Flock Homes – 721 Exchange (“Next Level 1031 Exchange”)

Came across an interesting RE startup just now and studied the model a bit. 

https://www.flockhomes.com/

First time hearing about 721 Exchange…it’s next level 1031 Exchange. 

The way this entity structure work is you relinquish your property portfolio into a REIT, purchase shares of that REIT and get dividend payment (from cash flow of the properties themselves). Deferred cap gain taxes and depreciation recaptured.  This probably also helps with estate planning. You can also have fractional interest in properties to increase short/medium-term liquidity on your properties, which is way more capital efficiency on the transactional cost end than cash refi, interest rate refi or 1031 Exchange, though it’s worth noting the initial capex setup fee is logically higher (and muted transactional cost with each subsequent additional property to the REIT entity)

From the specific market liquidity perspective, it drastically increases the liquidity of the US RE market in a more compliant manner. Fractional Real Estate ownership has been around for a few years, which might feel like only days given the inefficiencies, but to do it in a more compliant, institutional manner for the non-institutional RE investors who own and manage a few properties is a rarity. In fact, most SFRs in the country are owned by small mom-and-pop investors who hold anywhere between 2-6 properties so there is definitely an addressable market here.  I will be following Flock Home’s product on their min half-decade journey ahead.  

Let me know your thoughts.