721 FAQs

A 721 exchange allows you to contribute your real estate property to a professionally managed real estate fund in exchange for ownership shares/units—without triggering immediate capital gains tax. It’s a strategic way to transition from owning and managing a single property to holding a diversified, income-producing portfolio, all while deferring taxes.

You can contribute various property types, such as single-family rentals, small multifamily buildings, or commercial real estate (e.g., office, retail). The property must meet the fund’s underwriting criteria, which typically include location, condition, and income potential. Unsure if your property qualifies? We’ll review it with you at no cost or obligation.

Yes. After contributing your property, you’ll receive regular income distributions based on your share of the fund’s portfolio. This income is truly passive—no more handling tenants, repairs, or property management.

A 721 exchange defers capital gains and depreciation recapture taxes at the time of the exchange, but it doesn’t eliminate them forever. If you sell your units later you may owe taxes then. However, many investors hold their shares for life, passing them to heirs who receive a step-up in basis, potentially wiping out the deferred taxes entirely.

Your fund shares transfer to your heirs like any other investment. Unlike a physical property, shares are easy to divide among multiple beneficiaries, and your heirs won’t need to manage real estate. Plus, they may benefit from a step-up in basis, erasing deferred taxes and allowing them to continue earning income or sell with minimal tax impact.

Yes. Many investors contribute multiple properties—either at once or over time—to simplify and diversify their portfolios. Each property is evaluated separately, and we’re happy to work with you on multi-property contributions.

Fund shares are not immediately liquid like publicly traded stocks, but we offer redemption options after a minimum holding period—typically 3 years, or sooner in certain hardship or emergency situations. When you’re ready to exit, you may receive a cash distribution or an in-kind redemption—meaning you could be deeded a real property (either in full or partial exchange) in return for your fund units. This approach provides flexibility while helping preserve value and tax efficiency.

We start by ordering a third-party appraisal to determine your property’s fair market value. In addition to the appraisal, we consider factors such as location, property condition, existing financing terms, income history, and marketability. Based on this analysis, you’ll receive a customized proposal outlining:

• The valuation used for the exchange
• The number of ownership units you would receive
• Adjustments for any outstanding debt on the property (your equity value determines your unit allocation)

This ensures that the exchange reflects a fair and transparent conversion of your real estate into fund ownership.

A 721 exchange is perfect for this. You’ll receive passive income during your lifetime, and your shares can seamlessly transfer to your heirs—often with tax advantages like the step-up in basis. It’s a way to support your family without leaving them the burden of managing real estate.

Like any investment, risks exist, including market fluctuations, interest rate changes, and limited liquidity of shares. While professionally managed, the fund’s performance isn’t guaranteed. We provide disclosure material detailing all risks, and we encourage you to review it with your advisors.

From initial consultation to closing, the process typically takes 30 days. This includes property due diligence, fund review, and finalizing the contribution agreement. We’ll align the timeline with your goals.

Existing debt is factored into the valuation. Usually, the fund assumes or refinances it during the exchange. We’ll review your specific situation early on to ensure a smooth transition.

Yes, but all partners must agree to the contribution, or you may need to restructure ownership first. We can assist in coordinating with your partners or advisors.

There are typically no out-of-pocket costs to you for the exchange itself. The fund generally covers standard expenses such as third-party appraisal, legal documentation, title work, and due diligence. You’re welcome to engage your own legal or tax advisors, and any fees for those services would be your responsibility. If your property was listed for sale but you decide to complete a 721 exchange instead, a commission may still be owed to the listing agent. In such cases, the fund may offer to reimburse or credit that commission as part of the exchange, depending on the terms negotiated.

Additionally, if the fund pays a referral or broker commission to a licensed professional involved in sourcing the transaction, this may result in an adjustment to the per-unit share price. This adjustment could affect the number of units you receive, but not the total equity value being contributed to the fund.

We look for properties with stable income potential, strong market fundamentals, and alignment with our portfolio. In our initial consultation, we’ll assess your property’s details—like location and tenant history—to confirm eligibility.

Net income from the fund’s portfolio may fluctuate over time due to factors like vacancy rates, leasing activity, and operating expenses. However, to provide investors with a steady and predictable income stream, the fund currently targets a fixed distribution of 5% annually on contributed equity. At times, a portion of this distribution may include a return of principal rather than purely operating income. That said, we anticipate this will be offset over time by appreciation in rents and underlying property values, helping preserve and grow your overall investment. Distributions are typically paid quarterly, and the fund’s performance is reviewed regularly to ensure responsible and sustainable income practices.

Yes, though it may impact valuation and timing. We’ll evaluate its income potential and any leasing costs. Filling the vacancy first might maximize your unit allocation.

A 721 exchange prioritizes passive ownership, so you won’t manage day-to-day decisions. However, you’ll get regular performance updates and access to investor portals to track your investment.

It simplifies estate planning by converting property into transferable shares, easily divided among heirs. The step-up in basis at death can eliminate deferred taxes, making it a tax-efficient legacy option.

If the fund underperforms, distributions may be reduced, and the value of your ownership units could fluctuate. While we strive to manage risk and preserve capital, real estate markets are cyclical, and performance can vary across regions and asset types.

