All Forum Posts by: Corey G.

Tenant informed me he wanted to move out about 6 months into his second year (about 30 days ago). He thought he went month to month after the first year but never informed me of it (which is required in writing) and I have the lease set to renew for another 12 months automatically written into the lease. Well I'm pretty sure he just moved out anyways without paying the buy out fee (2 months rent pretty much). I haven't had these terms written into my lease very long and the tenant that broke the lease previously went ahead and paid it. What is the suggested process for this? I'm very familiar with serving notice for things like late fees/evictions but never have tried to collect on this. Technically he's late on the June rent now as well. Should I serve a late notice and then eviction and add the fees up at the eviction hearing or is there a different/better way to do this? 

Quote from @Ashish Acharya:

@Corey G. You're right to be cautious, partnering personally with your own IRA to co-own a rental property is considered a prohibited transaction by the IRS, and doing so could disqualify your IRA entirely.

Here’s why:

• Self-dealing rules under IRC §4975 prohibit you (as the IRA owner) and "disqualified persons" (your spouse, lineal family members, businesses you control) from transacting with the IRA in any way.
• That means you cannot co-invest with your IRA, manage a property owned by your IRA, or provide services (like repairs or labor), even if it's partial ownership.
• Even if your IRA owns just 50%, your involvement outside the IRA creates a conflict of interest, which triggers disqualification and taxes on the full IRA balance.

If you're interested in using your retirement funds, the correct route is to:

• Use a self-directed IRA (SDIRA) or Solo 401(k) to buy a property entirely within the retirement account.
• All expenses and income must flow through the IRA.
• You must remain hands-off, no managing tenants, repairs, or even signing checks.

Some investors structure partnerships between unrelated parties' IRAs (e.g., two separate SDIRAs or an IRA and an unrelated third party), but you personally cannot co-invest with your own IRA. To stay compliant, talk to a custodian experienced in SDIRAs and consult a tax attorney or CPA who specializes in self-directed accounts before moving forward.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

Thanks, I read somewhere that it was possible to co-own a property with your own solo 401k by creating a 50/50 partnership and wondered if that applied the same way to SDIRAs. I'm guessing the self dealing rule is also the same for 401ks as it is for IRAs? I figured it was likely prohibited but you know the internet, people advising all sorts of stuff. 

I've considered purchasing 100% of a property with the SDIRA and being totally hands off with it but I'm not sure that I would have enough funds to purchase a property cash and the loans from within the IRA seem tricky (the partnership would solve the funding issue because I could use my non retirement funds towards the purchase as well). Additionally, the Roth Ira tax advantages come later so you can't take the deductions for repairs/ supplies/ management from the current year rentals so it's hard to know if that would work out long term.

I've seen this mentioned recently but it didn't ever occur to me before because I thought that everything needed to be owned by the IRA and expenses come out of the IRA, etc. If I could purchase a property 50/50 with my IRA, it would be a lot easier to finance and would I be able to manage and do repairs myself through my 50% ownership? Has anybody done this or familiar enough to explain limitations and/or restrictions? Or am I totally off base with this?

Quote from @Alecia Loveless:

@Corey G. It never occurred to me that this was a thing.

I just use my personal vehicle for everything and keep track of mileage.

I’d think this might be a question for your accountant. Or an independent insurance broker.

I bet the basic insurance representatives at Progressive or whatever don’t know enough about the situation to actually make this call.

It seems like if the business designation was $350 more expensive then of course that is what they said so they’d make more money.

The problem is now that I've asked them and supposedly they checked with underwriting they could potentially deny my insurance if it's classified incorrectly from what I understand. And this is an independent insurance broker that checks with multiple companies for cheaper prices ect. 

Quote from @Owen Rosen:

Quote from @Corey G.:

Quote from @Owen Rosen:

Quote from @Corey G.:

I've been a property owner for about 13 years now. I just bought a new cargo van and I previously had a pickup truck I replaced. My pickup was under my insurance for personal use but when I added the cargo van, I put it down for business use. After talking this over with some insurance brokers, I'm not sure it needs to be classified as business use. To clarify, my properties are not currently in LLCs or any other structures, just solely in my name. I do not have a business license and my rental income is considered passive. Since I own these properties (and the home I live in), I was explained by the broker that when I visit my properties, even to do repairs or haul appliances, I'm essentially just transporting tools/appliances from one of my properties to another one of my properties (not a business). It's like I'm working on my own personal house, or hauling appliances from home depot to my house and neither of those examples would be business use. Essentially, because my van is not registered to business license or LLC, and the income is not active business income, then the vehicle could be classified as personal use. The logic makes sense to me but what does everybody think of this and what do you have your insurance use as? Additionally, I have a car that I sometime use to show the properties & sign the leases. I don't really consider this business use either but should I?

