1031 Exchange - How to Decide Who to Use as a QI?

Rental Property Investor · Denver, CO · Member since 2016 · 86 posts · 160 votes

Looking for advice on how to select/choose a QI during a 1031 exchange? For those of you that have successfully completed a 1031, did you use a 1031 company or did you work directly with a QI or did you work with bank that had a QI?

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Dave FosterBusiness Member

Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes

@Lauren Hogan, That's a great question. a 1031 exchange is equally about strategy and case law and strict processes. Competence and relationship have to go hand in hand. Because 1031 has such a very specific set of regs. And because there are so many strategic and operational decisions for you as you move through one. A large company like you mention can be top notch operationally and handle your exchange perfectly. But can you talk to them? Are they accessible? And do they "get" you and your needs? The mom and pop down the street might be the nicest folk in the world. But do they have the years of experience needed to handle the strict processes that have to be in place.

So you've got to talk and vet. There's a number of QIs even here on BP. Check out profiles for references. Demonstrated experience is going to be a very good guide. And then make sure you feel comfortable that they get you and your needs and are not just about getting the forms right. There's a hundred ways to tailor a 1031 to really meet your specific needs.

Cost is always asked about. Here's an article we wrote for BP - https://www.biggerpockets.com/blog/how-much-does-a-1031-exchange-cost. It will give you a good start pricing wise. But at the end of the day don't worry about a hundred dollars either way. Get the QI who understands you and has been in the trenches long enough to understand the statute and the case law. There's a bunch out there. You'll be fine.

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Leah Slaughter
Real Estate Agent · Plano, TX · Member since 2018 · 75 posts · 47 votes
6y
LuAnn Blough with ERG Resource is the best. We do dozens a year with her.
1 Reply
Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
6y
@Lauren Hogan, That's a great question. a 1031 exchange is equally about strategy and case law and strict processes. Competence and relationship have to go hand in hand. Because 1031 has such a very specific set of regs. And because there are so many strategic and operational decisions for you as you move through one. A large company like you mention can be top notch operationally and handle your exchange perfectly. But can you talk to them? Are they accessible? And do they "get" you and your needs? The mom and pop down the street might be the nicest folk in the world. But do they have the years of experience needed to handle the strict processes that have to be in place.
So you've got to talk and vet. There's a number of QIs even here on BP. Check out profiles for references. Demonstrated experience is going to be a very good guide. And then make sure you feel comfortable that they get you and your needs and are not just about getting the forms right. There's a hundred ways to tailor a 1031 to really meet your specific needs.
Cost is always asked about. Here's an article we wrote for BP - https://www.biggerpockets.com/blog/how-much-does-a-1031-exchange-cost. It will give you a good start pricing wise. But at the end of the day don't worry about a hundred dollars either way. Get the QI who understands you and has been in the trenches long enough to understand the statute and the case law. There's a bunch out there. You'll be fine.
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Bill ExeterBusiness Member
1031 Exchange Qualified Intermediary · San Diego, CA · Member since 2008 · 1k+ posts · 1k+ votes
6y
Hi @Lauren Hogan,

The Qualified Intermediary has a critical fiduciary responsibility. Safety, Soundness, regulation should always be top on your list.