One of the core benefits of contributing to the fund is diversification. By pooling assets across multiple markets and property types, you reduce the risk associated with owning a single property in a single location. That said, diversification can feel like a trade-off in certain scenarios. For example, if your local market appreciates significantly while others in the fund underperform, you may feel you would have done better holding onto your property. On the flip side, if your market declines while the broader portfolio holds steady or grows, you’ll likely benefit from the fund’s collective performance.

Diversification spreads risk—but not every investor outcome will be identical. Over time, we believe this approach helps smooth volatility and provide more stable long-term returns.

No. The 721 exchange applies only to U.S.-based properties under U.S. tax law. For international real estate, we can explore alternative strategies.

We offer end-to-end support: coordinating with your advisors, managing due diligence, and ensuring a smooth closing. You’ll have a dedicated contact for questions and updates.

Selling your units for cash typically triggers a taxable event:

• Capital gains tax: You’ll pay tax on the difference between the sale price and your tax basis (usually the value of the property you contributed to the 721 exchange).
• Depreciation recapture tax: If you depreciated the original property, that amount is taxed as ordinary income.
• Example: If your basis is $200,000 and you sell units worth $500,000, you’ll owe tax on the $300,000 gain, plus any depreciation recapture.

If you hold your units until death:

• Your heirs inherit them with a step-up in basis—the tax basis resets to the market value at your death.
• They only pay tax on gains after your death, and deferred taxes from your original contribution (like capital gains or depreciation recapture) are wiped out. Example: If the units are worth $800,000 when you die and your heirs sell them right away, they owe no tax. If the value rises to $850,000 before selling, they only pay tax on the $50,000 increase.

An in-kind distribution means you redeem your units for property (not cash):

• You receive property equal to your units’ value, per Section 731.
• No tax is due immediately because no cash changes hands.
• Your tax basis transfers to the new property, and taxes are deferred until you sell it. Example: If your units are worth $500,000 with a $200,000 basis, you get a $500,000 property with the same $200,000 basis—taxes wait until you sell that property.

To a degree, yes. While you can’t select from the entire fund portfolio, the fund typically offers a curated pool of properties for in-kind redemption—matched to your proportional ownership value. This gives you some flexibility and choice, while maintaining fairness for all investors. We work with you to identify options that align with your needs, and we aim to make the process as smooth and collaborative as possible.

• Cash liquidation:
  • Pros: Quick access to cash; easy to execute.
  • Cons: Immediate taxes on gains and depreciation recapture.
• In-kind distribution:
  • Pros: Defers taxes; keeps you invested in real estate.
  • Cons: You can’t choose the property; you’ll need to manage it; not always an option.

Not entirely, but you can reduce or delay them:

• Hold until death: Your heirs get a step-up in basis, potentially erasing deferred taxes.
• In-kind distribution: Pushes taxes off until you sell the property.
  A tax advisor can help you plan the best approach.

Consider:

• Cash needs: Do you need money now, even with a tax hit?
• Tax impact: Are you in a high tax bracket where deferring makes sense?
• Heirs’ preferences: Will they want to manage property, or prefer cash later?
• Fund rules: Does your fund allow in-kind distributions, and what are the terms?

Reach out to your fund manager to explore your options and get details on the process. It’s also smart to talk to a tax advisor to align your choice with your financial and estate plans.

Schedule a no-obligation consultation with us. We’ll discuss your property, goals, and whether a 721 exchange fits. If it does, we’ll provide a tailored proposal and guide you every step of the way.

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Both 1031 and 721 exchanges allow investors to defer capital gains taxes, but they serve very different purposes and operate under distinct IRS rules.

A 1031 exchange requires you to sell one investment property and acquire another like-kind property within a strict timeline—typically 45 days to identify a replacement and 180 days to close. It’s a great tool for investors who want to stay hands-on and continue managing real estate directly. However, it can come with stress: chasing suitable properties, competing in tight markets, and shouldering the costs and responsibilities that come with each new asset.

By contrast, a 721 exchange allows you to contribute your property to a professionally managed real estate fund in exchange for ownership units—deferring capital gains taxes while stepping into passive, diversified real estate ownership. You no longer need to manage properties, field tenant calls, or plan for roof replacements and capital expenses.

Many long-time investors use 1031 exchanges to grow their portfolios, but after years of active ownership, they’re ready for a change. A 721 exchange offers a natural next step—allowing them to preserve the gains they’ve built, while transitioning to income without the effort.

No—not directly. A 721 exchange requires you to contribute property to an operating partnership in return for ownership units. IRS rules do not allow a 1031 exchange directly into a fund.

However, we can assist you in locating a suitable replacement property for your 1031 exchange that aligns with our fund’s long-term investment criteria. This way, if you later choose to pursue a 721 exchange, that property may be a strong candidate for contribution—assuming it fits the fund’s needs at that future time and your circumstances warrant it.

It’s important to emphasize that the decision to contribute to the fund should be made separately and independently, only after holding the property as an investment and evaluating your options. This clear separation between the 1031 exchange and any future 721 exchange helps maintain compliance and supports the legitimacy of your tax deferral strategy.