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

34 Replies

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?

@Lauren Hogan happy to provide someone reputable I have worked with in the past. Please DM me for more info. These are all legit and vetted nationwide outfits that have stellar track records. Very important IMO.

@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.

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.  

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.

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®)

@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.  

@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. 

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.

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!

@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.

@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. 

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.

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).

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.

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.

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"? 

@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.