When your IRA owns real estate, one of the questions that frequently comes up is “how do I manage the property”? Good question. Since the IRA owns the real estate, the IRA pays all the bills and takes in all the income of the property. You, as the IRA holder can have no contact with the money, it all must run through the IRA account. The administrator reacts to your authorization to pay bills but does not “manage” the property. A tenant who fails to pay rent will not be a red flag to the custodian as they are not the manager. So how do you handle this and other issues?
I want to manage it myself: in this case the custodian pays all the bills and takes in the rent. You pick the tenants and have tenants make the rent check payable to New Direction IRA, you receive the check and forward it to the custodian for deposit. You make the decisions on what maintenance and improvements are necessary and hire someone to do the work. Can you do these things yourself? How much you can do is a gray area in the IRA code. A discussion on this is probably more suitable in a longer article. If you are the "hands on" type you may want to consider a new tool New Direction IRA has created called myDirection which allows you to both receive the IRA bills at your home and initiate payment on these expenses on line. You can monitor expenses AND know immediately if rent payments are being made to cover the IRA expenses. NOTE: The myDirection website requires a self directed account with New Direction IRA and a log in to be functional for your account.
I want to hire a Manager: In this case the IRA hires the manager at your direction. New Direction IRA signs the agreement after you have approved it. The manager controls all the monies of the property and you cannot have personal access to the money. A manager can do as much or as little as you direct and does not have to be licensed according to our or the IRS requirements but may not be a close family member according to the IRA requirements. The manager is paid by the IRA and is required to furnish the custodian with income/expense reports on at least a quarterly basis accounting for the IRA monies. Keep in mind this manager will have 100% control of the monies generated by the property so choose wisely. The manager must also sign an acknowledgement indicating that he/she understands that the IRA is the owner and that periodic financial reports must come to New Direction IRA in addition to any reports you receive.
One of the primary concerns of your self-directed IRA administrator is to keep your account tax-deferred (or tax-free if a Roth). To this end, the monies of the IRA must be accounted for and you must not have access to or use the IRAs money. You nor close family members may not use the property. There are other rules which your real estate broker or custodian can help you with when your IRA buys real estate. Real estate is the number one investment held in self-directed IRAs, maybe it’s the right one for yours’.
