Can a 1031 intermediary suggest an investment?

Question

We are syndicating a property and we wanted to see if 1031 intermediaries are legally allowed to suggest deals to their clients. If so, what is the typical commission that a syndicator would pay them for the service? Thank you!

Bill Exeter · Answer

The Qualified Intermediary should not be giving any kind of investment advice or recommendations.  They should focus on making sure they put their clients' interests first and not on recommending investments.  Best case it would be a conflict of interest and worst case it could result in the Qualified Intermediary being deemed an agent of the taxpayer and therefore a disqualified party.  You must be very careful if/when a Qualified Intermediary is recommending investments.  They are usually getting paid and not putting the clients' interest ahead of their own.

Dave Foster · Answer

@Alina Trigub, Thanks for the shout out.  @Anthony Barbato,  There's no doubt that a QI cannot act as a financial advisor or have any role other than the administration of your 1031 exchange.  They must be an unrelated party.  So the firms out there offering one stop shops of handling the sale, 1031 and replacement properties are putting a lot of clients at risk.  I think that given you're wanting to create syndications that you'll find much better and stronger guidance from looking to the SEC, FINRA, and RESPA regulations regarding compensation and referral.  Remember a TIC deal could be either a security or a real estate transaction so you want to examine the law from both sides of that.

Alina Trigub · Answer

@Anthony Barbato

Why not ask the actual 1031 intermediary. @Dave Foster can you advise please.

Anthony Barbato · Answer

We're closing as TIC owners so the 1031 investors will be on title to complete the exchange

Bill B. · Answer

I don’t know about the suggesting and commissions, but If their names won’t be on title the deal won’t qualify for a 1031 exchange. They need to exchange real property for real property. Not shares in an llc or partnership.

Can a 1031 intermediary suggest an investment?

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