Many of our clients invest in real estate with their Self-Directed IRAs. They are looking to capitalize on tax-deferred or, in the case of a ROTH IRA, tax-free income, cash flow, and the potential for future appreciation.
When clients own real estate in an IRA for a long-term hold position, they frequently ask about the Self-Directed IRA and property management.
Can an IRA manage its own real estate?
Different people, from seminar gurus to IRA custodians, have different takes on this question. I recently attended a sophisticated seminar led by attorneys knowledgeable in IRA and IRS law. They had many opinions about what can and what cannot, or should not, be done in a self-directed IRA and how IRAs are auditable.
“Based on the information provided at that seminar, it is my opinion that an IRA cannot manage investment property acquired in the IRA; that in fact, they need a third party property management company or person who is a property manager in order to do so.”
Why?
It can be perceived as providing services to your IRA if you or any disqualified person gets intimately involved in the real estate it acquires then manages. The issue is the IRS has never defined the term “services.”
To err on the side of caution, I believe that a non-disqualified third party should be involved to collect rents on behalf of the IRA, and to oversee management and tenant issues. This approach helps to protect the IRA owner should any issue arise.
This seminar reinforced my opinion on the subject of IRAs and property management. On January 29th I will be co-hosting a webinar with JWB Real Estate Capital. We will be discussing how to choose a property manager. I hope those who are interested in learning more about this area will join us to learn about issues involving property management.
