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   Exchangors Terminology

   The Business of Solving Real Estate Problems

             Real Estate Exchanging

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Alligator - Real Estate that will not carry it's own expenses.

Agent -The agent is the person or entity that is authorized  to market the property.
This may be the owner, a real estate or other agent, or anyone who has legal authority to represent the property.

Backup Package - A backup package consists of additional information on the property, such as appraisals, photos, inspections, contracts,  etc.
The information assists all parties in making effective decisions.

Basis - Basis is the original price the owner paid for the property, plus the value of all improvements, minus depreciation.

Boot - Cash or other property received by the Exchangor in a exchange, which is not considered like-kind

Can-adds - Can-adds are other properties, equities or cash, which can be added to complete the transaction.

Capital Gain - The difference between the selling price and the adjusted basis of a property.

Cash flow - Cash flow is the actual cash generated by a  business or investment rather than the accounting profit.
This is usually the net income with depreciation charges added back.

Center of matrix - A property placed in the center of a matrix can attract an unlimited number of offers on that property, by means of offers placed in the side squares.
The owner of the property in the center has the right of first refusal on all offers.

Cost Basis - The cost basis of a property is the original  cost in acquiring the property.

Created Paper - A note secured by a mortgage which is used to obtain other property.
It is created on a property without transferring the title to that property.

Difference - Difference is the cash or property that may need to be added to an exchange to balance out the equities.

Due diligence - Due diligence is the process in which a potential buyer or exchangor independently confirms all details about the transaction and about the property in question. This may include title searches, inspections, appraisals, etc.

Encumbrance - An encumbrance is a legal term for anything that affects or limits the title of a property, such as mortgages, leases, easements, liens, or restrictions.
Anything considered as potentially making the  title defensible are also encumbrances, such as charging orders, building orders and structure alteration.

Equity - Equity is an interest in a property in excess of  claims or liens against it; it is the ownership right in property; equity is the buying power of the transaction.

Exchanging - An exchange is a transaction involving two or more pieces of property wherein ownership of one property is given up for ownership in another property or properties, with little or no cash given or received, and deferring the taxes to a later date.
Exchanges can involve real estate and other personal property.

Exchangor - An exchangor is someone who puts his or her  property up for exchange. Exchangors look for win-win situations, and look at  the problems and the people involved in a transaction, rather than just at the property.

Gross income - Gross income is the total income from a property, before expenses.

Liens - A lien is a form of security interest granted over an item of property to secure the payment of a debt or performance of some other obligation.

Like-Kind property - Properties are of like-kind, if they are of the same nature or character, even if they differ in grade or quality.
Personal properties of a like class are like-kind properties.
However, livestock of different sexes are not like-kind properties.
Also, personal property used predominantly in the United States and personal property used predominantly outside the United States are not like-kind properties.
Real properties generally are of like-kind, regardless of whether the properties are improved or unimproved.
However, real property in the United States and real property outside the United States are not like-kind properties. (from IRS  definitions)

Loan - A loan is a financial transaction in which one party (the lender) agrees to give another party (the borrower) a certain amount of money with the expectation of total repayment.

Loan payments - Loan payments are the monthly amounts due to any lenders to repay loans on the property.

Matrix - A matrix consists of a center square surrounded by 14 squares (on wagie.com, there can be an unlimited number of additional squares). In the matrix system, a property is placed in the center square, and the squares surrounding the center are offers made on the property in the center.

Multi-Legged - An exchange that requires at least three principals or properties to consummate an exchange.

Net operating income - Net income is all remaining income after deducting for operating expenses, but before deducting for income taxes and interest.

Operating expenses - Operating expenses are all costs necessary for the operation and maintenance of an income producing property.

Owner - The owner is the person or entity which holds legal  title to the property.

Preliminary exchange proposal - A preliminary exchange proposal is a form which allows you to send a proposal for exchanging your property or properties for another property or properties.
It shows contact information, provides a space for you to outline your proposal, and fills out  the essential information on the exchange by means of a T-bar.

Property description -The description of the property is a short, very concise statement, using key words, that gives the most important information about the property in the fewest words.

Qualified Intermediary - A third party that is not related to, or the agent of, the Exchangor, and who facilitates a 1031 Exchange on behalf of both Exchangors, Sellers, and Buyers.

Recognized Gain - Portion of the realized gain, which is ultimately taxable.
Not all realized gain is ultimately taxable, issues, such as boot, can affect how and when gain is recognized.

Relinquished Property - Property the Exchanger owns and wants to sell in a 1031 Exchange.

Replacement Property - Property the Exchangor wants to acquire to complete a 1031 Exchange.

Side of matrix - An offer can be made on a property in the center of a matrix by placing a property in the side square of a matrix.

T-Bar - A (T-Bar) is a tool used to show the most important numbers in an exchange in order to balance the equities.
Each property is listed  on one side or the other of the bar, with the numbers filled in for Owners Value, Loans, Equity, Difference, and Balance.
This allows each party to see who is giving what to whom, and to see how much, if any, must be added as difference in order to balance the transaction.

Value (owners value or market value) In an exchange, the value of the property is whatever the owner states as its value.
This is  normally the fair market value as obtained through an appraisal, but it can be  based on any number of other factors.

Walk the Mortgage - Moving the mortgage from one piece of property to another.
(substitution of collateral)

Walk - Through - Taking one property in exchange as a vehicle to obtain another property that you really want.

Questions, comments or suggestions on any of these articles, Send us an

or call Wayne H. Wagie 786-326-4747

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