If you invest in residential rental property in your Real Estate IRA for any significant length of time, sooner or later you will probably need to consider evicting a tenant.
There are several possible reasons you may need to evict someone: The most common, by far, is the non-payment of rent. Other common reasons include drug or other criminal activity or material violation of lease terms. Sometimes you can resolve these issues painlessly, by giving the tenant a little extra time, or by sending a notice to cure or quit the premises. But when these measures don’t work, a Real Estate IRA owner will have to ‘landlord up’ and begin eviction proceedings to get the tenant out.
It’s no fun for anybody. But it’s a lot less fun when a landlord makes a mistake that delays the eviction, provides a pretext for the tenant to sue the landlord for damages, or even endanger the favorable tax treatment of the IRA itself.
Before you begin evicting a tenant from your Real Estate IRA-owned property, read this first.
- Failure to segregate personal funds from the Real Estate IRA. Evictions are cheaper than a non-paying tenant. But they aren’t free. There are court costs a d related costs involved that can run anywhere from a few hundred to a thousand dollars or more. It’s very easy to write a personal check, or get cash out of the ATM machine at the courthouse from your personal checking account to pay the court costs.
This is fine for other landlords. But if the property is held by a Real Estate IRA, this is a big mistake. Eviction costs are a cost of doing business in real estate investing, and you must pay these costs with funds from within the IRA. If you pay your court costs with personal funds, and the IRS finds out, you could potentially endanger your entire IRA. Always pay these costs from your IRA account, not your personal accounts.
- Failure to provide notice. Every state has its own requirements for providing notice to a tenant that he or she is at risk of being evicted. Where we live, in North Carolina, a landlord must provide a written notice to a tenant who is late with the rent that you intend to evict if they don’t pay, and then wait not less than ten days. That’s one of the longer waiting periods in the country. 3 to 7 days is more common. Arkansas lets you file to evict right away, and Tennessee requires 14 days.
For lease violations, North Carolina landlords can file right away with no notice required, if the lease allows for it. But every state is different. Do your homework – or hire an attorney. If you do hire an attorney, remember to pay him or her with IRA funds, not personal funds!
- Self-help evictions. No matter how bad the tenant is, you cannot evict a tenant without a court order. This usually takes a few weeks. Meanwhile, you cannot do anything to disrupt the tenants’ quiet enjoyment of the property. This means you can’t just change the locks or turn off the power. You must wait until the tenant moves out, or until you receive a writ of restitution from the court, which will occur after the hearing is scheduled, the tenant loses the hearing or fails to show, appeals are exhausted or denied, and you’ve given notice to the tenant that he or she has been evicted and must vacate the property. The court or sheriff’s department will make an appointment to have a law enforcement officer come to the property and clear the way for you to remove the tenants’ belongings and change the locks. Until then, stay out of the property except to make emergency repairs and fixes.
If you try to do anything to ‘encourage’ the tenant to move out sooner, the tenant will then possibly sue you for damages – and very possibly win.