In successful operations, a well-coordinated team is essential for navigating complex rules and ensuring mission success. This guide outlines the roles of each key player and provides critical questions to help you vet your team.
Your 1031 Exchange Team Strategy
Team coordination is critical for 1031 exchange success. Each professional has specific responsibilities and knowledge that contribute to compliance, risk mitigation, and optimal investment outcomes.
Core Team Members
- • Qualified Intermediary (QI)
- • Investment Advisor/Registered Representative
- • DST Sponsor and Broker-Dealer
Team Vetting Priorities
- • Experience and track record
- • Fee transparency and structure
- • Regulatory compliance and insurance
The Key Players on Your 1031 Exchange Team
Building the right team starts with understanding who does what. Here is a comprehensive guide to the core professionals involved in your 1031 exchange.
Qualified Intermediary (QI)
A non-affiliated third party that holds the proceeds from your sale to ensure the exchange complies with IRS regulations.
Key Responsibility: Releases funds when you purchase your replacement property
Sponsor
The entity that organizes, promotes, and manages real estate investments.
Key Responsibility: Creates Delaware Statutory Trusts (DSTs) or Tenants-In-Common (TICs) for passive investment opportunities
Broker-Dealer
A licensed financial firm that trades securities on behalf of its clients.
Key Responsibility: Provides due diligence, investment advice, and other financial planning services
Registered Representative (RR)
The client-facing financial professional licensed to buy and sell securities.
Key Responsibility: Understands your goals and educates you on risks and benefits of various investments
Vetting Your Qualified Intermediary: 6 Key Questions
The QI is a critical part of your team. Asking the right questions can help you select a reliable and professional partner who will protect your exchange funds and ensure IRS compliance.
What Are Your Fees?
- Ask if fees are all-inclusive or if there are additional charges
- Confirm charges for purchasing multiple replacement properties
- Get all potential charges upfront to avoid unexpected costs
Will There Be a Team or a Dedicated Point Person?
- Know who your main point of contact is and their availability
- Confirm their hours of operation and holiday schedules
- Ensure support during strict 45-day and 180-day deadlines
Where Will My Money Be Held?
- Ask if funds will be in segregated account in your name
- Confirm if funds are pooled with other investors
- Segregated account offers greater security and peace of mind
What Is Your Insurance Coverage?
- Confirm QI accounts are covered by FDIC insurance
- Ask if funds are protected by parent company guarantee
- Verify coverage limits for your exchange amount
Can You Provide a Few References?
- Request to speak with past clients
- Gauge professionalism and customer service
- Key indicator of reliability and professional competence
Do You Accept Electronic Signatures?
- Confirm flexibility with document handling
- Crucial for meeting deadlines if traveling
- Clarify requirements for submitting identification information
Selecting Your Advisor: 5 Key Questions to Uncover Bias
Your advisor is a crucial guide through the complexities of a 1031 exchange. These questions will help you assess their qualifications and uncover potential conflicts of interest.
What Is Your Due Diligence Process?
Go beyond sales pitches. Ask to speak with their analysts directly and review in-house due diligence materials.
What 1031 Investment Structures Do You Use?
Be wary of advisors who only recommend one type of asset. Limited selection may indicate bias toward specific products.
How Do You Make Your Money?
WARNING: Some advisors earn AUM percentage, influencing them to recommend liquid investments like REITs over non-liquid DSTs.
How Many DSTs, TICs, or NNN Properties Have You Seen Sell?
Ask for specific examples of properties seen through to completion. Experience provides invaluable insight.
What Is Your Process?
Good advisors have structured educational processes. Be cautious of immediate recommendations without understanding your goals.
The Role of FINRA
The Financial Industry Regulatory Authority (FINRA) is a non-governmental body that oversees broker-dealers in the U.S. and operates under the supervision of the SEC.
FINRA's Function
Monitors trading practices, client communication, and qualifications of member firms to ensure fair and honest operations.
Why It Matters
FINRA ensures financial professionals adhere to strict regulations, maintaining trust in the financial system.
Ready to Build Your 1031 Exchange Team?
Schedule a free consultation with our 1031 exchange specialists to discuss team building and investment strategy.
Schedule a Call1031 Exchange Team Building: Frequently Asked Questions
Conclusion
Building the right team for your 1031 exchange is essential. By asking these targeted questions, you can vet your potential partners and ensure you have a team that is not only competent but also truly aligned with your financial goals.
A well-prepared team will give you the confidence to navigate the complexities of a 1031 exchange and secure your long-term real estate investment success.
Disclosure
Tax Complexity and Investment Risk
Tax laws and regulations, including but not limited to Internal Revenue Code Section 1031, bonus depreciation rules, cost segregation studies, and other tax strategies, contain complex concepts that may vary depending on individual circumstances. Tax consequences related to real estate investments, depreciation benefits, and other tax strategies discussed herein may vary significantly based on each investor's specific situation and current tax legislation. Anchor1031, LLC and Great Point Capital, LLC make no representation or warranty of any kind with respect to the tax consequences of your investment or that the IRS will not challenge any such treatment. You should consult with and rely on your own tax advisor about all tax aspects with respect to your particular circumstances. Please note that Anchor1031 and Great Point Capital, LLC do not provide tax advice.
The information contained in this article is for general educational purposes only and does not constitute legal, tax, investment, or financial advice. This content is not a recommendation or offer to buy or sell securities. The content is provided as general information and should not be relied upon as a substitute for professional consultation with qualified legal, tax, or financial advisors.
Tax laws, regulations, and IRS guidance regarding 1031 exchanges are complex and subject to change. Information herein may include forward-looking statements, hypothetical information, calculations, or financial estimates that are inherently uncertain. Past performance is never indicative of future performance. The information presented may not reflect the most current legal developments, regulatory changes, or interpretations. Individual circumstances vary significantly, and strategies that may be appropriate for one investor may not be suitable for another.
All real estate investments, including 1031 exchanges, are speculative and involve substantial risk. There can be no assurance that any investor will not suffer significant losses, and a loss of part or all of the principal value may occur. Before making any investment decisions or implementing any 1031 exchange strategies, readers should consult with their own qualified legal, tax, and financial professionals who can provide advice tailored to their specific circumstances. Prospective investors should not proceed unless they can readily bear the consequences of potential losses.
While the author is a partner at Anchor1031, the views expressed are educational in nature and do not guarantee any particular outcome or create any obligations on behalf of the firm or author. Neither Anchor1031 nor the author assumes any liability for actions taken based on the information provided herein.
