How do you know a 1031 TIC Exchange Firm is Honest?

I got the following questions emailed to me:

are the main questions we should ask of the RSP or real estate provider?

how do we know they  are honest?

how do we know the property is really going to yield 6-7 %?

1) All the questions that I list on how to choose the right 1031 exchange firm (link) are questions you should ask the real estate firm, other investors and folks like your CPA, CFA.  For your CFA, ask if they have any biases, commissions,etc. Often the CFA is recieving a 5% commission to introduce you to a firm

2) How do you know they are honest?  This is a tough one.  Asking prior investors is the best way to tell.  Also, take a look at their fee structure.  If their fee structure is egregious (ie greater than 15% of equity rolled in) it's a sure sign that the firm is trying to make a quick buck.  You can also ask a a lawyer or friend who is a lawyer to take a quick look to see if the ceo of the organization or the organization itself has ever been sued

3) How do you know you will get the promised yield?  Most offerings have a triplenet lease which is a contract guaranteeing the return.  To make sure that the firm lives up to the guarantee, ask if there has ever been a capital call.  Also, look to see how aggressive the loan agreement is.  If it's a variable, interest only loan, you might ask how the firm is going to continue its cash yield commitments when interest rates rise and principal needs to paid back.

To better serve you, we're looking to launch a feedback project on 1031 service providers (find out more link) .  If you think this would be valuable, please post  comment or email us at nesteggemail@gmail.com

Comments

[Gene Archambault]

This is a great learning experience for me. Thank you.
Gene