Using Self-Directed IRAs to Invest in the Houston Market

As the Houston market continues to become more competitive, more Self-Directed IRA (SDIRA) investors are looking for ways to ensure successful deals. In a market where property is moving faster than it has in years, having a real estate investment in your SDIRA can increase your chances of generating more profit for your retirement. Whether you are buying or selling, there has never been a better time to make sure you truly understand the current Houston market and how your SDIRA can participate.

An SDIRA is a retirement vehicle designed to offer diversification by allowing investors to hold private assets, like real estate. SDIRAs can offer flexibility, accessibility, and added tax benefits for investors wanting to buy property in the local market. These accounts are putting the power back into the hands of real estate investors across Houston, and with the right education and understanding of the market, you could be on your path to a tax-free retirement.

Understanding the Houston Market

If you’ve been keeping up with the activity in the Houston market, it’s no shock to hear that there is a major inventory shortage—not only in Houston, but nationwide. The demand for real estate is higher than it’s been in years, pushing prices up and making it difficult for SDIRA investors to find properties. Homes that were once valued low are jumping in value—and they’re going fast.

“If you think real estate is expensive now, just wait. It’s going to blow you away,” said Jason Bible, an active Houston investor and founder of Mr. Texas Real Estate. “The best time to buy is yesterday, and the next best time is today. If it produces cash, get it.”

As a self-directed IRA investor looking to buy investment property, you need to be ready for some competition. Morad Fiki, with Fiki Investment Group and the #1 Houston realtor on social media, shares that you should expect to be competing with countless other buyers. Be prepared to pay more than usual.

“When you are competing with potentially 10-15 other offers, discounts can be difficult and you have to be ready to act,” Fiki said.

It is very important to have a self-directed IRA custodian that works quickly and understands the market you are investing in. Slow processing times can make or break a deal.

Investment Options with Your SDIRA

If you are able to purchase an investment property with your SDIRA, you’ve opened the door to a world of opportunities. As an SDIRA seller, you now have a property sitting in your IRA of high value, and that investment has the potential to generate a big profit if you were to sell. Fiki explains that as a seller, you can get a lot for a property.

If you didn’t want to sell, the buy-and-hold method works well for investors in a hot market too. Although you may not see an immediate result, buy-and-hold rentals are great for steady cash flow. You don’t have be very active and are still able to receive monthly tenant payments without having to deal with the stress of the current Houston market. Since you reap the tax benefits of SDIRAs at retirement, holding a property in your IRA for an extended period and letting it cash flow can be a great strategy.

Another option for local SDIRA investors is multifamily. Although single-family property may be more difficult to locate, there are still a ton of syndications that are happy to pull funds from SDIRAs, Fiki said. Like buy-and-hold property, this option is a great way to be passive if you want to be more hands-off—and self-directed multifamily investors don’t have to deal with management or the hustle and bustle of the local market. With multifamily, after the initial funding, self-directed accounts grow over time. When the investment has reached the point when it’s time to exit, the deal sponsors will liquidate that investment—and you see a lump sum of dividends return to your self-directed account.

SDIRA Investing Tips

In a competitive market like Houston, some tips and tricks can help you as you prepare to invest your SDIRA.

First, always do your due diligence. If it’s single-family, evaluate the deal and read the fine print. If it’s multifamily, make sure you know who you’re investing with and that they know how to invest their funds.

It’s also important to understand that using an SDIRA to invest is a little bit different than using personal funds. SDIRA holders often have advantages when it comes to real estate investing. For most investors, there is usually more cash sitting in their IRA then a normal checking account. Having cash easily accessible in an SDIRA could help you lock in a deal faster than a regular investor who may not have those funds lying around or who needs bank approval for a loan. Some sellers are not even entertaining offers if they are not cash.

Since your custodian will fund investments on your behalf, make sure you are familiar with your custodian’s funding documents so you don’t miss a deal due to incorrect paperwork. The process of buying a real estate asset in your SDIRA is quite simple, but it’s important you and your custodian fully understand the process so you can move quickly. Once you have selected the property you would like to purchase within your IRA and have completed the due diligence, you can complete your investment documents and work with your custodian to fund your deal.

Self-direction is a great option for local investors looking to take greater control of their financial future, but be sure you fully understand the Houston market and know how to best utilize your self-directed account.