I can’t help using the old cliche –  Penny Wise, Pound Foolish – to describe how so many supposedly intelligent people can risk literally millions of dollars in order to save a few hundred.

It’s no secret that my wife owns and operates a company to handle Section 1031 like kind exchanges for real estate investors.  She frequently mentions that potential clients try to get her to lower her fees based on lower rates being charged by newbies who don’t know what they are doing.  Of course, she is just like I am and refuses to participate in such a “whore’s market” and doesn’t work with anyone who doesn’t understand that quality comes with a price.

As these articles covered by Paul Caron indicate, cutting corners on a 1031 fee can end up costing much more in the long run, as several 1031 facilitators have filed bankruptcy while holding 151 million dollars of investor funds.  I wonder how many of those investors chose to use those companies based on lower fees than what reputable firms charged. They are each now looking at the very likely prospect of losing hundreds of thousands of dollars because they wanted to save a few hundred dollars.    

This reminds me of a similar situation when I owned an exchange company back in the Bay Area.  We were losing a lot of exchange business to a new company that wasn’t charging anything for its services, supposedly as a means of getting a foot-hold in the area’s real estate market.  The fact that they were operating out of a motel room should have been a dead tip-off to the end result.  The slime-balls amassed a few million dollars of investor funds and then skipped town.

I hate to sound cruel, but anyone who is willing to entrust his/her real estate equity with a stranger rather than someone who has been successfully handling 1031 exchanges for decades, just to save a few hundred dollars on the service fees, doesn’t have much chance of being considered a “sophisticated investor.”  Short-sighted fool would be the more appropriate description of such a person.  

1031 Tax Group files for Chapter 11

1031 Group bankruptcy a muddle

 

Firm files bankruptcy owing $151 million