Michigan condo due diligence for a self-directed IRA

A condominium purchase includes the unit and a place inside a private system. The master deed, bylaws, association budget, reserve fund, insurance, and board decisions can all affect how the property may be used and what it may cost to hold. When a self-directed IRA is the buyer, those association rules have to work alongside the retirement account's rules. One does not override the other.

That makes condo due diligence more than an inspection of the rooms behind the front door. A clean unit can belong to an association facing a large roof project. A healthy reserve account does not make a rental restriction disappear. The useful review connects the documents, the association's recent decisions, the physical condition of the common elements, and the IRA's operating process before the purchase contingency expires.

Read the recorded documents before relying on the listing

Ask for the recorded master deed, condominium subdivision plan, bylaws, and every recorded amendment. Then request the association's current rules, policies, and forms. These materials do different jobs. The master deed defines the project and the unit's legal interest. The bylaws govern administration and may contain use restrictions. Board rules may explain daily procedures, but they should be read against the recorded documents and Michigan law.

Michigan Compiled Laws section 559.156 says condominium bylaws may restrict the sale, lease, license to use, or occupancy of units. That is a reason to read the actual language, not assume that another rented unit proves this one may be leased on the same terms. Restrictions may address lease length, the number or percentage of rentals, approval or notice procedures, tenant paperwork, or future amendments. A Michigan attorney should determine what applies to the unit and the IRA's proposed use.

• Match the unit number, legal description, parking, storage, and limited common elements with the title work and survey documents
• Identify restrictions on leasing, business activity, occupancy, pets, signs, alterations, and use of common areas
• Check whether the documents give the developer or association any unexercised amendment, expansion, or development rights
• Request pending amendments and ask whether the board or owners are considering rule changes
• Have counsel resolve any conflict among the listing, seller's statements, board rules, bylaws, and master deed

Test the rental plan against the exact unit

If the plan depends on rental income, get a written answer about the unit's current status. Ask whether it counts toward a rental cap, whether a waiting period applies, whether an existing lease has been accepted by the association, and whether any violation or hearing is pending. Also confirm what the documents require when a lease ends or a new tenant is selected. A verbal answer from a neighbor is not part of the condominium documents.

Local rules still matter. A condominium's permission to lease does not replace city, village, or township registration, inspection, zoning, or short-term-rental requirements. The reverse is also true: local permission does not cancel a private condominium restriction. Verify the address with the local authority and have the attorney review both layers before treating the unit as a rental property.

Rental review must stay focused on lawful criteria, documents, and property use. HUD states that the federal Fair Housing Act prohibits housing discrimination because of race, color, national origin, religion, sex, familial status, or disability. Michigan and local law may provide additional protections. Association practices, leasing rules, tenant selection, and property management should be reviewed with qualified counsel and applied consistently.

Read the association finances beside the repair history

The current monthly assessment is only one number. Collect the current budget, recent year-end financial statements, reserve information, delinquency reports that do not expose unnecessary personal data, and several years of board and owner meeting minutes. Add recent engineering reports, insurance claims, major contracts, and a list of completed and planned capital work. The question is not simply how much cash the association has. It is what that cash is expected to cover.

Michigan Compiled Laws section 559.205 requires an association of co-owners to maintain a reserve fund for major repairs and replacement of common elements. The statute does not tell a buyer that a particular balance is adequate for a particular property. Compare the reserve information with the age and condition of roofs, pavement, siding, windows, elevators, drainage, mechanical equipment, and any other common element the association must maintain.

Section 559.157 makes the association's books, records, contracts, and financial statements available for examination by co-owners and their mortgagees at convenient times. It also generally calls for associations with annual revenue above $20,000 to obtain an annual independent audit or review, while allowing members to opt out each year by majority vote as permitted by the bylaws. A prospective buyer may need the seller's cooperation or authorization to obtain records, so put the request into the due-diligence schedule early.

• Compare actual income and spending with the budget for more than one year
• Ask what reserve projects are planned, postponed, underbid, or not yet priced
• Read meeting minutes for leaks, pavement failure, structural concerns, litigation, insurance claims, and assessment discussions
• Identify loans, long-term contracts, owner delinquencies, and unpaid vendor balances that may affect future budgets
• Find out whether owners voted to skip an audit or review and have the buyer's CPA explain the records provided

Trace assessments and violations through closing

Ask for a written statement of regular assessments, approved special assessments, amounts already paid, installments still due, pending proposals, fines, and claimed violations tied to the unit. The purchase agreement and closing statement should make clear how the parties will handle each item. Do not assume a special assessment belongs to the seller merely because the vote occurred before closing; the documents and contract control the answer.

