Managing Real Estate Expenses With a Self-Directed Account
A self-directed account can grant an investor many different opportunities such as the ability to invest in a variety of real estate investment types (commercial, residential, multi-family, and more). Each investment comes with its own set of expenses. Some are one-time fees that must be paid when you buy the property, while others are recurring expenses. Discover the unique rules associated with paying for real estate expenses through a self-directed account, as well as how the process just became easier.
General rules associated with paying for expenses with a self-directed account
1. Expenses/profits must flow through the account: When paying for expenses with your self-directed account, it is important that you’re aware of the rules so you don’t create a situation that could potentially compromise the integrity of your account(s). When your IRA or 401(k) owns real estate, your IRA or 401(k) is responsible for paying for 100 percent of the expenses associated with the property (or properties). For example, if you’re renovating a real estate investment you own with your IRA or 401(k), all supplies (paint, HVAC, flooring, etc.) must be paid from your account(s).
All your rental income and profits from the sale of the property must go directly back into the IRA or 401(k) to preserve the highly tax tax-advantaged nature of the accounts.
2. No personal use: If you personally pay for an expense and utilize your IRA or 401(k) attempts to reimburse yourself, that could be considered a prohibited transaction. This is because you’re considered a “disqualified person” to your IRA or 401(k). You want to make sure that your IRA or 401(k) is paying for 100 percent of the expenses.
3. Earnest money must come from the account: As you are approaching a real estate transaction, you must make sure that your earnest money deposit is paid for from the IRA or 401(k). A common mistake that investors make is to personally attempt to write a check for an earnest money deposit and then, after the fact, attempt to have their IRA or 401(k) come in to buy the property.
Paying for IRA-related real estate expenses can be easy
Equity Trust’s online account management system myEQUITY provides you with digital tools to process your real estate transactions and manage your real estate investments online, at any time.
To pay for an expense through myEQUITY, all you have to do is provide the payment details, select your payment method (such as check, wire transfer, or ACH delivery), and funds will be sent from your selected account to the payee in 24 to 48 hours.
You also have the ability to schedule and modify payments for recurring expenses through myEQUITY as well, such as property taxes, utility payments, or payments to a property manager or loan servicer. MyEQUITY simplifies the process of paying bills and investment expenses without having to establish and manage an LLC.
For more information about paying for real estate expenses through your self-directed account, check out the video below.
Paying real estate expenses (even on the go): Expense Pass
There’s an even easier way to pay for real estate-related expenses in your Equity Trust IRA. Expense Pass is a prepaid Mastercard (virtual or physical version) that is linked to your account(s) to pay for real estate expenses, even on the go.
Not only can you use your Expense Pass to pay for utilities, taxes, and insurance, but you can also use it to pay for expenses at big box stores. For example, if you’re buying a refrigerator, washer, dryer, and/or materials that need to be delivered to a job site, you can go to the professional desk at one of those stores, order everything, and pay using your Expense Pass.
Expense Pass is a revolutionary way for you to easily handle the unique requirements of paying self-directed real estate transactions. Paired with myEQUITY, there’s no easier way to invest in real estate in your IRA.
1
How do I sell a property owned by my IRA?
When you’re ready to sell a property that’s owned by your IRA, you need to request the original documents from Equity Trust. This is done by completing an investment form, which can be found on myEQUITY. Once the property has been sold, all funds from the sale must be deposited into your IRA. These funds must be sent to Equity Trust with a payment coupon.
2
Can I use funds from my IRA to renovate property to sell it at a higher price?
Yes. However, your IRA must pay all expenses associated with a property that it owns, including renovations. Further, all proceeds from the sale of the renovated property must be deposited into your IRA.
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