Many real estate investors utilize the 1031 exchange to sell their property for proceeds, and use those proceeds, tax-deferred, to purchase other investment real estate. With Flock Homes, investors can use the 721 exchange to seamlessly exchange their properties, tax-deferred, for direct ownership in Flock's managed real estate Fund. With a 1031 exchange, investors commonly continue to be active investors and operators of real estate properties. With Flock, the 721 exchange enables investors to take a long-term, passive approach to real estate investing.

A DST is typically a 1031 replacement solution tied to a specific asset, strict timelines, and limited flexibility. It often concentrates risk in a single property and follows a defined sponsor exit timeline. A 721 exchange allows clients to transfer property into a diversified, professionally managed fund without 1031 identification pressure. Instead of solving a transaction deadline, it provides a long-term portfolio transition — moving clients from active landlord exposure into institutional management with broader diversification.

For advisors, it’s generally a more strategic planning tool rather than a transaction-driven solution.

A direct sale triggers capital gains and depreciation recapture, reducing investable capital. A 721 exchange defers those taxes while preserving full equity inside real estate. Clients maintain exposure to income-producing assets while transitioning from active management to passive ownership.

For advisors focused on tax efficiency, concentration management, and long-term compounding, the 721 structure often provides a more capital-efficient outcome than a taxable exit.

Clients typically receive a Schedule K-1 and participate in partnership-level allocations, similar to other private real estate funds. Your exchanged equity is non-taxable, allowing advisors to reposition concentrated real estate exposure without triggering immediate gain recognition.

Section 721 of the Internal Revenue Code has long permitted the tax-deferred contribution of property to a partnership in exchange for partnership interests. It has been part of federal tax law for decades and is the statutory foundation behind UPREIT structures used by public REITs and institutional real estate platforms since the 1990s.

For financial advisors, this is not a novel or untested strategy — it is a well-established provision of the tax code that has been widely used in institutional real estate roll-ups and recapitalizations for many years. Practically, that means 721 can serve as a powerful unlock: it allows you to reposition highly appreciated, concentrated real estate without triggering immediate capital gains, creating flexibility for portfolio construction, risk management, and long-term planning — all within an established and time-tested legal framework.