Under Michigan Compiled Laws section 559.208, unpaid assessments and certain related charges can constitute a lien on a condominium unit. The title company and Michigan attorney should review recorded liens, association status information, payoff figures, and the proposed treatment at closing. Ask for an updated statement close enough to closing to catch a new charge or missed payment.

Separate association insurance from unit coverage

Request the association's current insurance certificate and, when available to the buyer, the policy summary or relevant coverage documents. Read them with the master deed and bylaws to learn which building elements the association insures and which remain the unit owner's responsibility. Ask about deductibles, loss assessments, exclusions, open claims, and who pays when damage starts in one unit and reaches another. A master policy is not a substitute for coverage written for the IRA-owned unit and its rental use.

Give the insurance professional the correct proposed owner name, intended use, lease plan, property-management arrangement, and association documents. The custodian should confirm how the policy names the insured and where premiums, refunds, and claim payments must go. Coverage terms and availability vary, so a quote is not complete until the carrier has the facts it requires and the buyer has reviewed the actual terms.

Inspect the common elements along with the unit

A unit inspection should be paired with a review of the common elements the buyer can lawfully access. Look at roofs, grading, drainage, foundations, decks, balconies, pavement, exterior walls, shared utilities, and mechanical systems that could lead to future association work. Compare what the inspector sees with reserve plans, maintenance records, meeting minutes, and insurance claims. If those sources disagree, ask why before assigning a value to the property.

Clarify the boundary between a unit expense and a common expense. Windows, doors, plumbing lines, utility meters, patios, decks, and HVAC components are common sources of confusion because responsibility depends on the condominium documents. A repair that appears to belong to the association may sit with the co-owner, and the opposite can also be true. Get a document-based answer rather than budgeting from appearance.

Fit every payment and signature into the IRA process

The offer, title, insurance, association records, and closing documents should use the ownership language required by the self-directed IRA custodian. Confirm who signs association forms, receives notices, votes on association matters, and approves payments. Map the process for monthly assessments, special assessments, insurance premiums, repairs inside the unit, management fees, and any association refund or claim payment.

The IRS describes improper use of an IRA by its owner, beneficiary, or another disqualified person as a prohibited transaction. Its examples of possible IRA prohibited transactions include buying property for present or future personal use with IRA funds. The owner should not plan to occupy the condo, make it available to a disqualified person, perform repairs personally, or pay an association charge from personal funds without transaction-specific guidance from the custodian, CPA, and attorney.

Build the operating budget from verified assessments and realistic property costs. Leave room for association increases, deductibles, repairs, vacancy, management, and special assessments without assuming rent, occupancy, appreciation, or any other result. If financing is involved, the lender, CPA, attorney, and custodian should review the loan and possible tax consequences before the offer depends on it.

This article is educational, not legal, tax, financial, insurance, fair-housing, retirement-plan, or investment advice. No condominium, association, ownership structure, or strategy is approved or endorsed by the IRS. Have your own self-directed IRA custodian, CPA, Michigan attorney, inspector, insurance professional, property manager, lender, local authorities, and other qualified advisors review the account, documents, unit, association, and transaction before taking action.

Keep one condo file for the decision

A useful file contains the recorded condominium documents and amendments, association rules, financial statements, budgets, reserve information, meeting minutes, assessment and violation statements, insurance records, inspection findings, title work, local rental information, custodian instructions, and the assumptions behind the operating budget. Keep unresolved questions on a separate list with a person and deadline beside each one. Silence from an association is not an answer.

Primary sources for this review include Michigan Compiled Laws sections 559.156, 559.157, 559.205, and 559.208; HUD's Fair Housing Act overview; and the IRS guidance on prohibited transactions. Those sources provide the general framework. The conclusions for a particular condominium, association, proposed lease, and retirement account belong to the buyer's own qualified advisors.

Rennie can help identify condominium property in West Michigan and coordinate the real estate documents, inspection access, and offer deadlines. Legal conclusions, association governance, insurance coverage, property management, and retirement-account decisions stay with the buyer's own attorney, custodian, CPA, and other advisors.