Self Directed IRA and short term rentals? any suggestions?

Question

I am new to investing (though have been in the new home industry for 29 years) and i just recently opened a self directed IRA of which I bought my first investment home. Has anyone had success with a short term rental (Airbnb) and or would they recommend even trying an Airbnb with a self directed IRA?

Dmitriy Fomichenko · Answer

@Dean Smith

Congrats on your first investment and first post on the forum!

It is possible but you need to be aware of few things:

• You can't manage it yourself, meaning you would have to hire a property management company. The management fees for short term rentals are typically significantly higher because of the amount of work involved. 
• You can't do any work on the property yourself
• Short term rental income might be considered an "active business" therefore be subject to UBIT (Unrelated Business Income Tax)

Hope this helps!

Carl Fischer · Answer

@Dean Smith

There are professionals that will rent your house and then do the Bnb —your rental is long term a couple years and they do the work and maintenance and you enjoy life. There are many professionals doing that.

Dean Smith · Answer

@Carl Fischer

Thanks Carl. I appreciate The feedback

George Blower · Answer

@Dean Smith

In determining whether short term real estate rental income is treated as business income, here are general considerations (of course you will want to review your specific situation with your tax advisor):

• The average period of customer use is 7 days or less.
• The average period of customer use is 30 days or less and significant personal services are provided with the rental.

Caroline C. · Answer

Since you already own the property in your IRA, it is a given that you need to hire a property manager, people to do repairs, and you'll need to have the custodian handle all contracts and money in/out.

Generally the question of whether to do long term rental or short term rental has to do with the location, quality of house, local rental regulations, typical nightly price, expected annual occupancy rate, availability of short term rental property managers, etc etc etc. Those are the kinds of questions you need to answer, and whether you own the property personally or in an IRA is less relevant than those things. As with anything, you'll find people successful with it and some that are not successful - the factors above are what is important.

Since you are using an IRA, make sure you have enough reserve funds in there to handle up front expenses or unexpected repairs. Otherwise you'll have to make a contribution to make those payments.

Carl Fischer · Answer

@Dean Smith

Many people use their IRAs to do short term rentals. Talk to your SDIRA company on the best way to handle it.  @Dmitriy Fomichenko points need to be consideeeed as well as other logistical matters in managing Bnb properties.

Dean Smith · Answer

Thanks Dmitriy

I appreciate your insight and will definitely do my due diligence on whether i am dealing with the concern of an "active business"

Thanks again

Self Directed IRA and short term rentals? any suggestions?

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