Coastal Property purchases with your Self-Directed IRA

Buying a Coastal Property Using a Self-Directed Real Estate IRA

Coast property is always a popular investment. There is a constant shortage of quality beachfront or oceanfront housing, and demand is high. But there are certain things investors should know before buying that beachfront property using a Self-Directed Real Estate IRA.

Respect prohibited transaction rules

First, you cannot use your Self-Directed Real Estate IRA property as your personal getaway between tenants. You cannot remain overnight in it, nor can your spouse, nor your children, grandchildren, parents or grandparents. You must maintain an arm’s length from the property at all times.

Furthermore, you must do all repairs on your Self-Directed Real Estate IRA property using funds from within your Self-Directed IRA. You cannot use your own personal funds.

Insurance considerations for Self-Directed Real Estate IRA coastal properties

Of course, you will need to own landlord’s insurance for your coastal Self-Directed Real Estate IRA property, just as you would for any other rental property. But coastal homes have other important insurance considerations as well:

Windstorm insurance. Depending on where the home is, you may want to get windstorm insurance, sometimes known as hurricane insurance. Damage from storm surges, for example, is not covered under standard landlord’s insurance. You will need supplemental coverage, either a standalone policy or added as a rider on your existing policy.

Is it a resort property? If so, you need to line up specialized coverage for short-term rentals. This coverage is designed to protect you against the problems short-term tenants may create. For example, they may use your coastal Self-Directed Real Estate IRA property as a party house and have numerous guests over that you have no opportunity to screen. Ordinary landlord’s insurance may not pay a claim if something happens, a neighbor or passerby or even a houseguest should be harmed, and it comes to light you were renting the property out to short-term tenants multiple times per year.

Coastal home inspections

If you use a home inspector when you are considering buying the property, make sure the inspector is well versed in coastal properties. This is because coastal homes are subject to a very corrosive environment that is not a major factor for inland properties. The salt air for example, can play havoc with galvanized joist hangers and flashings.

Sellers will try to cover these problems up with a coat of paint. But an inspector who’s experienced with coastal properties will be wise to these issues and can help you avoid getting blindsided.

Other maintenance concerns for coastal Self-Directed Real Estate IRA properties:

Coastal homes may need more frequent pressure washing to rinse away accumulated salt and sand. Perhaps every three months.

Mold is a constant problem, too, thanks to the extra moisture in coastal environments.

You will need to clean windows frequently, or make sure your tenants are doing so.

Salt air can be damaging to metal door and window trimmings. Look for fiberglass doors and window frames, ideally, or vinyl or aluminum as alternates.

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