Qualified Intermediary
A Qualified Intermediary (QI), also known as an Accommodator or Facilitator, is a person or entity that holds the money in a 1031 exchange on behalf of the exchanger to adhere to regulation via Internal Revenue Code Section 1031 tax-deferred exchanges. The QI is a non-affiliated third party that plays a crucial role in ensuring the exchange complies with IRS regulations. The QI receives the funds from the escrow company when the exchanger closes the sale of the relinquished property. The QI will then hold the funds on behalf of the exchanger until it is released to the seller of the property that the exchanger acquires to complete the 1031. This service is essential to help investors defer capital gains taxes when they sell an investment property and reinvest the proceeds into a “like-kind” property.
The Sponsor
A “sponsor” typically refers to the entity or individual that organizes, promotes, and manages real estate investments for 1031 exchange investors. Real estate sponsors create Delaware Statutory Trusts (DST) or Tenants-In-Common (TIC) to provide 1031 exchangers passive, turn-key investment opportunities. The sponsor identifies investment opportunities, arranges financing, manages the acquisition and development of properties, and oversees the ongoing management of the real estate assets. The sponsor sometimes has a significant financial stake in the investment and is responsible for achieving the investment’s performance goals. In a DST/TIC, a sponsor may identify an apartment building investment, secure financing, manage the acquisition process, and oversee property management. They would then seek out investors to contribute capital in exchange for a share of ownership in the property. Often, sponsors will seek out Broker-Dealers to facilitate the 1031 investments.
Broker-Dealer
A broker-dealer is a person or firm in the financial industry that is authorized to trade securities for its own account or on behalf of its clients. Brokers earn commissions or fees for these services. For example, when an individual wants to buy shares in a DST/TIC, the broker may execute this transaction. Many broker-dealers offer due diligence, education, investment advice, and financial planning services to their clients, helping them make informed decisions about their investments. Many of these client-facing investment services are provided by a Registered Representative (RR).
Registered Representative
A registered representative (RR) is a financial professional who is licensed to buy and sell securities on behalf of clients and authorized to provide investment advice. The RR handles client interaction, advisory services, and education. She is responsible for understanding the investors’ goals and objectives to better help investors navigate the 1031 investment process. A major part of these services entails education on the risks and potential benefits of the 1031 investment offerings. RRs must be affiliated with a brokerage firm and adhere to various regulatory requirements set by financial industry regulatory bodies such as FINRA.
FINRA
The Financial Industry Regulatory Authority (FINRA) is a non-governmental organization that regulates member brokerage firms and exchange markets. FINRA operates under the supervision of the U.S. Securities and Exchange Commission (SEC). Its mission is to protect investors and ensure the integrity of the securities markets. Its primary functions are to oversee broker-dealer firms in the U.S. to ensure they operate fairly and honestly by monitoring trading practices, client and public communication, and qualification, registration, and education of broker firms. FINRA plays a crucial role in maintaining trust and confidence in the U.S. financial system.
Disclosure
1031 Exchange Risk
Internal Revenue Code Section 1031 (“Section 1031”) contains complex tax concepts, and certain tax consequences may vary depending on the individual circumstances of each investor. RM Securities and its affiliates make no representation or warranty of any kind with respect to the tax consequences of your investment or that the IRS will not challenge any such treatment. You should consult with and rely on your own tax advisor about the tax aspects with respect to your particular circumstances.Please note that RealtyMogul does not provide tax advice.
This article is for informational purposes only, and is not a recommendation or offer to buy or sell securities. Information herein may include forward looking statements and is for informational purposes only. Forward-looking statements, hypothetical information, or calculations, financial estimates and targeted returns are inherently uncertain. Past performance is never indicative of future performance. None of the opinions expressed are the opinions of RealtyMogul. Advice from a securities professional is strongly advised, and we recommend that you consult with a financial advisor, attorney, accountant, and any other professional that can help you to understand and assess the risks and tax consequences associated with any real estate investment. All real estate investments are speculative and involve substantial risk and there can be no assurance that any investor will not suffer significant losses. A loss of part or all of the principal value of a real estate investment may occur. All prospective investors should not invest unless such prospective investor can readily bear the consequences of such loss.
RealtyMogul and its affiliates are not registered as a crowdfunding portal. Unless stated otherwise in writing, RealtyMogul and its affiliates do not offer brokerage or investment advisory services to the Platform’s individual users. RM Adviser, LLC, a wholly owned subsidiary of RealtyMogul, is an SEC-registered investment adviser providing investment management services exclusively to certain REITs and single purpose funds. Past performance is not indicative of future results. Forward-looking statements, hypothetical information or calculations, financial estimates, projections and targeted returns are inherently uncertain. Such information should not be used as a primary basis for an investor’s decision to invest. Investments in real estate, including those offered by sponsors using the RealtyMogul platform, are speculative and involve substantial risk. You should not invest unless you can sustain the risk of loss of capital, including the risk of total loss of capital.
