Glossary of Terms

Identification Period

Identification period, under IRC Section 1031, an exchanger or taxpayer executing a delayed exchange has 45 calendar days from the closing date of the sale of their

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Income

Income is money or compensation that an individual or business earns in exchange for a product or service. For individuals, income is typically earned via wages, salary or via interest, dividends or capital gains obtained from investment holdings. For businesses, income is the difference between its total revenues and expenses and taxes.

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Income Tax

Income tax is a tax levied by governments on individuals and businesses and serve as a source of revenue for governments that collect them. The Internal Revenue Service (IRS) collects income taxes and enforces the tax code.

The tax code offers individuals and businesses deductions and credits, which mean that most entities do not pay taxes on all income. For example, a taxpayer may earn $70,000 in a year but also be eligible for $15,000 in deductions, which will reduce that taxpayer’s taxable liability to $55,000. Similarly, businesses are able to reduce their tax liabilities by deducting operating and capital expenses.

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Independent Trustee

Independent trustee is a trustee who is not related to the beneficiary of the trust and does not stand to inherit any property under the trust.

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Index Fund

An index fund is a type of mutual fund or exchange traded fund (ETF) that is constructed to mimic the components of a market index, such as the S&P 500. Index funds are used to achieve broad market exposure, in an effort to reduce risk specific to a particular industry or stock. Index funds allow investors to capture the performance of the stock market in aggregate, instead having to go through the research and guesswork of investing in an individual stocks or industries.

Due to the fact that index fund investments require less effort on behalf of its manager, fees are typically less than more actively managed funds. While index fund expense ratios sit around 0.05% to 0.07%, actively managed funds typically see fees within the 1% to 3% range.*

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Individual Retirement Account (IRA)

An individual retirement account (IRA) is a type of investment tool that individuals use to allocate funds for retirement. There are two predominant types of IRAs: traditional IRAs and Roth IRAs.

Contributions to traditional IRAs are tax-deductible, which allows individuals to claim contributions as a deduction on their tax returns. When the individual withdraws these funds from the account during retirement, these funds are taxed at an ordinary income tax rate.

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Infill Location

Infill Location is a real estate development site that exists within a mostly built out market. Usually located within an urban area, infill locations look to fill the few vacant lots that exist between other developments in the area. Infill locations are characterized by having a high level of demand, due to increased property values in desirable locations, with high barriers to entry.

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Inflation

Inflation is the rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling.

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Initial Public Offering

An initial public offering (IPO) is the process that a private company participates in to offer shares of its firm to the public via a stock issuance. An initial public offering provides a firm access to public capital it previously did not enjoy as a private venture. 

The process of going public allows private investors and company founders the opportunity to realize gains on their initial investment in the firm.

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Institutional-Grade Property

While not a precisely defined term, an institutional-grade, or institutional-quality property generally refers to a property of sufficient size and stature to

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Insurable Value

The maximum dollar amount an insurance policy will cover in the event that an insured asset is deemed lost. In real estate, this can include the improvements on the land, as well as the physical property that existed on the property, such as machinery and other equipment. Insurable value is can be a function of the full replacement cost of the property, reproduction cost, or depreciated value. Insurable value is typically less than the market value, as it excludes the value of land.

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Insurance

Insurance is a form of a contract or policy in which an individual or corporate entity exchanges payments for financial protection or reimbursement against losses from the insurer.

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Intangible Property

Intangible personal property is something of individual value that cannot be touched or held.

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Interest Expense Deduction

Interest expense deduction is defined as a borrowing expense that a taxpayer can claim to reduce their taxable income. There are many types of interest that can be tax-deductible such as mortgage interest, student loan interest, investment property loan, interest on some business loans.

For example, if an investor has a 30% marginal tax rate and has $10,000 in tax deductible income, they would save $3,000 in taxes. Effectively that $10,000 loan only cost $7,000.

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Interest Rate

The interest rate is the percent of principal charged by a lender for the use of its money. Interest rates are typically expressed on an annual basis, or annual percentage rate (APR). To the borrower, the interest rate is the cost of debt, and to the lender, the interest rate will be the rate of return. Interest rates are reflective of how much risk the lender thinks it is assuming by lending to a particular borrower. Higher interest rates are typically given to entities more susceptible to default, or a lower credit rating.

In addition to credit rating, interest rates are determined by other extraneous factors. This includes the supply and demand for credit, inflation, and monetary policy set by the U.S. Federal Reserve. In situations where a loan is backed by collateral, a borrower may be able to obtain a lower rate than if the property was not secured.

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Interest Rate Risk

Interest rate risk is the risk that an investment's value will change due to a change in the level of interest rates. These changes usually have an inverse effect on

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Interest Rate Swap

An interest rate swap is a forward contract between lender and borrower that trades one stream of future debt service payments with another based on a change in the interest rate on a specified principal amount. This change in interest rate is typically done as an exchange of a floating rate for a fixed rate, or vice versa, in order to reduce the risk of fluctuating short-term interest rates, or potentially pay lower interest payments.

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Interest-Only Loan

Interest-Only loan is a loan in which, for a set period of time, the borrower pays only interest on the principal balance, with the principal balance remaining unchanged.

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Intermediary

Intermediary is an entity that acts as the middleman between two parties in a financial transaction.
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Internal Rate Of Return (IRR)

Internal rate of return is the discount rate at which the net present value of all cash flows (both positive and negative) from a project or investment equal zero.

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Interpersonal Skills

Interpersonal skills are behavioral techniques that an individual employs to properly interact with others. In a professional setting, interpersonal skills are considered an individual’s ability to work well in groups with others. 

Interpersonal skills generally are defined by the person’s knowledge of social expectations. More simply, they are a measure of a person’s ability to communicate effectively with others and adapt as circumstances change.

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Investment Portfolio

An investment portfolio is a collection of investments that can include stocks, bonds, commodities, and alternatives, among other types of asset classes. Investment portfolios can be held and managed by an individual, or held and managed by a hired financial professional for a fee, based upon the wants and needs of a particular investor.

Investment portfolios are built based upon one’s financial goals and risk tolerance. Catering towards diversification and the management of unsystematic risk in a single investment, building a portfolio of investments across various asset classes may help an investor achieve a desired level of risk-adjusted return.

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Investment Property

Investment property is a broad term for a real estate property that has been purchased with the intention of earning a return on the investment, either through

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Investment Vehicle

Any product used by investors to achieve a positive return on their money, although a favorable return is not guaranteed. Investment vehicles span all asset classes, and include ownership investments, lending investments, cash equivalents, and pooled investment structures such as a mutual fund.

For investors looking to diversify past asset classes as a whole, holding several types of investment vehicles may help further spread risk.* For example, corporate bonds and Treasury Inflation-Protected Securities (TIPS) each allow an investor to put his or her money into a debt instrument, but are subject to different market pressures and risks. Likewise, from a real estate perspective, investment may be made through various investment vehicles including LLCs, Limited Partnerships, REITs, or Delaware Statutory Trusts, with each vehicle having its own set of strengths and risks.

*Diversification does guarantee returns and does not protect against loss.

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Qualified Opportunity Zone Partnership Interest

Qualified Opportunity Zone Property also includes certain interests in a partnership, with requirements substantially identical to those applicable to Opportunity Zone Stock but which would apply when the business is organized as a partnership rather than a corporation.

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Traditional IRA

A retirement account that allows an individual to allocate pretax income toward investments that can grow tax-deferred. Income contributed to the account is limited, and may be deductible from taxable income based on the taxpayers amount of income and filing status. Capital gains taxes or dividend income taxes are only assessed once funds are withdrawn from the account.

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