Managing your IRA-Owned Property
special to the daily
Summit County, CO Colorado
Last week, we wrote about how your self-directed IRA can purchase real estate. Now, learn how to manage the property and stay within the rules the IRS lays out for this kind of ownership.
When considering a real estate purchase with your IRA, one frequently asked question is “how do I manage the property”? Good question. Before we discuss your options, remember that the IRA, not you, owns the real estate. The IRA pays all the bills and takes in all the income. You, as the IRA holder, can have no contact with the money; it all must run to and from the IRA account. You do authorize the custodian (Entrust New Direction IRA is a good one) to pay bills, but the custodian does not “manage” the property. For example, if a tenant fails to pay rent, the custodian will not alert you, the IRA holder. The custodian is not the property manager. So how do you handle this and other issues? Most IRA holders choose one of the following options.
I want to manage
the property myself:
The custodian pays all the bills and takes in the rent.
You advertise for, interview and choose the tenants
You tell the tenants to make the rent check payable to the IRA.
You receive the check and forward it to the custodian for deposit.
You decide on maintenance and improvements
You hire someone to do the maintenance and improvements.
Can you do maintenance and improvements yourself? How much you can do is a gray area in the IRA code, and should be discussed with a custodian like Entrust New Direction IRA.
I want to hire a manager:
You decide on a manager or management company
Your IRA hires and pays the manager.
The custodian signs the management agreement after you have approved it.
The manager controls all the monies of the property
The manager coordinates maintenance and improvements at your direction.
The manager or management company does not have to be licensed but cannot be a close family member. The manager is required to furnish the custodian with income/expense reports on at least a quarterly basis accounting for the IRA monies.
One of the primary concerns of your self-directed IRA custodian is keeping your account tax-deferred (or tax-free if a Roth). To this end, you and your custodian must account for all the funds held in the IRA. There are a few other rules which we or your IRA custodian can explain in detail when your IRA buys real estate. Real estate is the number one investment held in self-directed IRAs. Maybe it’s the right one for yours.
“Welcome Home” is compiled using
various industry sources by TheTeam@Elich.com. Butch Elich has been helping people with their real estate needs in Summit County for over 20 years. His team includes Associate Broker, Paula Parker, a Summit resident for 23 years. Find them on the web at http://www.elich.com, or at RE/MAX Properties of the Summit, 305 Main St., Frisco.
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