Short Sale bought with Self-Directed IRA

[Michael Robinson]

I bought a short sale in Jan 2013 for all in of $54,000 with Self Directed IRA. My plan at the time was to spend about $15K and rent for approximately $1200. The seller, who entered into short sale, approached me at closing to ask if he could lease for a year. Since money was tight and I would not have to spend a dime at the time, I agreed to $800 rent. Long story short, he is still in the house 4 years and 3 months later. I increased rent to $875 in Jan 2016, but now I have had to spend some money on major repair.

I have two questions:

1. How do I factor in the major repair expense with regards to ROI? Do I calculate as yearly expenses or back into my cost basis. Since this is self directed IRA, taxes are deferred so there are no deductions now.

Major repairs were 

• Year 3 - $3800 for HVAC system
• Year 4 - $1600 for plumbing issue requiring 6 foot of tunneling in year and $1000 for elecrical panel update
• Year 5 - $2600 in electrical repairs

2.  Is it time to break ties and go ahead and spend the needed $10-15K now and go for market rent of about $1100 to $1200?  If not, I will definitely go up on rent to $925 soon as he is month to month at the time.  My thoughts on this is that it totally makes sense to make the improvements and go for the higher rent, but he is a very good renter and I know what to expect with him.

I think if I get an answer to question number one, I should be able to calculate my ROI and answer number 2 myself.