Real estate investors sometimes find themselves the position of an “accidental landlord,” which occurs after moving out of the house where they had previously been residing in order to use the home as a rental property. Investors are then tasked with the responsibility of either quickly learning how to manage the rental property themselves, or hiring a property manager to take care of the home for them.
The good news for these investors is that the experience they glean from becoming an “accidental landlord” can be incorporated in the management strategy of their IRA-owned property. IRA owners can manage their rental properties themselves, or they can designate a property manager to manage their IRA rental if they’d rather take a break from landlord duty.
A major distinction between being a property manager for a non-IRA rental home and being a property manager for an IRA rental home is that the IRA owner cannot perform any direct “sweat equity” on the home. This means the IRA owner can’t physically perform any maintenance on the home themselves; such as hammering nails, painting the walls, replacing sinks or carpet, landscaping, etc. This restriction is because the IRS wants IRA owners to be held at arms’ length from their assets until distribution. This is also why IRA owners and their kids, parents, and other disqualified persons can’t live in the IRA rental property until distribution.
However, IRA owners as property owners can still control exactly what happens to their rental home and who performs the labor. IRA property managers can’t hold the paint brush, but they can pick the paint color and tell the painter how and where to paint. They can also maintain control of collecting rent and setting rental prices, just like with a non-IRA owned property. To make things even easier, IRA owners can take advantage of the real estate team that they have already assembled for previous non-IRA rentals. This includes property managers, real estate professionals, and vendors.
Once again, if an investor has had their fill of landlord duties, they can always hire a property manager for their IRA-owned real estate. The property manager can even be a disqualified persons. This person can have as many or as few responsibilities as the IRA owner gives them.
Put your experience as an “accidental landlord” to use for your IRA rental property. Or don’t – if you’re so lucky as to have a skilled and trustworthy sibling to do the work for you, that works just as well!
This article was written exclusively for Rentometer by New Direction IRA