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How Does a Qualified Intermediary Facilitate a 1031 Exchange? - YouTube
Channel: Equity Advantage 1031 Exchange
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Hello, David Moore with Equity Advantage,
1031exchange.com.
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And today's topic is how does a QI structure
and exchange?
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A QI is a Qualified Intermediary.
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Actually, we'll just look at that for a second.
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What do you call an exchange company?
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They're called QIs, Qualified Intermediaries.
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They could be called accommodator, and exchange
accommodator, exchange facilitator, years
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and years ago called a straw man...
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That obviously has fallen out of favor.
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We like to call equity advantage and facilitation
company because we feel it's an active role.
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We're going to actually help you get where
you need to go.
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It's not about accommodating a transaction.
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We're going to actually take an active role,
look at it, and help you get where you want
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to go.
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Or maybe it's a situation where you don't
even need to do an exchange.
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In this situation, we're going to tell you
that.
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So, I always say it.
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Only dumb question is one that you don't ask.
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Give us a call if you've got questions, and
we're happy to address those questions.
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But if you look at a QI, and you look at what
we do in a transaction, we're actually just
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an independent, third party, paid a fee to
structure an exchange.
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So if you look at the most basic concept of
an exchange, you've got something, I've got
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something, and we swap back and forth, that
can happen really as something that's mutually
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beneficial, and that's where the exchange
industry grows.
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So what the exchange company does is steps
in the middle of the transaction.
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And you're going to list your property as
you normally would, negotiate a sale as you
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normally would.
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You're going to include a cooperation provision
in that purchase sale agreement, and that
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cooperation provision is going to establish
your intent to do the exchange, and it opens
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the door for us to get involved with the transaction.
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Now, a word of caution.
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A lot of states these days, in their residential
and commercial forms, will have a boiler plate
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contingency in there stating that the buyer
or seller has the right or the option to do
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an exchange, which is great because it doesn't
establish intent, but it gives you the ability
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to do it.
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So it keeps that door open.
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The downside of just relying on that statement
is it's not telling anybody that you're doing
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an exchange.
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So how's escrow supposed to know you want
to do an exchange unless somebody tells them
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that?
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And from my experience, if you're closing
a deal in New York or were working with that
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closing attorney, or were working with an
escrow company on the west coast, they have
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a tendency to be upset if they've drawn up
everything as that basic sale, and then you
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come back later and tell them, "Hey, it's
an exchange," and now they've got to redraft
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everything.
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So, do yourself a favor.
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Do everyone a favor.
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If it's an exchange, make sure that the people
working with you know that you want to do
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an exchange, and therefore you're going to
avoid any actual or constructive receipt issues
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that might come up.
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A constructive receipt would be let's say
you close the deal.
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Money's sitting in escrow.
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You never touched it, but you've got the ability
to ask for it.
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That's constructive receipt, and the exchange
is no longer possible at that time.
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So it's really important that you get us involved
early.
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People ask all the time when I'd like to be
involved.
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I'd say probably when you buy the property.
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At least when you choose to sell it.
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The comment about when you buy it is because
I know you're going to sell it at some point.
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So we'd like you to structure the ownership
in a manner that allows you to get out the
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way you want when you want to.
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So that's why that comment about buying the
thing.
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But as soon as you decide to sell it, your
first call should be to your tax people, and
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figure out what your tax liability is going
to be.
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And then you can rationalize whether you want
to do an exchange or even you think about
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the exchange.
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But until you've got that very important piece
of information, that's what's going to drive
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the transaction.
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You've got to look at it and say, "Okay, is
it worth paying the tax today, sitting on
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the money, and have it ready for something
in the future?"
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Or am I in a situation where, "Hey, I want
to do an exchange.
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Don't want to pay the tax.
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I've got something out there I have in mind,
or I want to take 45 days to figure it out..."
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All those things have to be decided pre-settlement.
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It's got to be structured pre-settlement.
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After the fact, it's too late.
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So when you engage us, it's really easy.
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You're selling something.
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You're buying something.
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We're going to turn it into an exchange for
you.
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All we need to know is who you are.
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We need your contact information.
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We need to know who's handling the closing
and an escrow number.
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We're going to reach out to the escrow, get
a copy of the purchase sale agreement, title
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report, we're going to draw up an exchange
agreement and assignment agreement, escrow
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instructions, you're going to get a copy of
the fee schedule.
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You're going to get all of this information
as soon as we've got it prepared.
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You don't sign anything or pay anything until
it closes, and only if it closes.
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So really what's happened when you get to
settlement is you're going to sign everything
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read and approved as the exchanger.
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We actually sign as a seller of the property.
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Phase one, you gave us something.
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We sold it to the buyer.
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Actually, one other comment with respect to
that.
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The deed is going to go straight from you
to the buyer, and straight from the seller
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to you if we're looking at a basic delayed
exchange.
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Improvement exchanges, reverse exchanges,
those are warehouse transactions, and we're
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going to take ownership to a property for
a period of time.
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But if we're looking at basic delayed exchange,
direct deeding, it's a simple process.
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So from the data settlement, we're going to
send you an ID packet.
