Property management for properties in a self-directed IRA

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Property management for properties in a self-directed IRA

Eric Goodman
Aurora, CO · Member since 2016 · 14 posts · 2 votes

We've been using Vacasa for a property that is held through a self-directed IRA which stipulates we are not supposed to be doing the "property management".

We were considering using Evolve and I wondered if anyone has feedback they can share about using them?  Sounds like with them we have to find our own people for cleaning, maintenance and they focus on the marketing?  I'm wondering any recommendation on how to go about finding and coordinating with cleaning crews, etc. . Note - this is an out of state property in Surprise, AZ  - THANK YOU

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Drew SygitBusiness Member
Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
3y

@John Underwood 

Once you create a Self Directed IRA and select a property, you can manage the property in one of three ways.

  1. Manage through a Self Directed IRA Custodian - The IRA custodian is involved in each transaction under this property management structure. When rental income is due, the tenant sends the payment to the custodian, who then deposits the income into the owner's IRA. If expenses (such as electricity and water bills, remodeling costs, etc.) are due, the IRA owner informs the custodian of the amount and where to send the IRA funds. Since communicating with a custodian for each transaction is typically time-consuming and fee-intensive, investors often choose a different way to manage their rental property.
  2. Hire a Property Manager - The second option involves the IRA hiring a property manager to perform all administrative duties, including paying expenses and receiving rental income. The property manager typically takes a percentage of the rental income or charges a monthly fee as payment for their services. Hiring a professional property manager can be beneficial, as they understand the rules and best practices of managing a rental property.
  3. Create an IRA LLC - The third way to manage a Self Directed IRA-owned rental property is to invest your IRA into a newly created LLC. The Self Directed IRA owns the LLC and the IRA accountholder manages the LLC. The IRA's funds are deposited into an LLC checking account and the accountholder is free to write checks to make payments and deposit rental income into this account. This property management structure is the most popular, as it ensures quick access to the IRA funds and provides asset protection. The IRA owner also has more freedom to manage the property, without having to contact a property manager or custodian. 

https://uscode.house.gov/view....

[email protected]248-209-6824
Logical Property Management4.9450 Reviews
WebsiteView Page
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  • Brooklyn McCarty
    Investor · Member since 2022 · 1k+ posts · 754 votes
    3y

    Evolve is basically you self managing only they take a large commission. 

    Why not just self manage? 

    0Reply
  • Andrew SteffensBusiness Member
    Tampa, FL · Member since 2022 · 3k+ posts · 3k+ votes
    3y

    Evolve takes 10% to just take bookings and act as essentially a call center for your guests.  You do the maintenance and housekeeping which are the biggest headaches.  Vacasa has a bad reputation all the way around.  If you can, go there and interview local PM company that has 25-150 units.  Small enough that they care and large enough to have ample staff and reach with several OTAs etc.

    [email protected]813-563-0877
    Vacation Rentals of Florida53 Reviews
    WebsiteView Page
    0Reply
  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    3y

    Where is the IRS rule that says you must use a PM?  I'd like to know about it if it is there. Not trying to be a smart A$$.

    0Reply
  • Eric Goodman
    OP
    Aurora, CO · Member since 2016 · 14 posts · 2 votes
    3y

    Thank you for the insights...when you have a property within a self-directed IRA you can't "self-manage" based on IRS guidelines...however I do need to see if I can identify a local PM company- if anyone has any recommendations for the Suprise AZ area (north of Phoenix). I'd appreciate it

    0Reply
  • Bob Willis
    Investor · Curtis, NE · Member since 2019 · 231 posts · 140 votes
    3y

    I assume this is a short term rental? If so I have someone in that area that could help you. Feel free to message me. I use this person for my STR near that area.

    0Reply
  • Michael BaumPro Member
    Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
    3y

    Hey @Eric Goodman, from what I understand, you don't have to use a property manager with an asset held in a SDIRA.

    What you can't do is sweat equity. You can't go clean it yourself, but the "desk work" (taking reservations, managing cleaning and maintenance etc) is generally OK. That is what you will be doing anyways as self managed.

    Here is a pretty good article on PMs and SDIRAs. https://www.irafinancialgroup....

