What it typically costs per year to hold one rental inside a self-directed IRA

Question

For an SDIRA holding a single rental, expect a few layered costs rather than one number. Most custodians charge a setup fee, an annual account fee, and then either a flat per-asset fee or a percentage of account value, depending on the custodian's model. On a $180,000 house renting for $1,400 a month, the account-level costs typically run somewhere in the several-hundred to low-thousand dollar range per year once setup is amortized, though the split between flat and percentage pricing changes that meaningfully as account value grows. On top of the custodian fee, a property manager is generally required rather than optional, since an account holder or a disqualified person handling repairs or rent collection directly on IRA-owned property risks a prohibited transaction. That manager's fee, usually a percentage of collected rent plus a leasing fee at turnover, sits alongside the custodian cost and should be underwritten as part of the annual carry before comparing an SDIRA rental to one held in an individual's own name.

Rena Guide · Accepted Answer

Rough shape of the annual costs for one property in one account, and please confirm current numbers directly with the custodians you're considering, since schedules change and vary a lot:

A one-time account setup fee, often in the low hundreds. An annual account or recordkeeping fee. Then either a per-asset holding fee for the house, or a percentage of total account value, and per-asset is generally the cheaper structure when you own one or two properties. On top of that, transaction charges each time the custodian moves money, wire fees, and sometimes a fee to process an incoming rent deposit or an outgoing vendor payment. Some custodians charge per document they sign. Add all of that and people commonly land somewhere in the several-hundred to low-four-figure range annually for a single-property account, which is why the fee schedule, not the marketing page, is the document to read.

On management, @gregpowell66 has the bigger number right. Third-party management at 8 to 10 percent of collected rent is the line item that actually moves your return, and you can't substitute your own time for it.

The thing that surprises people at the end rather than the beginning is required minimum distributions. A traditional IRA eventually has to distribute, and a house doesn't divide. That means either holding enough cash to satisfy the distribution, selling, or taking the property out in pieces through an in-kind distribution with a valuation, which is its own cost. A Roth doesn't have that problem during your lifetime. Worth deciding which account type owns the house before you buy, since converting later has tax consequences you'd want a CPA to price.

hannah_west29 · Answer

The two pricing models matter more than the headline number. Per-asset custodians charge a flat annual amount per holding, so one $180k house costs the same as one $600k house. Percentage-of-value custodians scale with the account, usually with a cap. For a single property, per-asset is the better fit. Get both fee schedules in writing and check whether wire fees, transaction fees and the annual fee are separate line items, because they usually are.

gregpowell66 · Answer

Do not forget the manager. Self managing an IRA owned property is not allowed, so figure 8 to 10 percent of rent going to a property manager. On 1,400 a month that is over 1,300 a year, which dwarfs whatever the custodian is charging on the wrapper itself.

kevin_lombard · Answer

Question inside your question: is the property manager allowed to be a disqualified person? I assumed a manager was just a vendor but if a family member ran the company that seems like the same problem as doing the work yourself.

priya_n21 · Answer

@kevin_lombard that matches the general pattern with these custodians. Which is the frustrating part, since the whole appeal of an SDIRA rental is avoiding a second job, and instead it ends up meaning paying a stranger to handle the part someone would want to control.

raj_mehta14 · Answer

Notes are worth comparing against property here. Holding a mortgage note inside the account carries basically no operating cost, no manager, no roof, and interest is exempt from UBIT the same way rent is. What happens when a note goes into default inside an IRA is the harder question, and it is worth digging into separately before leaning on that structure.

ehernandez74 · Answer

Something I'd add to the annual cost list: the IRA needs to hold cash it isn't earning much on. If you're keeping $8,000 sitting idle for the water heater and the vacancy month, that's a real drag on the return even though it never shows up as a fee.

paulgrant17 · Answer

Does the manager screen tenants in the IRA's name or the custodian's? Genuinely unclear to me who signs the lease.

tylerbrooks9 · Answer

@paulgrant17 the account signs, usually written as the custodian for the benefit of the IRA. The manager signs on behalf of that entity under whatever management agreement the custodian approved. Which is why the standard advice is get the manager lined up before closing, not after.

diane_kowalski · Answer

The RMD point is the one I'd never thought about. A rental house is the least divisible asset imaginable and the account has to hand you a percentage of it every year eventually. Going to reread that part.

What it typically costs per year to hold one rental inside a self-directed IRA

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