You can also Google Choosing the right Qualified Intermediary so some phrase like that to get more complete information.
Exeter 1031 Exchange Services, LLC and Exeter Trust Company4.726 Reviews
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Michael Skoczylas
Attorney · Southfield, MI · Member since 2016 · 102 posts · 83 votes
6y
I agree with Dave and Bill. Safety first. But then it's about getting the personal attention you need, the expertise, the time, the responsiveness. These are all valuable.
2 Reply
Jon A.
Asheville, NC · Member since 2017 · 385 posts · 274 votes
6y
Whomever you use , it is worth having a conversation with @Dave Foster. It is time well spent.
2 Reply
Account Closed
Attorney · Skokie, IL · Member since 2016 · 270 posts · 109 votes
6y
I, too, agree with most of what has been mentioned above - get someone who works for you. But that also means getting a QI who you can trust, as 1031's can be complex and potentially be riddled with pitfalls, working with people you trust will make the process that much smoother.
Just to provide additional information: to meet the requirements of the like-kind exchange, the seller must inform the intermediary within 45 days which property is being exchanged and acquired. Under Section 1031, once the sale of a property occurs a qualified intermediary must receive the cash from the sale (a critical fiduciary duty), similar to an escrow arrangement. A qualified intermediary is a third party entity or person that facilitates a Section 1031 exchange, and in my personal experience, often a trusted real estate attorney.
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Brooke Andrea
New York City, NY · Member since 2017 · 43 posts · 174 votes
6y
I've used IPX (Ron) and found them to be extremely helpful and easy to work with!
Ron Ricard ▪ Certified Exchange Specialist | Vice President | Account Executive
Investment Property Exchange Services, Inc. (IPX1031®)

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Kyle Smith
Rental Property Investor · San Diego · Member since 2019 · 109 posts · 87 votes
6y
@Lauren Hogan I read the title of the thread and thought I'd share a recent experience I had with a 1031 company. To my pleasant surprise though, the owner of the company I used, @Bill Exeter had responded to your post already!
I used them based on a recommendation from my realtor and could not have been happier. For someone trying to complete my first exchange, I appreciated the level of customer service they provided. They walked me through everything and ensured I fully understood the process. When it was time to submit the documentation and get to the closing table, they were right there helping me along the way.
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Vincent IncoperoPro Member
Attorney · Elmhurst, IL · Member since 2016 · 255 posts · 161 votes
6y
@Ahmed Let's be clear as crystal about WHEN attorney's can act as a 1031 qualified intermediary as THIS IS COMMON MISCONCEPTION. The United States Treasury covers this in Reg. 1.1031(k)-1(k)(2) for those of you who like reading.
The Treasury Regulations state that someone who has acted as the taxpayer’s employee, attorney, accountant, investment banker, real estate agent or broker within two years prior to the date of the closing of the sale of the relinquished property is the agent of the taxpayer and is disqualified to act as the intermediary for that taxpayer. This means a seller of property CANNOT HAVE THEIR attorney, real estate agent, etc. hold their proceeds if they intend to complete a 1031 exchange. Also DISQUALIFIED ARE ALL THE ATTORNEY'S in the same firm as the seller’s attorney and any real estate agent in the same brokerage as the seller’s real estate agent. THERE ARE TWO EXCEPTIONS TO THE DISQUALIFICATION.
BOTTOM LINE - ALWAYS SELECT/ENGAGE an unrelated 1031 Intermediary company. Any extra work to do this is sure to be less than that of an IRS challenge or the complications and resulting tax implications from a failed 1031 exchange.
[email protected]630-299-7600
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Jason Turgeon
Realtor · Boston, MA · Member since 2019 · 244 posts · 275 votes
6y
I've just finished my first of 2 exchanges with @Dave Foster and I've been very happy. He's patiently and quickly answered my endless questions, the response time is always within hours from the other members of his team, and so far everything has gone off without a hitch. Definitely spend some time on the phone with your potential QI before you select someone, but it seems like most of the people mentioned on this thread are very good at their jobs.
3 Reply
Jasmine Hu
Rental Property Investor · Tysons, VA · Member since 2015 · 73 posts · 45 votes
6y
you can ask local realtor association. they know who does a lot 1031
1 Reply
Brett StompsPro Member
Realtor · White Salmon, WA · Member since 2019 · 6 posts · 7 votes
6y
Originally posted by @Dave Foster:
And do they "get" you and your needs?
Dan, I'm new to REI, and read the article you posted. Can you or anyone else explain to me the the importance of having a QI understand me and my needs? Thanks!
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Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
6y
@Brett Stomps, Sure thing. To actually perform a 1031 exchange is a process. It's paper work, forms, etc. So anyone, as long as they are an unrelated 3rd party to you can legally "perform" a 1031 exchange. But the real test of a QI is not knowing what forms to fill out. It's knowing how to do the forms right, keep your money safe, avoid any number of pitfalls that the "forms" don't speak to but could submarine your exchange, and help you structure the entire transaction to meet your needs and goals.
Within each of the 6 basic requirements for a successful 1031 exchange lies a bunch of restrictions and qualifications that can be shaped and used to get you where you want to go. If you were wanting to create a more liability resistant ownership structure in your portfolio you may want to sell your individually owned properties and purchase the new properties in an LLC. But that may or may not be able to be done. Your QI needs to guide you through that.
Or what if you're wanting to sell a property and purchase more than one replacement (a diversification exchange). There's tips and tricks to using your 1031 most effectively to place debt and purchase multiple properties. Same situation if you want to sell multiple and purchase fewer ( a consolidation exchange), change type or geography, or move from active to passive management, prepare for retirement, etc etc etc. There's literally dozens of ways a good QI can guide you through the maze.
Case in point today - A conversation with a client with a large portfolio looking to learn about 1031s. His preference is to go into a syndication. But the syndication will be changing the tax payer between his sales and purchases. So we'll be vetting the ownership structure of the syndication to see if if will qualify for 1031. It may not be possible but if it isn't theres still a couple of paths that he could use to get there. When I heard that he was wanting to retire in FL in a couple of years I suggested that he use the 1031 to buy a really nice vacation rental for cash. Use it for 2 years for investment and then move into it. Meanwhile, do a refinance of that property and use the cash to invest in the syndication. Because I understood his whole picture and his end game we were able to structure a scenario that solved several of his problems.
Real Estate isn't Romco. You cant "set it and forget it". Your path as a real estate investor will pivot and evolve throughout your career. You want your professionals to pivot with you and be able to provide you the best course. and 1031 is one of those things where the best course is hard to see sometimes.
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Michael Skoczylas
Attorney · Southfield, MI · Member since 2016 · 102 posts · 83 votes
6y
@Brett Stomps @Dave Foster the one other item I would add to a very good list is that you want your QI to work together with your other advisors and speak the same language as them. If everyone, investor, QI, CPA, Attorney are all on the same page the transaction can really come together beautifully, even if there is a last second pivot.
5 Reply
Jasmine Wevers
Rental Property Investor · Reno, NV · Member since 2019 · 16 posts · 4 votes
6y
I met someone at a commercial meetup group last week from ipx1031.com that has QI's nationwide.
1 Reply
Sam Shueh
Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
6y
In SFBA there are just so many 1031 exchanges. In the Peninsula and South Bay just two.

