How to choose a QI for a 1031 Exchange

1. Segregated FDIC insured accounts     Make sure your QI does not commingle your 1031 money with other people's money. At a minimum, have your QI deposit your exchange proceeds in a segregated demand account with a FDIC financial instition, It will be insured up to $250,000 by the U.S. Government.      2. Is your QI a CPA?     CPA's know tax law, and section 1031 is all about that. CPA's are also state licensed, so they have to answer to their state, a form of regulation. Preferably, your QI should be a CPA with considerable experience in real estate tax work and small business taxation.   3. Bonded and Insured    QI's should be bonded and insured so there is a possible remedy should they go under with your funds.   4. Are they experts with 1031 exchanges?     Many firms in this business claim they are, but how can you tell the good from the bad? Education is one of the keys. In other words, do they teach what they know regularly to the real estate community, and do they talk about how they keep your money safe while holding it? I've seen many classes taught by so called experts, but they never address this issue in their seminars.   5. Do they handle Reverse Exchanges?    A Reverse 1031 Exchange is complicated, way too cumbersome for the average QI to handle. This is important as it's a good indicator of how capable they are at handling all aspects of your exchange.   6. Are they giving you the right advice?    Before I do an exchange, I have a general discussion with the client to see if their transaction qualifies under 1031. If it doesn't, they shouldn't do an exchange. For example, if there's no gain on the sale, a 1031 isn't necessary since there's no tax due.   These are very good "common sense" indicators of how to choose a QI. Other areas of concern are service related, such as are they available 24/7 to answer your calls, and do they react quickly when servicing your account.    If you're a realtor, attorney or CPA making a QI referral, make sure you know your QI well before you refer them out. The last thing you need is to hear your client's exchange failed or lost money to a QI you recommended.