Fremont, CA · Member since 2022 · 13 posts · 1 vote
I understand that rental payments for property owned by my SDIRA account (custodian, not LLC-type) need to be handled in an 'arm's length' fashion. I haven't found a property management software that will collect the rental payments and subsequently process them into my SDIRA custodian's online payment portal. And I understand that having a tenant make the payments directly into my account is not a good practice. Do you have a suggestion on how to do this without hiring a brick-and-mortar type property manager (and without transferring property into an LLC type SDIRA)? Can I, within SDIRA guidelines, have the payments paid into an escrow-type account & then make the transfers into the SDIRA portal myself? And if so, any recommendations on where to find this? Or is there a payment processing service I can hire to make these transactions at a reasonable fee? Does anyone else have this issue? Thanks!
There are checkbook IRA options that use a trust instead of a LLC, which eliminates the CA franchise tax.
Partnerships are a complicating factor, however. You do not want to form a partnership trust, so each IRA would need a trust and they could then hold title as tenants in-common.
Setup properly from the get-go, it may have been a better solution. The one-time costs of trust formation would be offset by a more usable structure and reduced yearly IRA custody fees. Changing horses mid-stream is never optimal, however.
It would probably be cheaper and simpler to just get a property manager.
I am not sure what you are seeking is available. The best place to start would be with your IRA custodian.
A checkbook IRA would eliminate this issue, and is generally a more effective and efficient tool for IRA investments into rental property. What is your resistance to that approach?
I looked into this myself not too long ago. From my understanding a third party HAS to handle any transactions as you are not technically allowed to "pay or indirectly benefit yourself".
Fremont, CA · Member since 2022 · 13 posts · 1 vote
2y
@Brian Eastman Thanks Brian for your response. Being in California, the $800 annual tax on the LLC isn't great, but I'm willing to pay it if we need to go the LLC route. What's holding me back at the moment is that my sister and I own the property jointly through our separate SDIRA accounts and I'm not clear on how complex the move would be and how long it might take, how much longer we'd need to have the property vacant before getting all this set up right...
Not sure, for instance, whether we'll be able to move the property with the same owner percentages into the LLC. Then there's the remaining assets in each of our custodial accounts - looks like we'd also be paying annual fees to both that custodian and the new LLC custodian.. Which may be what we'll need to do; was hoping for a simpler, less expensive workaround...
There are checkbook IRA options that use a trust instead of a LLC, which eliminates the CA franchise tax.
Partnerships are a complicating factor, however. You do not want to form a partnership trust, so each IRA would need a trust and they could then hold title as tenants in-common.
Setup properly from the get-go, it may have been a better solution. The one-time costs of trust formation would be offset by a more usable structure and reduced yearly IRA custody fees. Changing horses mid-stream is never optimal, however.
It would probably be cheaper and simpler to just get a property manager.
Fremont, CA · Member since 2022 · 13 posts · 1 vote
2y
@Brian Eastman Thanks Brian for your input on the IRA trust option, the details around how partnership could work around that. You're probably right about that horse having already left the stable, but good to know for future reference..