Glossary

Property Type, Senior Living

Senior living property is housing that is catered to seniors, typically over the age of 55. Contrary to standard multifamily properties, senior living communities usually include specialized amenities or services. Senior living covers a wide range of property types that include active-adult communities, assisted living, and memory care facilities.

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Qualified Opportunity Zone Stock

Stock of any domestic corporation (i) acquired by the Opportunity Fund after December 31, 2017, at original issuance solely in exchange for cash, and (ii) which, at the time such stock is issued and during substantially all of the Opportunity Fund’s holding period, is a Qualified Opportunity Zone Business (“QOZB”).

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S Corporation

An S corporation is a type of corporation with less than 100 shareholders that files corporate taxes and allows a firm to pass business income, losses, deductions and credits to the firm’s shareholders. S corporations do not pay taxes at the federal level, which is particularly beneficial to a business recently established that seeks to grow. An S corporation allows a firm to characterize distributions as salary or dividends, thus allowing the S corporation to reduce its tax liability.
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Safe Harbor

Safe harbor is a statutory or regulatory provision that provides protection from a penalty or liability. In the context of a 1031 exchange, safe harbor refers to any one of

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Sale-Leaseback

A sale-leaseback is an agreement where the seller of real estate leases back the same property from the buyer the seller sold it to. Once a seller has given title to the buyer, the seller immediately enters into a lease agreement with the new owner, making rent payments to occupy the property. Sale-leaseback provisions are often used in situations where a company needs to access capital tied up in an asset such as real estate, but still needs to use the property in order to operate.

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Sales Load

See Equity Load.

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Sales Tax

A sales tax is a tax imposed by a government on the sale of a good or service. A traditional sales tax is charged to the end user of the good or service at the point of sale, at which point the retailer will pass funds generated from the sales tax on to the appropriate government entity.

Different jurisdictions, counties and municipalities across the United States charge different sales taxes.

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Salvage Value

Salvage value is the approximate value of an asset at the end of its useful life. Using both purchase price and a given accounting method, such as straight-line or double declining balance, one can calculate the amount of annual depreciation being attributed to an asset based on its salvage value. Salvage value is an estimate, while depreciation is a calculation based off this amount.

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Same Taxpayer Provision

A requirement in a 1031-exchange transaction, the same taxpayer provision states that the taxpayer who owned the relinquished property must be the same taxpayer who takes ownership of the replacement property. This ensures that the taxpayer’s basis is carried over into the new property, and that there is a continuity of deferral.

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Savings Account

A savings account is an interest-bearing deposit account. It is an instrument used by individuals and businesses to deposit funds at a bank or financial institution in exchange for a moderate interest rate. Whereas checking accounts offer depositors unlimited deposits and withdrawals and a lower interest rate, savings accounts offer depositors a limited number of withdrawals and a more favorable interest rate.
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Savings Bond

Savings bonds are issued by the federal government and can be purchased by the public. Savings bonds are considered one of the safest forms of investment since they are backed by the federal government, which has virtually zero chance of defaulting. Because savings bonds are considered very safe, they also pay a low interest-rate. However, people still buy them for savings.

Savings bonds are issued as debt to the government. The interest rate of savings bonds is determined by the market. Like any debt, the government pays interest on savings bonds to the holders of those bonds (i.e., debt). Just like a person with great credit has a high credit score, the savings bonds have one of the highest credit ratings.

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Scarcity

Scarcity is a basic economic problem that describes the limited means of producers and suppliers to satisfy unlimited wants of consumers. The concept of scarcity grapples with the fact that every resource has a finite supply, whether that be time, money, water, wood or land. The study of economics is thus ultimately the study of how individuals and entities react to the scarce supplies and allocate resources to combat this limit to generate profit.

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Schedule K-1

A Schedule K-1 is a type of tax document used to report partnership incomes, losses, and dividends. Each individual partner is obligated to complete one of these forms, whenever necessary, and must include it with their respective personal tax returns.

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Seasoned DST Interest

Previously owned equity interests in a 1031 exchange-qualified Delaware Statutory Trust (DST) whose properties have at least twelve (12) months 

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Second Mortgage

A second mortgage is a subordinate mortgage taken on by a borrower while a first mortgage is still in place. In situations where a homeowner has built up equity in his or her property by paying down a first lien mortgage, or property appreciation as occurred, one may want to borrow against this new equity to fund projects or other expenditures. Due to the fact the second mortgages only receive payment when the first mortgage has been paid off, they typically hold higher interest rates.

