Can they invest client money and make money on the return on investment, or do they charge fees directly to the client?
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I've added the united-states tag because I'd never heard of this concept before, and a google seems to show it's a specific legal role in US real estate law. Please remove the tag if it's not appropriate (and add a broader explanation of what you mean in that case).– VickyCommented Aug 9, 2018 at 11:46
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@Vicky Yep, sounds good. Yes, it is specific to the US at least, I have not heard of this concept in my country either... Aa I understand it, the concept is that if you want to defer taxes on the sale of real estate in the US, and thus achieve a closed loop tax system where you only pay tax once you exit that loop, you have to give your money to a QI, and then find a new property to buy within the next 6 months.... My question is how this QI makes money...– Daniel VallandCommented Aug 9, 2018 at 11:54
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For "1031 exchanges" this page talks of direct fees being paid.– TripeHoundCommented Aug 9, 2018 at 13:13
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1 Answer
This FAQ on Qualified Intermediary fees seems to cover the basics. This is reinforced by another primer on 1031 exchange fees.
Set-up and administrative fees typically only make up about one-third of a Qualified Intermediary's tax-deferred exchange revenue. The majority of their 1031 Exchange revenue, or about two-thirds, is comprised of interest income earned and retained on the 1031 Exchange funds. Qualified Intermediaries will retain or share all or a portion of the interest income earned on your tax-deferred exchange funds while they are on deposit or held by the Qualified Intermediary.
It sounds like a mix of straight fees as well as the ability to use the clients money while they hold it.
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Very interesting... Sounds very lucrative, as many of these hold vast sums of money... Sounds like they essentially are able to obtain large amounts of free debt... Commented Aug 9, 2018 at 14:44
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To be fair, holding large amounts of someone elses money and using it to make money is the primary school explanation of what banks do.– FreiheitCommented Aug 9, 2018 at 14:56
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1Yes, but it seams like an interesting way of achieving the same thing, but possibly with less regulation, and a lower barrier to entry... Commented Aug 10, 2018 at 9:59