How can a Financial Planner help a RE Investor?

Question

Hi Everyone,

I'm hoping to get some opinions in regards to financial planners.  As RE investors what are you looking for in a good Planner?  What skills would they need to bring to the table or what problems could they help you solve to be a worthwhile member of your team?

Any opinions would be appreciated.

Lance

Bryan Hancock · Answer

Very few financial planners understand real estate well.  That alone will eliminate 95% of the applicant pool.

From there you need to consider what advice you couldn't receive pretty easily from your CPA or your attorney.  Entity structuring is an attorney function.  Tax planning is primarily a CPA function, but there are elements a good adviser could help with.   The trouble for the fee-based community is that much of this information can be obtained pretty easily online now.  Simple Google searches or visiting sites like the Bogleheads forum can yield pretty solid advice pretty quickly.

Learning to budget well is one of the big items a planner could help with.  This is not very hard though and those disciplined enough to set up good budgets can probably do it on their own.

You need about 25X annual expenses to become financially independent using traditional Wall Street style investment vehicles.  With some diversification in real estate or the willingness to take on more risk by investing in private offerings this can probably reliably be decrease to 17X or possibly less.  A safe withdrawal rate necessarily has to have some margin of safety built in so 25X is probably a pretty good number.

A good "planner" can simply show you how to:

1.  Save more - Especially with tax deferrals or other strategies

2.  Invest better to get your expense multiple lower

3.  Set yourself up to earn more

To me most of the folks on BP need business advisers as much as they need financial advisers.  Leverage ratios are hard things to manage and depend a lot on personal circumstances.  You can also grow yourself into bankruptcy if you're not careful.  A good adviser would be able to help the business owner manage expenses, capital budgets, etc.  All of this could tie into an overall plan for financial independence or whatever other goals the individual has.

In general I don't think most people in the business of either selling products or selling their time for a fee in this arena are good fits with the above.  Those successful enough to dispense this type of advice are likely independently wealthy and don't need to work on commission or sell their time for money.  Finding a good business mentor is a far more useful activity for BP folks IMO.

Franklin Romine · Answer

@Lance H

I would want my financial planner to own more real estate than me and or have a few times more net worth than me.  The planner would be like a coach, mentor... freaking on fire with ideas.  Literally taking my imagination to a whole new level of thinking, planning, investing and creating.

Frank

Chris Soignier · Answer

I've never had very good results w/ financial advisors and realize that nobody cares as much about my money as I do.   Fortunately, as a finance professional I've always found financial planning to come easily, and now just lean on my CPA and attorney to fill in my missing gaps of specialization where needed.    If I was to hire a financial planner, I'd expect him/her to be fee only, w/ no products to sell, only services.

I'd expect competent advice in the following areas:

- investment diversification targets based on my age and investment objectives

- tax avoidance strategies

- asset protection via proper legal entities

- never to hear the words "mutual fund"

- how to optimize retirement plans to balance liquidity requirements vs. tax savingsd

Matthew Maggy · Answer

Agreed 100%

Accountant, Attorney, Realtor, etc., all of these guys have to also be real estate investors for me to use them.

If Real Estate is my business and the dominant aspect of my portfolio; the planner must understand that.

I don't know if you're commission or not. Personally I will never use a commissioned financial adviser again. In my early 20s I'd been burned by commissions and being steered toward certain funds with higher compensation for the "Adviser," rather than what was best for me. I would imagine (although I don't know) that most higher net worth RE investors would feel the same.

Brandon Hall · Answer

Chris Soignier from the RE Investor side, if I had to hire a financial planner, I'd expect him/her to have a CFA/CFP. Preferably a CFA as it could help me with deal analysis. I'd expect the fees to be based on portfolio performance compared to the market, not a fee based on total assets managed and certainly not a commission per trade. I'd expect him/her to be able to produce a holistic plan that encompasses every part of my financial position. And as Frank said, the planner needs to provide me with ideas for additional earnings/savings.

Franklin Romine · Answer

The best advice I have ever received is from people sharing personal experiences.  You have to be interesting.  To me it doesn't matter if you are a bum on the street or a CEO.  If you have a unique personalty or story behind what you are doing, I want to hear about.

Frank

Lance H. · Answer

Thanks everyone, the responses are all very helpful and I really appreciate them.

Two follow up questions:

If you could personally build your perfect advisor, what services would they offer?

If you were a financial advisor, how would you get involved in helping RE investors?

Thanks!

Chris Wood · Answer

I have looked for someone like this. It seems that few financial planners understand how to fit this in the long term plan. I think that recognizing the huge potential in real estate but also balancing it with other things is important. So helping people understanding the risk of stock and real estate, I think would be a huge. Along with helping people connect with those who can be trusted in the real estate industry that you trust (or you would or are investing with). just my 2 cents. Thanks for trying to add this for your clients.

chris

Ken P. · Answer

Perfect timing on your question.  This afternoon my wife and I have a meeting with the  financial adviser who manages our stock and bond portfolios, and one of the key areas of discussion (for us) will be use of self-directed Roth IRAs.  The adviser is fee-based, not paid by commission, so we're hoping for some honest discussion.  I'll have more input for you after the meeting.

How can a Financial Planner help a RE Investor?

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