All Forum Posts by: Bruce D. Kowal

Hang on for the ride, Brandi!!!

 🎯 1031 Exchange QI Selection: Operational Competency Red Flags (Part 2/3)

What's up, BP Nation! 🏢

Following up on security concerns, let's dive into operational competency markers for your Qualified Intermediary. Because sometimes the biggest risks aren't about stolen funds - they're about blown exchanges due to incompetence!

OPERATIONAL COMPETENCY CHECKLIST 📋

DOCUMENTATION HANDLING 📑

Clean, professional exchange documents

Prompt response to document requests

Clear tracking system for deadlines

Written procedures for identification period compliance

STAFF EXPERTISE 👥

Dedicated exchange coordinators

Legal counsel on staff or retainer

Clear escalation procedures

Continuous training programs

WARNING SIGNS OF INCOMPETENCE 🚩

Confusion about basic §1031 rules

Unable to explain identification rules clearly

Missing or inconsistent tracking of key dates

Poor communication during critical periods

No backup personnel for your coordinator

TECHNOLOGY INFRASTRUCTURE 💻

Look for:

Secure client portals

Automated deadline notifications

Electronic document storage

Real-time transaction tracking

COMPLIANCE RED FLAGS 🚨

Suggesting aggressive interpretations of §1031

Unwillingness to provide written guidance

Casual attitude toward identification rules

Pushing timeline boundaries

EXPERIENCE MATTERS! 📚

Ask about:

Years in business

Number of exchanges handled annually

Experience with your property type

Handling of failed exchanges

PRO TIP: Test their knowledge! Ask them to explain:

The 3-property identification rule

The 200% rule

The 95% rule

Under Treas. Reg. §1.1031(k)-1(c)(4)

COMMUNICATION RED FLAGS 📱

Slow response times

Unclear instructions

Poor documentation

No weekend emergency contact

No backup personnel

Remember: Your QI should make you feel confident, not confused!

#RealEstateInvestor #PassiveIncome #WealthBuilding #InvestorMindset #RealEstateSuccess #1031Exchange #TaxStrategy #InvestmentProperty #CommercialRealEstate #RealEstateWealth

Good Grief!  DIY vs CPA. Always a lively discussion.  Price the cost of four new tires for your SUV. Then compare that cost with getting your taxes done correctly.  Taxes will easily take 30% of your income.  Got to put all this in perspective.  

🔄 The Side-Hustle Timeline: How to Build Your RE Business While Working 9-5

Ever feel like your W2 job is holding back your real estate dreams? Let's break down a realistic timeline for building your REI business without burning out or risking your day job. (We hope, right?)

⏰ The 168-Hour Reality Check:

Your week has 168 hours. Assuming:

40 hours: W2 job

56 hours: Sleep

21 hours: Basic daily tasks

= 51 hours potential REI time

💡 Pro Tip: It's not about finding time; it's about allocating the time you have strategically.

🎯 Your 6-Month Timeline:

Month 1: Foundation (5-7 hours/week)

Morning routine: 1 hour daily market research

Evening routine: Deal analysis practice

Weekend: BP forums & networking

Key Goal: Analyze 10 deals on paper

Month 2: Education (8-10 hours/week)

Complete 1 RE course

Join 2 local REI groups

Schedule lunch breaks with agents

Key Goal: Build your initial power team list

Month 3: Systems (10-12 hours/week)

Set up deal tracking system

Create document templates

Establish banking relationships

Key Goal: Ready to make offers

Month 4: Lead Generation (12-15 hours/week)

Drive neighborhoods after work

Weekend open houses

Setup automated MLS alerts

Key Goal: Generate first 5 qualified leads

Now, the Owners and Brokers you deal with may not enjoy this, but you can certainly "practice" making offers.  It is not illegal to make an Offer.  Right?  So, perhaps you make a few offers which you know are unrealistic.  This allows you to test all the systems and the people involved.  And be sure that your offer can be rescinded upon inspection.  Maybe one of your lowball offers gets accepted.  Then what will you do?

(You won't make any friends. But it's YOUR money, and Real Estate, to put it mildly, is a contact sport).

Month 5: Deals & Network (15-18 hours/week)

Submit first offers

Attend 2-3 REI events monthly

Build social media presence

Key Goal: First offer accepted

Month 6: Scale & Automate (15-20 hours/week)

Delegate initial tasks

Establish morning/evening routines

Create follow-up systems

Key Goal: Sustainable weekly schedule

🚫 Common Pitfalls to Avoid:

Overcommitting early

Neglecting W2 responsibilities

Skipping system creation

Taking on too many mentor calls

✅ Success Markers:

Consistent daily actions

Growing network

Clear systems

No work conflicts

Steady deal flow

Maintained energy levels

👉 Action Steps This Week:

Audit your current schedule

Block 2 hours daily

Choose your power hour (morning/evening)

Set 30-day milestone

General Comment:  obviously not everyone will follow these suggestions.  But what it does provide is a framework. A general from-here-to-there guide.  You tailor all this according to your unique needs.

