If you’ve recently purchased a rental property with your self-directed IRA, then you probably have an important question on your mind:
Should I self-manage my IRA property, or hire a property manager?
The truth is, this is an ongoing question with no set answer. This decision should be based on several different factors, including the time and skills you possess for property management, your budgeting goals, and the type of control you desire over your property.
The pros and cons of self-managing your property versus hiring a property manager vary. On one hand, you can gain closer control and potentially save money by self-managing. On the other, you can offload the work of managing your rental to a professional, and keep yourself fully at arm’s length from your IRA investment.
Managing your IRA property isn’t the same as managing any other rental. With a self-directed IRA rental there are specific IRS rules regarding your role as a property manager, and how you’re allowed to interact with your rental’s upkeep and management.
Below we look at the important differences between self-managing your IRA property and hiring a property manager, and how you can decide which option is best for you.
What is the Role of a Property Manager?
A big part of making the decision between self-managing your IRA property and choosing a property manager comes down to having a realistic understanding of the role of a property manager, and deciding if you are the best person to fill that role.
On a high-level, the role of a property manager includes the following responsibilities:
- Setting rent rates
- Marketing your rental property
- Vetting new tenants
- Collecting rent
- Hiring contractors for any maintenance issues
- Managing move-outs and evictions
Self-Managing Your IRA Property
When you choose to self-manage your IRA property, you gain greater control of your property.
Rather than rely on a property manager to implement their own procedures regarding vetting renters, gathering rent, evicting tenants and more, you can directly handle these various facets of tenant management.
Self-managing your property also means the potential to save money on the cost of a property manager by handling all administrative tasks yourself.
However, you’ll need to make sure you stay in-step with important IRS rules regarding your interaction with your IRA property.
Hiring a Property Manager for Your IRA Rental Property
When you hire a property manager, you’re bringing in specialized experience to help ensure high-quality management of your property and tenant relations
With a professional property manager, you also receive a built-in infrastructure for managing leases, rents, evictions and more.
Although a property manager comes with a price, you can offload the time, energy and headaches it can take to manage your rental property yourself.
However, the benefits of a property manager only come into fruition with the right manager. There are many less-than-stellar property managers in the field, and choosing the wrong one can create exposure to the risk of compliance violations, bad tenants, and fraud.
Making sure you take time to properly vet any potential property manager will protect you, your property, your tenants, and your IRA.
How Much Do I Save if I Manage My IRA Property?
One of the key reasons many investors choose to self-manage their IRA property is the perceived cost savings associated with eliminating property management fees.
As the property manager, you can offer showings, screen tenants, sign leases, select vendors, pay bills, and receive rental income.
If you believe you can effectively manage these tasks and get the best tenants in your units, then saving on management fees may make sense.
However, per IRS regulations, you can’t work on your IRA property yourself. Any work needed on your property will need to be hired out to non-disqualified contractors.
Plus, when you self-manage your IRA property, you can’t pay yourself for your management services through your IRA rental income.
When evaluating the cost of a property manager, you need to take into consideration the amount of time you will spend on the administrative side of running your property. If you can do more productive things – such as finding other profitable deals for your IRA – rather than spend time chasing down rent checks and hiring plumbers, then perhaps the tradeoff leans in favor of hiring a property manager.
IRS Restrictions for Managing Your IRA Property
The decision on whether to self-manage is different for an IRA than it may be for a personally-owned property due to IRS rules.
As with IRA owned investment, you need to keep yourself at arm’s length from your IRA’s rental property. Administratively speaking, you can act as the property manager by hiring contractors, vetting renters, collecting rent and more.
However, as mentioned above, you can’t inject value into your property through provision of goods and services.
Whether it’s mowing the lawn, fixing the roof or cleaning between tenants, all maintenance tasks will need to be handled by a non-disqualified contractor.
You also can’t pay yourself for any management services you may provide to your rental property, and you can’t hire a property management company owned by you or disqualified party.
If you believe you can perform these tasks with quality and care (and while staying in compliance with IRS rules regarding IRA property management), then you may be a good fit to self-manage your own property.
But if your time and energy would be better spent elsewhere, then a property manager can expertly handle these responsibilities for you.
Compliance Considerations for a Property Manager
There are many legal issues that impact landlord-tenant interaction at the federal, state and local level.
A quality property manager will be well-versed in the law and implement processes accordingly. They’ll have compliant leases, disclosures and screening process in place for things like fair housing rules, anti-discrimination and more.
If you plan on self-managing your property, you should ask yourself if you have the capacity to follow these legal considerations as a landlord to your IRA rental property.
Get Legal Guidance
If you choose to self-manage, seek the guidance of a qualified real estate attorney knowledgeable about the laws in your jurisdiction.
For example, you don’t want to learn the hard way that your leases aren’t compliant with local law, and therefore deemed unenforceable.
If you’re considering self-managing your IRA property, look yourself in the mirror and ask yourself these important questions: Can I do a good job as a property manager? Do I have the time, energy and skills to adequately manage these tasks? Am I really the best person for this job?
The honest answer to these questions will help guide your decision for your IRA property.
Whether you choose to self-manage your property or hire a property manager, it’s important to regularly inspect your rental property to ensure your investment’s long-term success. Here are tips on the types of inspections you or your property manager should be performing»