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The ID packet's going to give you the 45th
and 180th days.
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It's going to say how much money is being
held, give you all the identification rules
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in a form that has to be filled out, mailed
in, faxed in, driven in.
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Just get it to us prior to midnight the 45th
day.
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Now I just said get it to us.
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Does it have to get to the exchange company?
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And the answer's no.
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It's got to go to somebody that's a party
in the transaction without an agency relationship.
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Who could that be?
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It could be the seller's broker.
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It could be the seller.
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It could be escrow.
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But it can't be your broker, and it can't
be your attorney or your accountant.
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It could be the exchange company.
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9 times out of 10 it is us.
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I would say get it to us, because if you're
ever audited, they're probably going to come
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to us looking for it.
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If we don't have it, you've probably got some
explaining to do.
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So, that ID packet will contain all those
rules.
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You've got the three property rule, the 200%
rule, the 95% rule.
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They're going to be spelled out.
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Our ID form actually states you're IDing these
properties.
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You've got the right to buy blank of them.
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And the reason we've done that is that through
the years, the rules haven't changed, but
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the policies and procedures in 1031...
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You cannot receive funds outside what's called
the 1031 G6 rules.
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So what that means is the taxpayer cannot
ask for their money until they've acquired
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everything they have the right to buy.
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Actually, I should clarify that.
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You could ask for it.
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We're not going to give it to you.
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You don't have the right to it.
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We cannot give you money outside the 1031
G6 rules.
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So that 45th day is really critical.
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If you get in the exchange, you're married
to us for 45 days.
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If you get to the 45th day and you have nothing
that looks good to you, don't identify anything
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just in case, because if you ID something,
now you're married to us until day 181.
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And by the way, if you're looking at an opportunity
zone, something like that, you're in a situation
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where you've only got 180 days to get money
into that, too.
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So it's really, really critical that you work
through this process if you've engaged us
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to do the exchange.
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That 45 days, you're either in or out on that
45th day, and more important than ever before
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right now in the crazy times we're in.
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So really look at that stuff.
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So, when you ID something, you've got to give
what the government would deem an unambiguous
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description.
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If it's a common address, it needs to include
city, state, and zip.
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If you're getting a condo, it's got to be
that specific unit.
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If you've got further questions on this topic,
give us a call, but you've got three different
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ID rules.
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Each rule works independently.
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The others, too.
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But you get that idea into us.
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You could have negotiated the purchase before
your sale property ever closed too, and that's
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fine.
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You can put some money down, you can negotiate
the purchase, just don't let it close until
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your relinquished property closes.
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If you have to buy first, we can do that.
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That's a reverse exchange.
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Another topic that is covered elsewhere on
our YouTube channels.
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But all these things are the results of people's
needs and questions that are asked, and bottom
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line is arm yourself with as much information
going into this as you can.
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So those ID rules, the three property rule,
200% rule, 95% rule...
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You only have to satisfy one of those.
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If we have your money, so if you've put earnest
money down on something prior to engaging
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us, that's fine.
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We can reimburse you that earnest when we
go buy the asset for you.
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If we have your money, on the other hand,
we can forward earnest money on your behalf
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on the acquisition, but we're not going to
do that until our assignment agreements have
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been structured, drawn, and signed by both
the taxpayer, our client, and the seller of
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that replacement property.
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So, the ID packet goes out.
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So phase one's what's relinquished.
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Phase two's what's acquired.
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So, you've got that escrow open, now, on the
acquisition side.
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We're going to, once again, need the escrow
information.
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We're going to reach out to escrow, get a
cognitive purchase sale agreement, title report
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we're going to buy, do all the buy-side documentation,
and our client is just going to be signing
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everything, once again, as the exchange are
read and approved.
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We're going to sign as the buyer.
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The deed, if it's a delayed exchange, is going
to go straight from that seller to our client.
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And at that point, really, as soon as we've
given them the property, we're done with the
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exchange.
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We've got one last set of documents that's
going to go out, and that's just a term pack
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summarizing what was relinquished, received,
gives an accounting for the funds.
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And you're going to want to take that information
and include a copy of the settlement statements
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from the relinquished and replacement properties
and present that information to your tax people
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come years in so that they can do what needs
to be done to do the accounting for the 1031
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exchange.
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But really, when you look back on it, the
taxpayer sold the property, bought a property.
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You could sell one property, buy 10.
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You can sell 10, buy one.
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It really doesn't matter.
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You can aggregate any number of sales and
purchases, and we're just going to bunch them
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into, let's say, 180 day windows.
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But the bottom line is you sell, you buy.
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We turn it into the exchange.
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You're paying us a fee.
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The exchange company is just paid a fee to
structure this transaction on your behalf.
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I hope you found this helpful.
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I encourage you to reach out with any questions
you might have on this topic.
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If you've got other ideas for other topics
you'd like to see us address, we're happy
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to do so.
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Please reach out to [email protected]
with any of those inquiries.
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And thank you very much for joining us today.
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Once again, David Moore, Equity Advantage,
1031exchange.com, and all my best to you.
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Take care.
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Bye.
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Nice.
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That was a really good one.
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