Are you referring to personal auto insurance vs. commercial auto insurance or a business usage classification on a personal auto insurance policy. These are different things.

personal auto insurance business use classification

 Do you use the van for anything other than visiting your properties?

It's probably in a gray area.  That said, the pricing difference for business use on a personal lines policy vs. commuting or pleasure usage is likely nominal.

I use it for mostly just transporting supplies, hauling my tools over to do repairs, that kind of thing. Sometimes I stop for groceries or at a restaurant on my way back from the property. I called my broker who signed me up with progressive a while ago and the lady didn't know so she called the underwriter and they said it has to be classified as business use. Personal use is about 350 dollars cheaper for the year. It's not a bunch but the insurance just went up because I got the van (and last year I was in an accident). I have my liability set pretty high because I need to keep minimums for umbrella insurance but with this and landlord insurance everything is pretty darn expensive. 

Quote from @Owen Rosen:

Quote from @Corey G.:

I've been a property owner for about 13 years now. I just bought a new cargo van and I previously had a pickup truck I replaced. My pickup was under my insurance for personal use but when I added the cargo van, I put it down for business use. After talking this over with some insurance brokers, I'm not sure it needs to be classified as business use. To clarify, my properties are not currently in LLCs or any other structures, just solely in my name. I do not have a business license and my rental income is considered passive. Since I own these properties (and the home I live in), I was explained by the broker that when I visit my properties, even to do repairs or haul appliances, I'm essentially just transporting tools/appliances from one of my properties to another one of my properties (not a business). It's like I'm working on my own personal house, or hauling appliances from home depot to my house and neither of those examples would be business use. Essentially, because my van is not registered to business license or LLC, and the income is not active business income, then the vehicle could be classified as personal use. The logic makes sense to me but what does everybody think of this and what do you have your insurance use as? Additionally, I have a car that I sometime use to show the properties & sign the leases. I don't really consider this business use either but should I?

Are you referring to personal auto insurance vs. commercial auto insurance or a business usage classification on a personal auto insurance policy. These are different things.

personal auto insurance business use classification

I've been a property owner for about 13 years now. I just bought a new cargo van and I previously had a pickup truck I replaced. My pickup was under my insurance for personal use but when I added the cargo van, I put it down for business use. After talking this over with some insurance brokers, I'm not sure it needs to be classified as business use. To clarify, my properties are not currently in LLCs or any other structures, just solely in my name. I do not have a business license and my rental income is considered passive. Since I own these properties (and the home I live in), I was explained by the broker that when I visit my properties, even to do repairs or haul appliances, I'm essentially just transporting tools/appliances from one of my properties to another one of my properties (not a business). It's like I'm working on my own personal house, or hauling appliances from home depot to my house and neither of those examples would be business use. Essentially, because my van is not registered to business license or LLC, and the income is not active business income, then the vehicle could be classified as personal use. The logic makes sense to me but what does everybody think of this and what do you have your insurance use as? Additionally, I have a car that I sometime use to show the properties & sign the leases. I don't really consider this business use either but should I?

I wasn't calling him an accountant, I was concerned who I would reach out to wouldn't have the expertise and I wouldn't know the right questions to ask. Michael wasn't exactly offering his expertise to me... so what does it matter what credentials he has? Besides I'd be looking for someone local. I'm wondering why both of you are on here not offering any help or solutions, just to criticize me for asking a dumb question (that I didn't think was so dumb from reading other posts in this forum). At least Patrick chimed in offering to help with a referral. Perhaps you both should go bash on someone else's post for a while and let the people who want to help chime in on this one.

I was planning on getting a CPA, but not knowing the right questions to ask of someone who I don't exactly trust yet (as a new customer) isn't the best way to go about things. If I have some insight into the general strategies of how to do what I am asking (which is what I was trying to get asking these questions) it would help me during that conversation. The fact that I can regularly speak to many real estate finance "experts" and many of them are uninformed about certain financial rules/options is one of the things I've had to learn the hard way. For instance, one "expert" I wasted my time/money on because he wasn't as informed/educated as he pretended to be. After spending thousands of dollars, I had to get someone else to fund my loan. So using this forum to gain a little advice on strategies (I read online and elsewhere in the forum) seemed like a good place to start. But instead of getting steered in a direction of right/left per your example, I'm told "you shouldn't be messing with concepts you don't understand" and "it's not simple, go get some advice from a real tax pro" who in all likelihood will just be an accountant who files taxes for a living and has no real experience with these concepts and will tell me it's not worth it, like Mike did. 

Quote from @Michael Plaks:

@Corey G.

I know what BP is for and what this forum is for. Some questions are simple and can be answered on a forum. I have almost 5,000 posts where I've been answering these questions over the last several years.

What you're asking is a complex one. It does not have a one paragraph answer. Especially since you're clearly confused by several tax concepts that you read/heard about.

 Except you clearly posted that what I wanted to do likely wouldn't work. All in about a paragraph... so it seems a pretty easy to answer question after all.