The economics
How 1031 Exchange Companies Actually Make Money
There are two revenue lines in this business. Only one of them appears on your invoice, and it is usually the smaller one.
The short answer
How 1031 exchange companies earn: two lines, one invoice
Ask most people how a 1031 exchange company earns its living and they will describe the fee, because the fee is the part they have seen. It is real, and it is the smaller half.
The other half is structural. The moment your sale closes, the intermediary takes custody of your net proceeds and holds them until your replacement purchase closes: anything from a fortnight to six months. Money sitting in an account earns interest. That interest belongs to whoever the exchange agreement says it belongs to.
The float, and why it is large
Float is not exotic. It is simply the yield on somebody else’s balance while you are holding it, and it is the same mechanism that makes escrow and title businesses attractive. What makes it striking here is the size of the balances relative to the fee.
| Exchange size | Held 60 days | Held 120 days | Held 180 days |
|---|---|---|---|
| $500,000 | ~$3,300 | ~$6,600 | ~$9,900 |
| $1,000,000 | ~$6,600 | ~$13,200 | ~$19,700 |
| $2,500,000 | ~$16,400 | ~$32,900 | ~$49,300 |
| $5,000,000 | ~$32,900 | ~$65,800 | ~$98,600 |
| $10,000,000 | ~$65,800 | ~$131,500 | ~$197,300 |
Illustrative only, at a flat 4.0% annual yield and simple interest. Real yields move with short-term rates and with whatever arrangement the intermediary has with its bank.
Set a typical setup fee of several hundred to a couple of thousand dollars against the right-hand column and the proportions become clear. On a $5,000,000 exchange running the full window, the fee is a rounding error against the float.
Who keeps the interest
This is contractual, not statutory. The exchange agreement assigns the interest, and at many firms it assigns it to the intermediary. That is entirely legal and entirely common. What is unhelpful is how rarely it is volunteered.
There is no requirement to disclose the arrangement prominently, so it commonly appears as a clause well into a document you receive shortly before closing. If you have not asked by then, you will probably not notice.
Three business models in the sector
Reduced to their economics, firms in this sector run one of three models.
| Model | Charges a fee? | Keeps the interest? | What it means for you |
|---|---|---|---|
| Fee plus float | Yes | Yes | The common arrangement. You pay twice, and see one of the two. |
| Float only | No | Yes | No setup fee. The firm is funded entirely from your balance. |
| Float, shared | No | Partly; a share goes to you | No setup fee and a defined portion of the interest is paid to the exchanger. |
All three are legitimate. The difference is only where the revenue is taken from and how visible it is. A no-fee intermediary is not doing charity. It has chosen to be paid from the float rather than from an invoice, and the diligence questions are exactly the same either way: is the account segregated, which bank holds it, and what stands behind it if the firm fails.
The question to ask, in writing
One sentence covers it: what happens to the interest earned on my funds while you hold them, and where does the exchange agreement say so?
The answer itself matters less than whether the firm will put it in the agreement. A clear “we retain it” in writing is a perfectly good answer, and better than a vague one. Evasion, or a reply that the rates are negligible, tells you where the revenue comes from.
Questions about the economics
How do 1031 exchange companies make money?
From two sources. The visible one is a setup fee for arranging the exchange. The invisible one is the interest earned on your sale proceeds while the firm holds them, which can run up to 180 days. At most intermediaries the second is retained entirely as company revenue and is never quoted, and on a seven-figure exchange it is usually far larger than the fee.
What is float in a 1031 exchange?
Float is the interest earned on money a company holds on someone else's behalf. In an exchange, your net sale proceeds sit in an account the intermediary controls from the day your sale closes until your replacement purchase closes. That balance earns interest at prevailing short-term rates, and whoever is entitled to it under the exchange agreement keeps it.
How much interest does a qualified intermediary earn on my money?
It scales with the balance and the holding period. At a 4% annual yield, $1,000,000 held for 150 days earns roughly $16,400; $5,000,000 held the full 180 days earns roughly $98,600. Those figures move with short-term rates, but the shape holds: the float on a large exchange is normally an order of magnitude bigger than any setup fee.
Is it legal for a 1031 company to keep the interest on my funds?
Yes, provided the exchange agreement says so. The arrangement is contractual, and the standard exchange agreement at many firms assigns the interest to the intermediary. It is legal, it is common, and it is also frequently not mentioned unless you ask, which is why the question belongs in writing before you sign.
Why do some 1031 exchange companies charge no fee?
Because the float alone can support the business. A firm confident in the interest it earns on held funds can waive the setup fee entirely and still be profitable. Nothing about that is unusual. It is the same economics every intermediary runs on, with the revenue taken from one line instead of two. The questions that matter are unchanged: is the account segregated, which bank holds it, and what bond stands behind it.
Do any qualified intermediaries share the interest with the investor?
A small number do, as a deliberate model. Easy1031, which publishes this site, pays a tiered share of the interest to the exchanger and charges nothing for a standard forward exchange. Most firms retain the interest in full. Either way, the arrangement should be stated in the exchange agreement rather than described verbally.
The one that shares the float
Easy1031 charges nothing for a standard forward exchange and pays a tiered share of the interest back to the exchanger, stated in the exchange agreement.
Easy1031 publishes this site and appears in the directory above. It has a commercial interest in you starting an exchange, worth weighing, and worth comparing against other intermediaries.