Real talk: How are you currently balancing your W2 and REI activities? What's your biggest time management challenge?

#BPWIN #RealEstateInvesting #SideHustle #CareerTransition #REINewbie #TimeManagement #InvestorLife

Quote from @Patricia Andriolo-Bull:

Great post.  I opted out of a 1031 in July 2023.  Interest rates were high and for almost what I was paying in taxes, I gained on interest in the time the intermediary would have held my funds.  It was also a good year to not go for a 1031 because the stock market was off and I had a ton of losses I could offset.  When I did jump back into another investment, I wasn't rushed with timing, reset my basis and don't have to worry about the further depreciation down the road.

Clever "arbitrage" on the net interest earned.  How about a "Vote"!  :)

Good points, Dan.  

Quote from @Jonathan Small:

I own 30-40 LTR. mostly SFH. My wife and I have a W2 job. rentals are split between 3 LLCs. We usually have 2-5 properties a year that we buy or sale. I pay one CPA about $5k yr. I pay an accountant about $2k yr. I also hire one of the big national 20 CPA firms to review returns every 2-3 years. That cost me about $1,000 each time. I do this for piece of mind and redundancy. Return is about 210 pages. Accountant is more for double checking return and having in depth conversations about taxes and business. I think my fees are high until I shop around and then I am thankful. Other CPAs and firms have quoted me 5k-10k+ but are no where near as responsive and personable as my current CPA and accountant.

You are going about this properly.  Having a review is a good idea.  Always keep in mind that you won't blink to pay $2,000 for a new tires on your SUV.  As with most things in life, you get what you pay for.

The best way to learn this is by reading a Tax Court case.  Try this one: Birdsong v. Commissioner

You really need to see how this operates in the real world, and with a Tax Court Judge looking at all the facts & circumstances.  There are a lot of such cases.  This one is very clear.  And, frankly, all these cases are kind of fun to read.

*This post does not create a CPA-client relationship. The information contained in this post is not to be relied upon. Readers are advised to seek professional advice.

Lots of question, all the time, about finding a QI for your §1031 exchange.  It  can't be stressed enough how crucial your Qualified Intermediary (QI) selection is in a §1031 exchange. Let's talk about protecting your hard-earned equity.

The most critical aspect of QI selection is SECURITY OF FUNDS 🔒

Here's why:

Your QI holds your exchange proceeds during the exchange period

These funds are NOT protected by FDIC insurance

QIs are largely unregulated in most states

If your QI goes bankrupt, you could lose everything

Key Protection Steps:

Verify FIDELITY BONDING 🏦

Ask for proof of current fidelity bond coverage

Confirm the coverage amount exceeds your exchange proceeds

Request verification directly from the bonding company

Check FINANCIAL CONTROLS ⚖️

Segregated accounts for each exchanger

Dual controls on fund movements

Written procedures for fund handling

Treasury Regulations §1.1031(k)-1(g)(4) outlines QI requirements but doesn't mandate specific security measures. This is why YOUR due diligence is essential.

RED FLAGS 🚩

QI offers to pay high interest rates on exchange funds

Pressure to sign documents without review

Reluctance to provide banking/security documentation

No physical office location

Limited staff availability

PRO TIP: The Federation of Exchange Accommodators (FEA) maintains membership requirements including bonding and insurance. While membership doesn't guarantee safety, it's a good starting point.

COST VS. SECURITY TRADE-OFF 💰

Don't choose a QI based solely on fees. Lower fees might mean:

Reduced security measures

Commingled accounts

Limited insurance coverage

Understaffed operations

Remember: Your entire gain deferral under §1031 depends on proper execution. A QI failure could trigger immediate recognition of all gain, plus potential penalties and interest.

#1031Exchange #RealEstateInvesting #TaxStrategy #WealthBuilding #InvestorEducation #DueDiligence #RealEstateSuccess #PassiveIncome #InvestorLife #CommercialRealEstate

Terrific article by WSJ writers about what retirement actually looks like if you are managing rental real estate.  There may be a paywall here, if so, contact me and I will send you a PDF copy of the article.

https://www.wsj.com/personal-finance/real-estate-landlord-in...