Has anyone used a lower cost 1031 exchange intermediary?

Question

I've been happy with the service of the 1031 exchange intermediary I've used in the past. I recently contacted them about doing another simple 1 to 1 exchange and the fee is about $1,000.

Now I see there are companies like this one that states a flat fee of $495 for 1 to 1 exchanges: http://e1031xchange.com/

I know what the process is, and I know what to look out for. I'm wondering if anyone has used this company or one like it. It's seems like $500 is a more reasonable fee for a 1 to 1 exchange than $1000.

Please let me know if this is not the correct category for this post, or if asking for a recommendation / posting a link are not allowed.

Dave Foster · Answer

@Steve Boss,  Here's a BP blog we wrote recently on costs nationwide - https://www.biggerpockets.com/blog/how-much-does-a-1031-exchange-cost.

Just because an exchange is cheap doesn't make it bad.  Just because it's expensive doesn't make it good.  But the real value a 1031 intermediary brings goes way beyond simple document prep which is what the lower cost internet sources offer.  Consulting and security of funds and documentation are the three legs that are critical for you.  The best consulting is useless if the intermediary can't be trusted.  The best documentation in the world won't help you strategically plan how to use your 1031 opportunity if the QI isn't responsive to in a timely manner.

Demonstrated experience and nationwide footprint I would toss out as the two most important criteria.  Big enough to have a national foot print usually means some economy of scale price wise.  Small enough but experienced enough to have good referrals (the profile pages of QIs here on BP can get you started) means you'll be in good hands since at the largest QIs in the country your experience will be dictated by the sales manager assigned your file and not necessarily a senior consultant.

You've had a good experience with yours to date. That speaks for something!!!

Jaysen Medhurst · Answer

@Steve Boss, reach out to @Dave Foster, he's the 1031 Svengali around here.

Tom Gimer · Answer

A title company that also serves as a QI (or creates a separate entity to do so) is just trying to add another revenue stream. I would bet that most title companies who get into the 1031 business don't know how to advise on or conduct much more than the simplest of exchanges.

Even on simple deals we refer our clients to QI's who truly understand the Code and can handle complex transactions. Things don't always go as planned.

Kelli Knapp · Answer

The difference in the cost of exchange fees is something no one talks about.....  the INTEREST the company will pay you on the funds they hold.   Of course this depends on the amount of the funds and the length of time they hold.  I recently used IPX and although their fee is $1,200, they are paying interest of 1.5%, or $625 per month on $500,000.   If they hold for one month, my fee is half covered, two months fully covered, and if it's longer, I'm making a profit!   Most companies pay NO interest - and even though they may only charge $600 for the exchange, they could by making much more than that for themselves, using YOUR money while they hold it.

Matthew McNeil · Answer

I've used Title companies for the handfull of Exchanges I've done, but the last one was problematic.  I'd seek out @Dave Foster for my next Exchange.

Mark Creason · Answer

@Steve Boss

In most 1031 exchanges, you will not have problems.  The one time you need a good QI, will the savings make up for a blown exchange.  I have been involved in a number of exchanges as an investor, a broker, and a lender.  I have seen a QI completely blow an exchange on several occasions.  I would rather spend a little more money for the peace of mind.

Mark

Sean Ross · Answer

This is spot on correct.  Especially in today's interest rate environments.  Qualified Intermediaries make a significant portion of their revenue on the interest held on their funds. In the long post-2008 stretch when interest rates were very low, almost no QIs paid interest because there simply wasn't much.  The past few years are different.

No major QI firm, not even my own, advertises about paying interest on deposits (the IPX website, for example, has no info on this). But almost all of us do pay interest. It's also very often negotiable, especially if you exchange at volume or with larger properties.

However, I want to stress that fees and interest on deposits are very bad leading variables when picking a qualified intermediary.  The difference between a $1000 exchange and a $1500 exchange is insignificant when compared to the tax hit if your exchange is done improperly.  Same goes for earning $0 on interest vs earning $1300 in interest during your exchange.

Bad, lazy, or uninformed QIs make mistakes that can get investors on the wrong side of the IRS.  These mistakes cost tens of thousands of dollars and are extremely stressful.  Corrupt QIs have been known to run away with client money before, or to invest their clients funds in inappropriate ways.

Ask for interest; it's a good idea.  But ask for interest after you've found a QI that takes their job extremely seriously, offers legitimate client service, and has a verifiable track record.

Dave Foster · Answer

@Dave Malone, I'm with @Tom Gimer on this one.  99.9% of the time a title company simply has a relationship with a QI either local to them or affiliated with their underwriter, or a national footprint QI like us.  They will very very rarely act as their own QI.  And although there is an exception for them in the regs, more often than not they are not experienced enough to give you good service beyond holding the proceeds.

For 1250 your QI not only should be able to close tomorrow but buy you dinner as well :). Maybe theyre not large enough to have efficient economies of scale.

Dave Malone · Answer

@Matthew McNeil can you tell me issue you had with using a title company please? I’be backed myself in a corner and need to start exchange early this week but the company I normally use said I can’t close until next Tuesday if they are doing it. They also raised there price 500 per closing from 750. 😬

Thank you in advance

Has anyone used a lower cost 1031 exchange intermediary?

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