QI’s, CPA’s, 1031’s, DST’s/Mineral Rights Confusion

Los Angeles County, California
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QI’s, CPA’s, 1031’s, DST’s/Mineral Rights Confusion

Russell Sherman
Member since 2022 · 25 posts · 22 votes

I expect to sell a single family property that was held as a rental property in the next few weeks. I plan to roll the gain into several DST's and mineral rights.

As I research QI's I see companies such as Asset Preservation Inc. offering their services in conjunction with DST's. Do they offering broker services? I thought they merely held the funds.

If QI's do not offer brokering services, am I better off working with a RIA or a broker, such as Peregrine? I have not found a broker that deals in DST's as well as mineral rights. It seems easier to use one person to handle all the exchanges but maybe that is not possible.

Finally, whose responsibility is it to make sure all tax rules are followed?  As I ask tax questions (I qualify for rule 2005-14 allowing the combination of 1031 & 121 exclusion) I am told they are not legally allowed to offer tax advice and to talk to a CPA.  So do I need a CPA to watch over the QI?  

I'm trying to learn as much as possible as I narrow down various QI's and DST brokers. I am coming across alot of contradictory information.

 

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  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    4y

    @Russell Sherman,  Although a QI like First American may be offering DSTs in some way shape or fashion they must be doing it as a referral basis.  The QI for your 1031 legally has to be an unrelated 3rd party whose only role is performing the process of the 1031.  Which leads to the other burning question - who's going to give you the advice you need to act?  It is true that a qi cannot give you legal or tax advice.  We can only advise you to the general state of the law - not your particular scenario.  So your accountant becomes a key player for you.  They are the only ones who know your personal situation.  And they sign your tax bill.  

    It's not that you need a CPA necessarily to make sure the QI performs the 1031 correctly (although I spose sometimes that may be true).  It's that you need the CPA to make sure you qualify based on the legal parameters the QI gives you.  

    So, in your situation you really do need a team. A realtor for the sale of your asset, a DST broker for the DST (preferably one with extensive real estate not just SEC compliance experience), a mineral rights broker (totally different industry than DSTs), a CPA to keep your tax picture clean, and a QI to make sure the 1031 is completed correctly.

    It truly does take a village.  But if you've got the right folks in place it's a village that will serve you very very well.

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  • Jon Taylor
    Pasadena, CA · Member since 2019 · 136 posts · 148 votes
    4y

    @Russell Sherman -

    I agree wholeheartedly with Dave.

    You need an expert in each area, not a Swiss Army knife. The QI/broker combo is not a normal situation (for the reason Dave mentioned).

    To answer your broker vs RIA question…

    The major difference is scope of potential services and compensation structure.

    An RIA is structured to actively manage money, and as such, they get paid a percentage of AUM (assets under management). They are expected to constantly monitor markets on your behalf and act quickly. They most commonly trade equities.

    The broker is structured to have a unique and deep knowledge a smaller or more specific market or solution - great example is your realtor who is helping you sell your property. As such, they get paid only when a successful transaction is completed.

    Because DSTs require a deep real estate expertise FIRST, it is most common to see them represented by the brokers. It’s also a completely passive and illiquid investment, so it’s tough to justify the 1% fee every year… forever.

    Mineral rights is over my head, so no comment there - other than to say, I have familiarity with most of the DST brokers, and they have a hard enough time keeping track of just the DST revolving door of 2-5 new products weekly. I can't imagine there is a broker who can do both well.

    One more note about DSTs… they tend to fill up with “indications of interest” weeks before they are released to the retail market. You’ll want to work with a broker who has an idea of historical and current deals, but most importantly and I deal of what’s upcoming that may have room for you. If you haven’t closed on your sale yet, you will most likely invest in something that is not yet reviewable by the retail market quite yet.

    Lots of pieces, and a short timeline. I feel for you. But it’s totally doable.

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