I have been using one because I know the team have used them several times. Fees $350, second $250 one defers lots of taxes. They pay interest parking the proceeds in 3rd party account.
1 Reply
John P.
Investor · Vacaville, CA · Member since 2016 · 433 posts · 249 votes
6y
It's not a rocket scientist thing and you aren't going to have a bunch of communications with them. Really the only thing that matters is that they are a reputable company. Figure that out first. I would worry about that and that only. The cost will generally be about the same ($700-1,000).
2 Reply
Luke CarlPro Member
Rental Property Investor · Tennessee Florida · Member since 2016 · 4k+ posts · 5k+ votes
6y
@Dave Foster is THE person in this arena listen to what he says.
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Account Closed
Rental Property Investor · AZ · Member since 2013 · 213 posts · 50 votes
6y
As a couple other posters mentioned IPX1031, I used them also and they were very professional and communicative throughout the process. I was referred to them from a friend who is a real estate agent.
1 Reply
Devin RedmondPro Member
Rental Property Investor · Bay Area CA | Maui HI · Member since 2018 · 49 posts · 47 votes
6y
Lots of great advice has been offered thus far. Once you've screened potential QIs for experience and reliability, some questions you might want to ask around pricing and fees include: Is there an additional cost for an interest-bearing exchange account? How much interest do you pay on my funds?
It's often hard to compare pricing among QIs because the quoted set up, courier, wire, and acquisition fees are only part of the story. QIs make the bulk of their money off the float (interest accrual) on your funds during the 180 day window. If you tie up a replacement property right away and close quickly, it's not such a big deal. But if you take the full 45 days, then another 45 or longer to close, that's at least 90 days of interest on a big chunk of change.
The QI I worked with earlier this year offered to set up an interest-bearing account for an additional $500 fee, which then yielded 1% on the funds. I initially assumed a 30-day round trip, which made the set up fee more than the expected interest. In retrospect, I should have gone for the interest-bearing option because it was nearly 90 days from 1031 funding to closing.
2 Reply
Ben Feder
Investor · Philadelphia, PA · Member since 2015 · 172 posts · 58 votes
6y
Originally posted by @Lauren Hogan:
Looking for advice on how to select/choose a QI during a 1031 exchange? For those of you that have successfully completed a 1031, did you use a 1031 company or did you work directly with a QI or did you work with bank that had a QI?