There are two main types of second mortgages that exist: a home equity loan and a line of credit. A home equity loan is where a borrower receives a upfront lump sum from the lender, and makes interest and principal over the mortgages term, similar to a conventional loan. A line of credit is where the lender allots a predetermined amount of money for the borrower to draw from, with the borrower able to borrow and repay the line of credit as often as they wish. Note that in a line of credit type loan, the borrower is not required to take any funds from the borrower.

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Secondary Market

The secondary market is where existing securities are bought and sold. Once a security has been purchased by an investor in the primary market, whether it be a public or private market, all further transactions are done on the secondary market. Securities are then exchanged between interested buyers and sellers, with exchanges facilitating the trade. For example, the New York Stock Exchange is considered a secondary market for public equities. Note, that private securities may not have an active secondary market to conduct secondary trades.
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Securities And Exchange Commission (SEC)

The Securities and Exchange Commission (SEC) is responsible for enforcing securities laws created by Congress. The SEC makes sure that any individual or company trying to sell securities fully discloses information about the securities being sold. This gives investors an opportunity to evaluate the security and make an informed decision to invest in it or not.

The SEC was formed in 1934 by Congress as part of the Securities Exchange Act of 1934. The SEC also ensures securities markets function in an orderly manner. As well, it oversees corporate takeovers since any company looking to take over another must register with the SEC.

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Securitization

Securitization is a financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans or

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Seller Financing

Seller financing is a loan provided by the seller of a property or business to the purchaser of that property or business.

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Senior Debt

Debt that takes priority over other unsecured, “junior” debt. Senior debt sits at the bottom of the capital stack, and offers the lowest risk with the lowest return.

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Shareholder

A shareholder is a person or firm that owns one or more shares of a company’s stock. Individual investors or firms can purchase shares of publicly traded companies on exchanges such as the New York Stock Exchange and in turn own equity in the company.

As owners in the company, shareholders have certain rights that include the right to review a firm’s books and records, vote on key company matters, receive dividends, attend annual meetings and vote on certain matters.

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Shortage Economics

A shortage is created when the demand for a product is greater than the supply of that product. There are three conditions that can create a shortage:

- Increase in demand — occurs when consumers suddenly demand more of a product. For example, demand for a new automobile that a manufacturer cannot fulfill.
- Decrease in supply — occurs when the supply of a good drops. For example, a virus among pigs means many of them must be euthanized, creating a shortage of pork products.
- Government intervention — a government can impose a cap on prices (i.e., a price ceiling), allowing more people to buy a good than would be realized in a free market.

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Signatory Trustee

A signatory trustee is the individual who will be managing the Delaware Statutory Trust (DST). The Sponsor of the DST typically serves as the Signatory Trustee.

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Simple Interest

Simple interest is a method of calculating interest generated on a loan’s principal. It is calculated by multiplying the daily interest rate by the principal and the number of days between payments.  

Types of loans that apply simple interest are auto loans and short-term personal loans. Consumers who pay loans early or on time on a monthly basis benefit from simple interest structure because principal balance shrinks faster under this method of interest calculation.

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Simple Random Sampling

A simple random sampling is a small sample of a population. The small sample is meant to represent the larger population being sampled. Rather than sampling an entire population, which may be impractical due to the population’s size and time requirements, a small sample of people that are similar to the larger population can be sampled instead. From this small sample, facts can be derived about the larger population.

As an example, upper management wants to survey its 10,000 employees. Rather than send out 10,000 surveys, 500 can be sent to accomplish the same goal. It’s important that the sample takes into consideration any groups within the population. If 50% of the population are male and 50% are female, the sample should represent this same grouping.

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Simultaneous Exchange

See Concurrent Exchange.

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Single Tenant Property

Single tenant property is property that is fully occupied by a single user. Single tenant properties often feature a triple-net (NNN) lease structure and generally have remaining lease terms of at least 10 years.

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Social Responsibility

Social responsibility is a theory that argues that businesses are obligated to function in a manner that benefits the broader society, whether that be a local community, region or country. Social responsibility ultimately calls for businesses and individuals to perform their duties to act in the best interests of society and the environment. The theory asserts that businesses can achieve profitability and act in a socially responsible manner simultaneously.

 

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Social Security

Social Security is a term used to represent the United States government’s Old-Age, Survivors and Disability Insurance (OASDI) program. It is an insurance program structured such that workers pay into the program via a payroll withholding on their wages. These withholdings go into two Social Security trust funds that are used to provide benefits to individuals who currently qualify.

Individuals over the age of 62 who have paid into the system for 10 years or more qualify for Social Security retirement benefits.

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Social Security Act

The Social Security Act is a law introduced in 1935 designed to transfer wealth from the working population to older, retired people. The Social Security system is funded via a payroll tax.

The Social Security Act was introduced by President Franklin D. Roosevelt during the Great Depression in 1935. The government began collecting the tax from workers in 1937 and making payments in 1940.

