Success Factor: How to Pick the Right QI

November 16, 2020 by Exchange Hub

Choosing the right Qualified Intermediary, also known as a QI is vital to ensuring the success of your 1031 exchange.

Overlooked by many investors, the QI actually serves three critical functions during the 1031 exchange process.

Tax Documentation: The QI will prepare all needed legal documents and structure the sale and purchase of the relinquished and replacement properties to ensure that nothing is missing that may disqualify your transaction.

Transaction Funds: Remember that you can’t take position of the proceeds from your relinquished property sale. A reputable QI is insured and will hold these funds for you in a qualified account, safeguarding them during the initial 45 and following 180 day time periods.

IRS Compliance: No two real estate transactions are exactly the same. There are plenty of traps and potential hazards that could derail your 1031 transaction. A quality QI will manage the moving parts of your transaction to ensure that the exchange complies with IRS Section 103.

All of this can sound confusing or complex, which is why it is critical to pick the right QI to help you through your exchange. Picking the correct QI can alleviate mountains of stress as well as avoid unnecessary complications or issues with the IRS down the road after you’ve completed your exchange.

To simplify the process, here are a few basic questions you should ask when evaluating a QI for your upcoming 1031 exchange.

Here are six simple selection questions for any QI…

Can I see your Exchange Agreement?
This is the document that will begin and end the process of your 1031 exchange. So get a copy early and read it. If you don’t understand it, it would be wise to have a 3rd party attorney review it for you.

How long have you been in business?
Just like any good professional, it is wise to work with one who has a long history in their field.

What percentage of your business comes from 1031 exchanges?
It is very common that a law firm, bank, or title company also offers QI services. This is not inherently a problem, however if 1031 exchanges are a small portion of your QI’s overall services, your exchange might not be as important to them if they get distracted by other work. If you do work with a QI that is a branch of another company, ensure that you will have a dedicated point of contact who only (or mostly) conducts QI work.

Where will my funds be held?
You should insist that your funds be held at a large, FDIC insured, financial institution.

What type of account will my funds be held in?
It’s a good idea to ensure that your funds be held in a Segregated Qualified Trust Account or a Segregated Qualified Escrow Account.

What type of insurance do you carry?
Errors and Omissions insurance (E&O) can help protect against things like fraud, theft, or incorrect IRS filing procedures. Make sure your QI has this!

To learn more about this topic book a virtual meeting with one of our highly experienced 1031 exchanges experts today!

Success Factor: How to Pick the Right QI

Choosing the right Qualified Intermediary, also known as a QI is vital to ensuring the success of your 1031 exchange.

To learn more about this topic book a virtual meeting with one of our highly experienced 1031 exchanges experts today!

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