    I would really take some time and talk with a knowledgeable CPA or attorney on this topic. I think you are misinformed. 

    0Reply
  • Eric Goodman
    OP
    Aurora, CO · Member since 2016 · 14 posts · 2 votes
    3y

    In terms of the IRS- thanks for asking the question.  I think it may have been communicated to us from our Trust Co -  and when I look I found this article online so I'm thinking they are taking a conservative stance?

    https://www.iraresources.com/b...

    I found this information in a document however to your point it doesn't state you can't do that...John, I'm wondering if you or others you know are doing the property management within a self-directed IRA?

    IRS Prohibited Transactions

    The following actions are considered prohibited transactions and could result in the distribution of this asset from your plan. Prohibited transactions apply to all disqualified persons to your plan.

    • Purchase, sell, or exchange assets with the account

    • Yield a commission/fee for the purchase, sale, or exchange of assets

    • Rent, occupy, or otherwise use property owned by the account

    • Personally execute renovations/repairs on property owned by the account

    • Retain account earnings on a personal basis

    • Cover account expenses with personal, non-account funds

    • Use of your IRA's assets as collateral for a personal loan

    • Use of your IRA's assets to guarantee credit for a loan on the property

    • Buying or selling a property/asset from the place from/to a disqualified person

      All expenses for the property are the IRA's responsibility. Never pay any bills with personal funds. Such payments may be considered prohibited transactions, which could jeopardize the tax-advantaged status of your IRA.

    0Reply
  • Eric Goodman
    OP
    Aurora, CO · Member since 2016 · 14 posts · 2 votes
    3y
    Quote from @Michael Baum:

    Hey @Eric Goodman, from what I understand, you don't have to use a property manager with an asset held in a SDIRA.

    What you can't do is sweat equity. You can't go clean it yourself, but the "desk work" (taking reservations, managing cleaning and maintenance etc) is generally OK. That is what you will be doing anyways as self managed.

    Here is a pretty good article on PMs and SDIRAs. https://www.irafinancialgroup....

    I would really take some time and talk with a knowledgeable CPA or attorney on this topic. I think you are misinformed. 


    0Reply
  • Eric Goodman
    OP
    Aurora, CO · Member since 2016 · 14 posts · 2 votes
    3y
    Thank you @Michael Baum!!!

    Quote from @Michael Baum:

    Hey @Eric Goodman, from what I understand, you don't have to use a property manager with an asset held in a SDIRA.

    What you can't do is sweat equity. You can't go clean it yourself, but the "desk work" (taking reservations, managing cleaning and maintenance etc) is generally OK. That is what you will be doing anyways as self managed.

    Here is a pretty good article on PMs and SDIRAs. https://www.irafinancialgroup....

    I would really take some time and talk with a knowledgeable CPA or attorney on this topic. I think you are misinformed. 

    0Reply
  • Eric Goodman
    OP
    Aurora, CO · Member since 2016 · 14 posts · 2 votes
    3y
    Quote from @Bob Willis:

    I assume this is a short term rental? If so I have someone in that area that could help you. Feel free to message me. I use this person for my STR near that area.


     Thank you very much @bob willis - I sent a message and look forward to hearing back!

    0Reply
  • Leslie Anne Morris
    Real Estate Agent · Smoky Mountains, TN · Member since 2022 · 1k+ posts · 984 votes
    3y

    I don't think this would work for a self directed IRA investment, you would be active. See previous thread - all about why not to use Evolve.

    STR Owners Beware - Do NOT Work with Evolve If You Value Your Bottom-Line (biggerpockets.com)

    0Reply
  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
    3y

    @John Underwood 

    Once you create a Self Directed IRA and select a property, you can manage the property in one of three ways.

