SDIRA for Short-Term Rental - So grateful for any advice!

[Maggie Jones]

I'm changing jobs and will be rolling over my 401k into an IRA.

I'll have enough to purchase and renovate a small cabin using cash.  I then intend to have it professionally managed as a short-term vacation rental. I have several friends who have followed this model in the area and are making great returns on AirBnB.  

Does anyone have advice on custodians that would be a good fit for this type of business or what kind of fee structures I should look for? Thank you so much for any insight you have!

[Brian Eastman]

@Maggie Jones

There are two types of services you can consider for this type of investing:

1) An IRA custodian

In this model, the institution holds the account and can document the account's investment into real estate. They will sign every document, cut every check and receive every deposit for the benefit of your IRA. With short term rentals, this will be a nightmare of paperwork and processing delays/fees.

2) A Self-Directed IRA LLC (Checkbook IRA)

In this structure, and IRA such as above is established, but the IRA makes a single investment into a specially crafted LLC. The IRA is the sole owner of the LLC, so the activities of the LLC are under the umbrella of the IRA and therefore afforded the same tax-sheltered status and subject to the same rules against self-dealing. You can be the non-owner manager of the LLC and thereby administer the investment activities directly without 3rd party processing. The LLC owns the property, you pay the expenses out of the LLC account, and you receive the income into the LLC account. This will be much more useful, efficient, and cost-effective for your particular investment goal.

Similar to above is the Solo 401(k) plan. It provides the same level of checkbook control, but is based on a simplified "owner-only" version of a 401k plan. You must be self-employed and have no full time employees to establish such a plan. As investment vehicles, the IRA and Solo 401k are largely similar, but the retirement plan features of the Solo 401k are more robust.

There are many resources here on BP that offer such plans and investors who have used these types of plans.  I'm sure you will have good success getting informed on the topic at the basic level.  Ultimately, you will want to speak with both a professional provider of such services and your CPA before deciding to move forward.