February 15, 2017

An interesting way for new and prospective IRA real estate investors to optimize their investment strategy is to follow the dollar through the investment cycle. There are various ways receipts and disbursements can flow into and out of an IRA account and the IRA’s investment property. This cash flow depends on the investor’s property management strategy.

In the case that an IRA owner hires a property manager to take care of their investment, cash would flow from the investment property (from renters) into the IRA. The IRA owner chooses the manager or management company, and the IRA pays the property manager’s management company fees. The property manager handles all the monies of the property.

The IRA owner can instead choose to direct the management of the property themselves. It is prohibited for an IRA owner to perform any direct maintenance on their investment property, or any “sweat equity.” But the IRA owner can choose the vendors that will work with their IRA to perform maintenance, cut the grass, disburse checks, etc.

If the IRA owner is a professional property manager, they also have to stay away from using the services of their company on their IRA property. The IRA owner can use the same vendors that their property management company uses, such as painters or landscapers, but the funds would flow from the IRA to the vendor, and would not pass through the IRA owner or the IRA owner’s property management company.

Whether an IRA owner hires an outside property manager or decides to manage their investment property themselves, the IRA property owner advertises for (and pays for the advertisement with IRA funds), interviews, and chooses the tenants. The property manager must make sure that the tenants make all rent checks payable to the IRA or the property manager, but never to the IRA owner. The property manager then forwards all rent checks to the provider for deposit.

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