    1. Manage through a Self Directed IRA Custodian - The IRA custodian is involved in each transaction under this property management structure. When rental income is due, the tenant sends the payment to the custodian, who then deposits the income into the owner's IRA. If expenses (such as electricity and water bills, remodeling costs, etc.) are due, the IRA owner informs the custodian of the amount and where to send the IRA funds. Since communicating with a custodian for each transaction is typically time-consuming and fee-intensive, investors often choose a different way to manage their rental property.
    2. Hire a Property Manager - The second option involves the IRA hiring a property manager to perform all administrative duties, including paying expenses and receiving rental income. The property manager typically takes a percentage of the rental income or charges a monthly fee as payment for their services. Hiring a professional property manager can be beneficial, as they understand the rules and best practices of managing a rental property.
    3. Create an IRA LLC - The third way to manage a Self Directed IRA-owned rental property is to invest your IRA into a newly created LLC. The Self Directed IRA owns the LLC and the IRA accountholder manages the LLC. The IRA's funds are deposited into an LLC checking account and the accountholder is free to write checks to make payments and deposit rental income into this account. This property management structure is the most popular, as it ensures quick access to the IRA funds and provides asset protection. The IRA owner also has more freedom to manage the property, without having to contact a property manager or custodian. 

    https://uscode.house.gov/view....

    [email protected]248-209-6824
    Logical Property Management4.9450 Reviews
    WebsiteView Page
    1Reply
  • Eric Goodman
    OP
    Aurora, CO · Member since 2016 · 14 posts · 2 votes
    3y
    Quote from @Drew Sygit:

    @John Underwood 

    Once you create a Self Directed IRA and select a property, you can manage the property in one of three ways.

    1. Manage through a Self Directed IRA Custodian - The IRA custodian is involved in each transaction under this property management structure. When rental income is due, the tenant sends the payment to the custodian, who then deposits the income into the owner's IRA. If expenses (such as electricity and water bills, remodeling costs, etc.) are due, the IRA owner informs the custodian of the amount and where to send the IRA funds. Since communicating with a custodian for each transaction is typically time-consuming and fee-intensive, investors often choose a different way to manage their rental property.
    2. Hire a Property Manager - The second option involves the IRA hiring a property manager to perform all administrative duties, including paying expenses and receiving rental income. The property manager typically takes a percentage of the rental income or charges a monthly fee as payment for their services. Hiring a professional property manager can be beneficial, as they understand the rules and best practices of managing a rental property.
    3. Create an IRA LLC - The third way to manage a Self Directed IRA-owned rental property is to invest your IRA into a newly created LLC. The Self Directed IRA owns the LLC and the IRA accountholder manages the LLC. The IRA's funds are deposited into an LLC checking account and the accountholder is free to write checks to make payments and deposit rental income into this account. This property management structure is the most popular, as it ensures quick access to the IRA funds and provides asset protection. The IRA owner also has more freedom to manage the property, without having to contact a property manager or custodian. 

    https://uscode.house.gov/view....


     Thanks you @john underwood this is incredibly helpful!!

    0Reply
  • Eric Goodman
    OP
    Aurora, CO · Member since 2016 · 14 posts · 2 votes
    3y
    Quote from @Leslie Anne Morris:

    I don't think this would work for a self directed IRA investment, you would be active. See previous thread - all about why not to use Evolve.

    STR Owners Beware - Do NOT Work with Evolve If You Value Your Bottom-Line (biggerpockets.com)


     Thank you Leslie!

    0Reply
  • Eric Goodman
    OP
    Aurora, CO · Member since 2016 · 14 posts · 2 votes
    3y
    Quote from @Brooklyn McCarty:

    Evolve is basically you self managing only they take a large commission. 

    Why not just self manage? 

     Thank you @Brooklyn McCarty

    0Reply
  • Brooklyn McCarty
    Investor · Member since 2022 · 1k+ posts · 754 votes
    3y
    Quote from @Eric Goodman:
    Quote from @Brooklyn McCarty:

    Evolve is basically you self managing only they take a large commission. 

    Why not just self manage? 

     Thank you @Brooklyn McCarty

    BP also has a STR bootcamp, super valuable. 
    1Reply
  • Eric Goodman
    OP
    Aurora, CO · Member since 2016 · 14 posts · 2 votes
    3y
    Quote from @Brooklyn McCarty:
    Quote from @Eric Goodman:
    Quote from @Brooklyn McCarty:

    Evolve is basically you self managing only they take a large commission. 

    Why not just self manage? 

     Thank you @Brooklyn McCarty

    BP also has a STR bootcamp, super valuable. 

     Great to know and I will look into that!

    0Reply
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