relating to income or net worth, allowing them to invest in certain types of securities or investment opportunities that are restricted to accredited investors.

  2. Appreciation: The increase in value of an asset over time, often referring to the growth in value of real estate properties.

  3. Capital Gains Tax: Tax imposed on the profit realized from the sale of a capital asset, such as real estate, stocks, or bonds.

  4. Cash-Out: The process of converting equity in a property into cash by refinancing or selling the property.

  5. Diversification: Spreading investments across different asset classes, industries, or geographic regions to reduce risk and enhance portfolio stability.

  6. Delaware Statutory Trust (DST): A legal entity used for real estate investment, allowing multiple investors to own fractional interests in a property without the responsibilities of property management.

  7. Equity: The value of an asset minus any liabilities or debts associated with it.

  8. Exchange Period: The 45-day period following the sale of a relinquished property during which the investor must identify potential replacement properties in a 1031 exchange.

  9. Full Cycle: The completion of the investment term for a DST, typically resulting in the sale or liquidation of the underlying real estate assets and distribution of proceeds to investors.

  10. Gross Income: Total income generated from a property before deducting expenses.

  11. Income Property: Real estate property purchased with the intention of generating rental income or profit from appreciation.

  12. Internal Revenue Service (IRS): The federal agency responsible for administering and enforcing tax laws in the United States, including regulations governing 1031 exchanges.

  13. Liquidity: The ease with which an asset can be bought or sold without significantly impacting its price.

  14. Market Value: The price at which a property would sell in a competitive market, determined by factors such as supply and demand, location, and condition.

  15. Net Income: The income generated from a property after deducting expenses such as taxes, insurance, maintenance, and management fees.

  16. Passive Income: Income generated from investments in which the investor is not actively involved in day-to-day management.

  17. Portfolio: A collection of investments owned by an individual or entity.

  18. Property Management: The operation, control, and oversight of real estate properties, including tasks such as tenant screening, rent collection, and maintenance.

  19. Real Estate Investment Trust (REIT): A company that owns, operates, or finances income-producing real estate, often traded on major stock exchanges like stocks.

  20. Refinancing: The process of replacing an existing mortgage with a new loan, typically to obtain better terms or access equity in a property.

  21. Replacement Property: A property acquired by an investor in a 1031 exchange to replace a relinquished property, allowing for the deferral of capital gains taxes.

  22. Return on Investment (ROI): A measure of the profitability of an investment, calculated as the ratio of net profit to the initial investment amount.

  23. Risk: The possibility of financial loss or negative outcome associated with an investment.

  24. Seller Financing: A real estate transaction in which the seller provides financing to the buyer, often by issuing a loan to cover part or all of the purchase price.

  25. Tax Deferred Exchange: Another term for a 1031 exchange, referring to the deferral of capital gains taxes on the sale of investment properties by reinvesting proceeds into like-kind properties.

  26. Tenant-in-Common (TIC): A form of property ownership in which two or more individuals hold fractional interests in a property, each with the right to occupy or receive income from the property.

  27. Title: Legal ownership of a property, evidenced by a deed or other legal document.

  28. Underwriting: The process of evaluating the risk and determining the terms and conditions of a loan or investment.

  29. Upside Potential: The potential for increased value or profitability of an investment over time.

  30. Vacancy Rate: The percentage of rental units in a property or market that are unoccupied at a given time.

  31. 1031 Exchange: A tax-deferred exchange that allows investors to sell a property and reinvest the proceeds into another like-kind property, deferring capital gains taxes.

  32. Yield: The income generated from an investment, expressed as a percentage of the investment amount.

  33. Active Investing: Involves making frequent trades and adjustments to a portfolio in an attempt to beat the market and achieve higher returns.

  34. Passive Investing: Involves holding investments for the long term with minimal trading activity, aiming to match the returns of a broad market index.

  35. 1031 Exchange Intermediary: A qualified intermediary (QI) or accommodator who facilitates a 1031 exchange by holding the proceeds from the sale of a relinquished property and acquiring the replacement property on behalf of the investor.

  36. 1031 Exchange Timeline: Refers to the strict deadlines imposed by the IRS for completing a 1031 exchange, including the identification period and the exchange period.

  37. 1031 Exchange Rules: The regulations established by the IRS governing the eligibility criteria, timing requirements, and permissible properties for 1031 exchanges.

  38. 1031 Exchange Identification: The process by which an investor identifies potential replacement properties within 45 days of selling a relinquished property in a 1031 exchange.

  39. 1031 Exchange Replacement Property: The property acquired by an investor to replace a relinquished property in a 1031 exchange, allowing for the deferral of capital gains taxes.

  40. 1031 Exchange Relinquished Property: The property sold by an investor to initiate a 1031 exchange, triggering the tax-deferral provisions of the exchange.

  41. 1031 Exchange Boot: Refers to any cash or other non-like-kind property received by the investor in a 1031 exchange that is taxable.

  42. 1031 Exchange Qualified Intermediary (QI): An independent party responsible for facilitating a 1031 exchange by holding funds from the sale of a relinquished property and transferring them to acquire replacement property.

  43. 1031 Exchange Replacement Property Identification Form: The IRS form used by investors to formally identify potential replacement properties within the 45-day identification period of a 1031 exchange.

  44. 1031 Exchange Due Diligence: The process of conducting thorough research and analysis on potential replacement properties in a 1031 exchange to ensure they meet investment criteria and objectives.

  45. 1031 Exchange Tax-Deferred Benefits: The tax advantages afforded to investors in a 1031 exchange, allowing them to defer capital gains taxes on the sale of investment properties by reinvesting proceeds into like-kind properties.

  46. 1031 Exchange Reverse Exchange: A type of 1031 exchange in which an investor acquires a replacement property before selling the relinquished property, requiring careful coordination and compliance with IRS regulations.

  47. 1031 Exchange Improvement Exchange: A variation of a 1031 exchange in which an investor uses exchange funds to make improvements or renovations to a replacement property, allowing for the deferral of taxes on the improvement costs.

  48. 1031 Exchange Delayed Exchange: The most common type of 1031 exchange, in which an investor sells a relinquished property and subsequently identifies and acquires replacement properties within the specified timeframes established by the IRS.

  49. 1031 Exchange Simultaneous Exchange: A type of 1031 exchange in which the sale of a relinquished property and the acquisition of a replacement property occur simultaneously, typically requiring coordination between the buyer and seller of each property.

  50. 1031 Exchange Qualified Opportunity Zones: A special provision of the Tax Cuts and Jobs Act (TCJA) that allows investors to defer and potentially reduce capital gains taxes by investing in designated Qualified Opportunity Zones (QOZs) through a 1031 exchange.

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