Build Your Best Team – How To Evaluate Qualified Intermediaries

Educational Article Series for Owners of Investment Real Estate

Roger W. Bowlin | Real Estate Transition Solutions, LLC

Successful real estate investors come from a wide variety of backgrounds and employ an assortment of investment techniques. All have their own unique approach to owning, managing and selling assets. However, successful investors have one common element: a team of trusted advisors to help navigate and execute their investment approach. The world of investment real estate is simply too complex to go alone.

Building a strong, effective team of preferred service providers is a critical component of successful real estate investing. Attorneys, CPAs, property management personnel, contractors, brokers, title and escrow professionals are just a sampling of the individuals who can be contributory or detrimental to an investment opportunity. Vetting service providers that will enhance, rather than detract from your investment, can be difficult unless you have a framework for evaluation.

We work with many clients who are navigating tax-deferred 1031 exchanges for the first time. Within the exchange world, the Qualified Intermediary (“QI”) is one of the key service providers that can facilitate a smooth and orderly exchange or quite the opposite. We regularly assist clients in their selection of which Qualified Intermediary’s services to utilize and here is how we evaluate them:

Insurance

What levels of insurance do they have and what situations do their policies cover? Types of insurance relevant to exchanges are fidelity bonds, errors and omissions insurance and written performance guarantees. Are they willing to show you the policies they claim to have? Are the policies sufficient to cover the exchanges they have in process at any given point?

Fee Structure

Most exchanges are relatively straight forward and include one property exchanged for one or more properties. The costs associated with these exchanges should be low and defined. More complex exchanges such as improvement exchanges and reverse exchanges are more involved and often have variability in the fee structure — however the fees should still be defined in advance of the exchange.

Internal Security Controls

Exchanges involve moving large sums of money from one party to another. Surprisingly, the industry is not regulated at the federal level. However, the industry trade association for QIs, the Federation of Exchange Accommodators, has defined best practices for QIs to adhere to in order to protect clients’ funds. Understanding and gaining comfort with a potential QI’s policies regarding data security, cyber security and identity verification are of the utmost importance.

Client Centric Counsel

Quality QIs provide value to their clients through quality counsel to the exchanger regarding what is and is not legally permissible in an exchange. QIs often disclaim any counsel provided by saying that the client should consult their own attorney for liability purposes, however a good QI will not hesitate to put one of their seasoned attorneys on the phone with an exchanger if they have questions regarding the exchange.

Tax-deferred 1031 exchanges present a tremendous opportunity for wealth preservation and asset repositioning, provided an investor has the right team in place. If you are interested in learning more about the opportunities available through tax-deferred exchanges or would like to discuss our firm’s preferred qualified intermediaries, please do not hesitate to contact us.

Roger W. Bowlin, President of Real Estate Transition Solutions, LLC, provides exit strategy analysis, execution, income and equity replacement options for investment property owners. If you have questions relating to your investment property ownership, please email him at: RWBowlin@RE-Transition.com or call (206) 755–7068.