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5 Keys to Evaluating a 1031 Exchange Sponsor

Every role in the 1031 exchange (Attorneys, Broker Dealers, Lenders, Mortgage Brokers, Qualified Intermediaries, Real Estate Brokers, Registered Representatives, Services, and Sponsors) is important. However at the end of the day, an investor is buying an ownership interest in a building. Thus, we believe you really want to focus on what your buying and who you're buying from.

To help you do your homework, we've created a diligence list to research your 1031 Exchange Sponsor and the specific 1031 tenants in common offering.

  1. First do some basic website research. Note the general professionalism of the website, the management team, and the history of the firm. One thing to look for in particular is if they market specific buildings on their website as 1031 tenants in common interests. This is a big "no-no," as it is illegal to market securities unless the firm is licensed by the SEC.
  2. Understand the 1031 sponsor's detailed background. Call directly or ask your registered representative:
    • How long has the 1031 TIC exchange firm been in business?
    • How many transactions they have completed successfully?
    • How credible does the leadership of the firm appear to be?
    Many firms have grown out or are subsidiaries of title or brokerage companies. So be careful about differentiation between the track record of the 1031 company and the parent company.
  3. The Sponsor's portfolio:
    • How big is the Sponsor's property portfolio? The bigger usually will indicate a larger and more established firm. Also, when you go to exchange it's more likely that they will have a property available
    • What property type (office, residential, retail) and geography do they focus on?

  4. The Sponsor's track record:
    • Has the 1031 TIC exchange firm ever been sued?
    • Has the 1031 TIC exchange firm ever had to make a capital call? If the firm has had to make a capital call, that means the firm used too much leverage, did not manage the property well enough, or made a similar mistake.
    • Has the firm been the subject of complaints to the Better Business Bureau?
  5. Reference checks:
    • Check 1031reviews.com comments and ratings
    • Talk to prior investors: If you do anything at all, talk to private investors about their experience. If you can find someone not referred by the 1031 firm, all the better. It will give you confidence that the firm you are working with is legitimate.