What is "QI"?
0 Reply
Lauren HoganPro Member
OP
Rental Property Investor · Denver, CO · Member since 2016 · 86 posts · 160 votes
6y
@Ben Feder a QI is a qualified intermediary. They are unregulated and unbias third-party who hold money during a 1031 exchange. They provide a number of services & help during the exchange.
2 Reply
Ben Feder
Investor · Philadelphia, PA · Member since 2015 · 172 posts · 58 votes
6y
Originally posted by @Lauren Hogan:
@Ben Feder a QI is a qualified intermediary. They are unregulated and unbias third-party who hold money during a 1031 exchange. They provide a number of services & help during the exchange.

Is a QI similar then to an escrow?
0 Reply
Steven MayBusiness Member
Real Estate Agent · Kansas City, MO · Member since 2018 · 262 posts · 250 votes
6y
Quick question,
At what equity % on a property is it ideal to 1031 to scale up? Looking to learn how to optimize the 1031 exchange.
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Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
6y
@Steven May, That's a tough call. The biggest problem with using equity to determine when to do a 1031 exchange is that the 1031 is designed to defer tax on profit. And equity is not an indicator of profit. If you've refinanced the property several times it is very possible that you may not have much equity at all but a ton of pent up profit that would be recognized in a sale. By the same token you could have used shorter term financing or an aggressive program of paying down a loan and have tons of equity but not that much true profit. So keep that in mind.
How much profit makes it worth it to 1031? Again such a personal decision. I've had clients decide to pay hundreds of thousands of dollars in taxes and forego a 1031 because they had other plans. I've also had clients save less than a thousand dollars in tax but insist on doing a 1031 because "Its my money and I don't want to lose it to taxes".
Some general thoughts on when to do a 1031.
1. When the property is depreciated out and you want to purchase more depreciable basis
2. When you want to go from fewer to more assets - a diversification exchange
3. When you want to sell several assets and purchase fewer - a consolidation exchange
4. If you want to change classes of real estate - sell residential and buy commercial
5. When you want to sell and buy in another geographical area.
6. If you feel like appreciation has run it's course and want to switch to a cash flow asset
7. When you want to move from active to more passive management or vice versa.
8. Looming Cap ex - 1031
9. deteriorating rents - 1031.
The list goes on and on. But as you see it's more driven by market forces and the unique needs of the investor. The 1031 is a powerful and flexible tool that can be brought to bear in all kinds of situations.
Rather than asking when is the right time to 1031, you almost would be better off asking the question, "given my goals and situation how can I use the 1031 in this scenario to my benefit".
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