From Landlord Stress to Passive Income: How the 721 Exchange Changes Everything

Over 25 years, Steve Ghoens watched his real estate portfolio grow from a single unexpected investment to eleven properties. Along the way, he faced the mounting challenges of being a long-distance landlord. Managing rentals across three states, he juggled multiple property managers, dealt with difficult tenants, and faced ongoing maintenance issues. But it was the worry about passing on his complex portfolio to his two daughters that ultimately drove him to find a better solution—the 721 Exchange.

Steve’s first experience as a landlord, in the 1990s, was unplanned. While accompanying his parents to view a home they were considering downsizing to, he ended up buying the property himself and converting his existing primary residence into a rental. His first tenant, a retired Major League Baseball player who stayed for three years, was a “great experience.” But Steve soon discovered the true challenges of property management. “After that, I’ve had horror stories like everybody else,” he recalls. Over two and a half decades, his investments grew to a peak of eleven properties, eventually settling at eight single-family homes across North Carolina, Georgia, and Florida.

The Mounting Challenges of Landlord Life

The challenges mounted as his portfolio expanded. Early on, Steve struggled with the basics: evaluating tenants, chasing rent payments, and coordinating maintenance. Even after transitioning to professional property managers—one for each state—the headaches didn’t end. He found himself “managing the property managers” and dealing with unreliable contractors. One particularly frustrating incident involved a fire restoration that was scheduled to take six weeks but dragged on for six months, leaving him with a vacant property and mounting costs.

But what really kept Steve up at night wasn’t the day-to-day management issues—it was thinking about the future. With two daughters who might not share his passion for real estate, he worried about the burden of his investments falling on them. He was also concerned about the complexities and tax implications they’d face when it came time to sell the properties. “I said, ‘There’s got to be a better way for me to pass this on.’ ” That’s when he discovered the 721 Exchange.

Discovering the 721 Exchange

The solution came unexpectedly, when his father received a mailer about Flock’s fund and the 721 Exchange. “I’d never heard of it,” Steve says. “It piqued my curiosity.”

As he investigated further, Steve learned that the 721 Exchange—also known as an “UPREIT exchange”—is a tax-deferred strategy that allows property owners to contribute real estate into a professionally managed portfolio in exchange for operating partnership units.

Unlike the better-known 1031 Exchange, which requires investors to swap one property for another, the 721 Exchange allows investors to exchange their physical properties for shares in a diversified real estate fund. The 721 Exchange provides immediate relief from active management while preserving the ability to defer capital gains taxes. For Steve, this was the perfect combination.

How the 721 Exchange Transformed Steve’s Outlook

What really sold Steve on Flock was how the 721 Exchange transformed his real estate holdings into a manageable inheritance. “You get more diversification,” he says. “You no longer have to pay for property taxes. You’re no longer dealing with property management or maintenance issues. All you’re experiencing are cash flow opportunities and appreciation opportunities.”

By converting his rental properties into shares of a real estate fund, Steve no longer had to act as a landlord. The 721 Exchange allowed him to exchange the stress of tenants, contractors, and property managers for the benefits of passive income and professional oversight. It also gave him peace of mind that his daughters wouldn’t inherit a complicated portfolio of single-family homes to manage.

But the biggest benefit for him was passing on the value to his children. “Your homes are converted to shares, and then I could split them between my two daughters,” he says. “That was very appealing to me.” Through the 721 Exchange, what could have been a logistical nightmare became a streamlined inheritance strategy.

Going All In With the 721 Exchange

In May of 2024, Steve made a decisive move, contributing all eight of his properties into Flock's fund using the 721 Exchange. “After meeting the talent and understanding a little bit more about the vision, I decided that rather than just contributing one or two, that I would jump all in,” he says.

For Steve, the 721 Exchange wasn’t just an exit strategy—it was a solution to decades of landlord challenges and a way to ensure his real estate investment legacy wouldn’t become a strain on his children. “You have to think ahead,” he says. “What about your heirs? Are they really interested in managing property? Do you really want them to do that? Think about those hassles. Think about estate planning. This is an excellent vehicle to solve that problem of not paying capital gains taxes and giving something of value to your children, where they can decide to sell it, keep it, do whatever they want with it.”

“Don’t put it off,” Steve advises. “Because you have no say in the decision if you wait too late.”

Why Other Investors Are Exploring a 721 Exchange

Stories like Steve’s highlight why more landlords are exploring the 721 exchange. For those holding multiple properties, the strategy can:

• Defer capital gains and depreciation recapture taxes
• Eliminate the hassles of direct property management
• Provide diversification across multiple property types and markets
• Convert illiquid assets into shares that can be easily divided among heirs
• Ensure a smoother transfer of wealth to the next generation

For many long-term investors, the 721 exchange is becoming the next logical step after years of managing rentals. Instead of trading one property for another through a 1031, they can step into a passive, tax-deferred structure that offers both financial and lifestyle benefits.

Frequently Asked Questions About the 721 Exchange

What is the difference between a 1031 and a 721 Exchange?A 1031 Exchange allows investors to defer taxes by trading one property for another, but it keeps them in the cycle of active ownership. A 721 Exchange, by contrast, allows investors to transition into a real estate fund while still deferring taxes - ending the landlord headaches.

Can anyone use a 721 Exchange?The 721 Exchange is most effective for investors with highly appreciated property who want to defer taxes and simplify their estate planning. It’s especially appealing to long-distance landlords, retirees, and those thinking about passing wealth to heirs.

What happens after I complete a 721 Exchange?Once the 721 Exchange is complete, the investor receives shares in Flock's diversified real estate fund. From that point forward, they enjoy professional management, diversification, and passive income rather than hands-on property duties.

Hear more about Steve's experiences with Flock in this video interview.

To learn more about the 721 Exchange and how it works, read our blog post here.