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Soft Costs

Soft costs are fees that are not directly related to labor and direct constructions costs.  Soft costs include architectural, engineering, financing, and legal fees, and

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Special Purpose Entity (SPE)

Special purpose entity is a legal entity established by the sponsor or borrowing entity whose operations are limited to the acquisition and financing of specific assets.

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Specialization Economics

When a company specializes in one category of products, it is able to focus all of its efforts on making the best product possible. Such a focus can create a competitive advantage for the company and even allow it to command higher prices, leading to higher earnings. Even if the market for a specialized product is small, this group of customers is often willing to pay more for a hard to find product.

Specialization can have disadvantages in the cost of materials and labor. Just as customers are willing to pay more for specialized products, companies may also have to pay more for rare raw materials. Talent (i.e., labor) can be difficult to attract as well as specialized skill sets are generally in demand, leading to higher wages for such employees.

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Spin Off

A spin off is the sale of an existing business from a larger business (parent company). The spin off may no longer align with the larger business’s strategy or it may be losing money. Shareholders of the parent company may receive dividends from the spin off. Shareholders may also have the ability to exchange parent company stock for the stock within the spin off at a discount.

Spin offs can perform differently in the marketplace compared to that of the parent company. Usually, the spin off will perform poorly during a weak market and very good in a stronger market. This performance will be reflected in the spin off’s stock price, which can exhibit volatile behavior.

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Sponsor

In the context of real estate partnerships, a sponsor is an individual or company in charge of finding, acquiring, and managing the real estate property on behalf of

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Stabilized Occupancy

Stabilized occupancy is the long-term average occupancy rate that an income-producing property is expected to achieve after exposure for leasing in the open market for

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Stagflation

Stagflation is a term used to describe a period of slowing economic growth in which prices are increasing at a rate higher than the growth of the economy. Stagflation was widely recognized during a period in the 1970’s in which the U.S. economy experienced rapid inflation and high levels of unemployment. Previously, stagflation was widely considered by economists to be impossible, because macroeconomic theory long believed that unemployment and inflation were inversely correlated. There are many theories that have spawned since the mid-20th century that seek to identify the root cause of stagflation.

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Standard of Living

Standard of living is a measure of wealth, material goods and necessities available to various socioeconomic classes in a given area at a fixed point in time. Measurements of standard of living can be used to compare geographic areas at a fixed point in time or economic conditions in a single geographic location at various points in time.
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Stated Rent

Stated rent is the rent amount paid by the occupant to the landlord as specified in the lease. Stated rent does not account for any concessions or landlord costs

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Statistical Significance

Statistical significance tries to verify that variables related to an outcome are relevant to that outcome. For example, a finance engineer wants to know if a set of stocks will drop within the next 120 days. His model consists of several variables, such as earnings, technical indicators, and news events. Certain news events show a high correlation with stock price movement. The news event variable is, therefore, statistically significant. Any variable that is statistically significant has a high percentage (i.e., close to one). 95% and 99% are commonly used to show statistical significance.

When analyzing a population, most data analysts will use a sample size. From there, they can determine statistical significance. However, it is important that the sample accurately represents the larger population. Otherwise, any statistical significance findings may be incorrect.

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Step-Up In Basis

When a taxpayer bequeaths an asset to a beneficiary upon death, the beneficiary’s tax basis in the asset is “stepped up” to the fair market value of

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Stock

A stock is a security that represents a shareholder’s proportionate ownership in the assets and earnings of the issuing corporation. Stocks are primarily bought and sold on exchanges. In exchange for cash, stockholders obtain a piece of a corporation and a claim to that firm’s assets and earnings.

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Stock Broker

A stock broker is an individual or firm that performs securities transactions on behalf of clients in exchange for a fee. Stockbrokers often work on behalf of a brokerage firm and handle transactions both for individual investors and institutional customers in exchange for commissions.

In today’s market, stockbrokers are critical for retail investors to obtain exposure to the market, because major exchanges such as the New York Stock Exchange (NYSE) require membership to trade on its exchange. Thus, retail investors cannot trade directly through an NYSE window and must hire a broker at a member firm to perform the transaction on their behalf.

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Stock Economics

Stocks are certificates that entitle the holder of the stock to a proportionate share of ownership in a company. For example, if there are 100 shares of stock available from a company and an investor owns 10 shares, the investor owns 10% of the company. For publicly traded companies, investors hold their shares with a brokerage rather than actual certificates of paper.

Companies do not need to be public to issue shares of stock. Private companies can issue shares as well, although private shares are far less liquid than public shares. Companies generally issue stock to raise money for their business.

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Stock Market

The stock market is a general term used to describe various markets and exchanges on which individual and institutional investors buy, sell and issue share of publicly-traded companies. Also referred to as a stock exchange, the stock market is an environment where investors can interact and transact in a secure and regulated environment that exists to ensure investors have access to liquidity and a fair price to buy or sell securities.

The stock market is also a source of capital-raising for private companies seeking to offer shares of their company to the public for the first time in the form of an initial public offering (IPO).

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Submarket

A submarket is broadly defined as a distinct part of a larger market.  In the commercial real estate context, a market is typically a city or an MSA and

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Substantial Improvement

Qualified Opportunity Zone Business Property (“QOZBP”) is substantially improved for this purpose if during any 30-month period following acquisition of such property there are additions to basis that equal the adjusted basis as of the beginning of such 30-month period.

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Super Political Action Committee (PAC)

A political action committee (PAC) is a group of people formed to raise money for a political campaign with the ultimate goal of influencing the election. Super PACs raise unlimited funds for the same reason but can’t donate directly to a campaign. Corporations are not allowed to contribute directly to campaigns but can funnel that money through a PAC to support the campaign. While Super PACs cannot contribute to a campaign, they can spend money in other ways that support the campaign. Once an organization raises $2,600, it is considered a PAC.

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Supply Chain

A supply chain is a network that a firm builds to perform the production of a good or service. This network includes individuals, entities, information and other resources that are pooled together to efficiently conduct the production of a good or service.

Companies monitor their supply chains ultimately to reduce variable costs and expenses at various points throughout the production of a good or service. More mature companies with high levels of working capital can choose to vertically integrate supply chains, which involves the ownership of all levels of the supply chain network involved in the production of a good or service.  

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Supply Economics

Supply is the amount of a good or service that is available to consumers. The price a consumer will pay for a good determines how much of the good’s supply is sold. In this way, consumers are able to influence prices through their demand. As consumers buy up the supply of a product without decreasing their demand, the price increases. At some point, price becomes too high, and demand falls.

Equilibrium occurs when supply and demand are equal. From the above example, as the price falls, demand increases. Eventually, the market determines the right price, and fluctuation between supply and demand slows. This is where the market begins to meet equilibrium.

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Surplus (In Economics)

A surplus is the amount of an asset or resource that is unused. For example, an inventory surplus occurs when there is unsold inventory. A budget surplus occurs when there is more income than expenses. An economic surplus has two types — consumer and producer.

A consumer surplus occurs when the price of a good or service drops below the maximum price that a consumer will pay. In that case, the consumer can buy the product with cash left over. A producer surplus occurs when the price of a good that is being sold sells for a higher price than was expected by the producer, allowing the producer to make an excess profit. Note that these two scenarios are mutually exclusive — one’s gain is the other’s loss.

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Suspended Loss

A capital loss that cannot be realized in a given tax year due to passive activity limitations. The losses are suspended until they can be netted against passive income in a future tax year. These suspended losses are a result of passive activities, and can only be carried forward. Suspended losses that are a result of the disposition of a passive interest are subject to an annual capital loss limit.

For example, if a taxpayer incurs a $10,000 suspended loss from a passive activity and participates in the activity in the following year and earns $20,000, then the suspended loss may be applied against $10,000 of the earned income, leaving the taxpayer with $10,000 of declarable income for the year.

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SWOT Analysis

SWOT (strengths, weaknesses, opportunities, and threats) is a type of analysis that lets companies take an assessment of their position within an industry. It is a framework that helps companies look both inward and outward.

SWOT is divided into two main areas — internal and external. The internal analysis includes strengths and opportunities, and external analysis includes weaknesses and threats. Companies should try to take advantage of strengths and opportunities while minimizing weaknesses and threats. SWOT is often performed by a group of people rather than a single person. It’s also important that the group feels they can speak freely and without consequences.

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Syndicated Investment

See Real Estate Syndication.

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Systematic Risk

The uncertainty caused by macroeconomic factors that affect all risky assets. Also known as “market risk”, systematic risk underlies the performance of most asset classes that trade publicly or privately. One can not diversify against systematic risk, as it includes events such as inflation, changes in interest rates, recessionary periods, and even war. These type of forces tend to affect the market as a whole, and typical portfolio diversification strategies may not be as effective.

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Valuation, Sales Comparison

Sales comparison valuation is a real estate appraisal method that estimates a property’s value by comparing it against other properties with similar attributes that have been sold recently. This approach considers all of the individual features of a property, adjusting the value to reflect a sum of all the property’s features. A sales comparison approach may be used to evaluate both commercial and residential property.

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What is a 1031 Exchange?

Download the Realized Ebook - What Is A 1031 Exchange?

Are DST Investments Right For Me?

Are DST Investments Right For Me?