Wealth Management for RE Investors

73 Replies

I’ve recently been exploring wealth management strategies/options to make sure our assets grow and are protected. The problem is I don’t really know what we should be doing to take things to the next level.

For those of you who work with financial advisors or have accumulated significant assets - any advice for someone trying to get started?

We have 8 units and both work solid W2 jobs - our rental income more than covers our modest living expenses. We hope to be at 10 units by the end of 2018 and have a family net worth of $1M by 2020/21.

Met an Edward Jones advisor who was recommended to me by a guy I met on a plane (wealthy business owner with similar life POV). The advisor seems solid and has recommended we keep a smaller amount liquid ($20-30k), then take the rest of our cash and do a combo of 60% stocks/funds, 40% laddered CDs in addition to our IRAs and 401ks, just to get company match. We’ll keep growing our real estate portfolio as well.

Haven’t signed anything yet other than have her manage a small stock trade for me. My understanding is that Edward Jones is a reputable company but Is it crazy to trust hundreds of thousands of dollars to someone I met via the recommendation of a guy on a plane?

How did you find your financial advisor? What was your strategy to get from middle class to wealthy? How best to diversify one’s investments if real estate is the core of your strategy? Any advice would be greatly appreciated!

I’ve thought about this a fair amount too even though I’m ahead of the curve (in my early 20s and therefore don’t really need it yet) and from what I’ve seen I haven’t found a financial advisor or wealth manager that really understands real estate.

Your best bet is probably a mixture of asset protection (lawyer and insurance) and tax help (cpa).

Then I’d get a financial advisor that probably manages a small stock portfolio and also gives general advise as my life and financial situation becomes more complicated.

I would not hand over hundreds of thousands of dollars to someone like you described.

Key things to ask are make sure they’re a fiduciary and that any money you give him is held in a custodial account of a third party.

From my personal experience, I would strongly recommend that you steer clear of Edward Jones. Either keep it simple with low fees with wealthfront.com, or, if you want a boutique investment firm, check out what Jerry Verseput at veripax.net has to offer. Tell him Dan Rudolph sent you.  (Jerry has a $500K minimum.)

Whoever you choose, you should make sure that you know what you are paying them.  Most people working with Edward Jones think that their advisor works for free, doing charity or something.  In reality, they get kickbacks from the investments that they put you in.  And this has a huge impact on the options that they offer.

We use a Dave Ramsey endorsed local provider and have been more than pleased with the results.  He has a list on his website and has ELP's all over the country.

You have hundreds of thousands of dollars saved and you are asking if you should invest with a full service broker? Something doesn't make sense.

I have a very strong opinion on wealth management: unless you are a high net worth (multi-millions) and it requires more time than you have available, I consider that you should have a DIY approach with the right team to support you. The main reason is that nobody takes better care of your money than yourself.

For asset protection, I would agree with Caleb that a mixture of lawyer,  insurance and tax help (cpa) should cover it.

For asset growth, I would stay clear of financial advisors and keep it very simple: ETF with low fees (like wealthfront.com) and index funds with low fees (like vanguard.com). To understand how to approach it, I would recommend to read "The simple way to wealth" by JL Collins. 

@Ericka Grant , something about the way you asked your question tells me that you already know the answer...YES, it crazy to trust hundreds of thousands of dollars to someone you met from the recommendation of a guy on a plane!  Especially when that person works for Edward Jones. 

It's not a bad company but let's be honest, the advisors are commission-based salespeople (look into how they recruit and you can see for yourself...). You can do better on your own or you could always hire a real estate-savvy CFP that charges an hourly rate for a second opinion (find one at feeonlynetwork.com). 

@Ericka Grant The key indicators when looking for a wealth manager are fee structure paid and their performance compared to the overall market.  In MOST cases the manager after fees doesn't do as well as a passive and low fee fund (i.e. Vanguard S&P fund which is highly recommended by investors like Warren Buffet).  I would highly suggest thorough research before parking any funds.  If you'd like a recommendation PM me.

Why not put more of your capital into real estate? You already have 8 units that cover your expenses so they must be doing pretty well. My guess is that you would make a higher return on real estate investments compared to the stock market. You can set up a self directed IRA to invest in real estate with your retirement account.

I tend to agree with the sentiment that you don't need a wealth advisor (and I am one!). If you can manage real estate you can manage a stock/bond portfolio.  Just go over to "Bogleheads" and do a couple of hours of research. It will save you thousands of dollars per year.

If you just want the service, search for a FEE-ONLY, FIDUCIARY financial adviser. Edward Jones is neither.

Thanks everyone for your input. I will put this on pause until I do more research. I should clarify that the person I met on the plane is a well known business owner/millionaire/entrepreneur in the Southeast so since he personally recommended her after hearing about my goals/needs that is why I felt she was a good option. I also then was at community wealth event and she was one of the panelists. But still, he is a stranger and so is she so I think I was placing too much trust in his reco. I value personal recommendations from “successful” people a LOT.

@Dan Rudolph do you mind sharing more about your experience with Edward Jones and why you wouldn’t recommend? Her fee would be 1% of anything I make. We don’t meet the min for your guy.

@Caleb Heimsoth I will check that the fiduciary angle and also look at attny and CPA options

@Gus Ross thanks, I will reach out

@Rachel Bjorklund yeah, it does sound crazy to consider trusting someone to manage so much money - I was putting too much trust into the recommendation of that one wealthy person I met

@Vincent Joseph we are not high net worth, just trying to get there ;) I will look into that book. Have tried DIY and find it overwhelming. So many options

@Glen Whipkins good idea - I will check out Dave Ramsey’s site

@Steve B. What doesn’t make sense? We’ve made some good moves, lived simply, and saved - now I don’t know what to do and don’t know anyone personally who can advise me so one of my goals for 2017 was to find someone who could help us take things to the next level. Perhaps my mistake was to assume we’d need someone else to help us do that

@Kerry Mertz will keep investing in real estate, just want to diversify and have some $ in stocks and other investments as well

@Ericka Grant In that case I'd advise exactly what most of the others have.  Open a account at a discount broker and invest in low fee funds.  However you need to spend a lot of time educating yourself,  no one will ever take as good care of your money as you will.

And have others have said I would never use a full fee broker like Edward Jones or Merril Lynch.  Those  are appropriate only for widows and the elderly

@Ericka Grant How are your 8 units performing compared to your other investments?  I am 90% real estate in rentals and self-funded flips and could not find a better return elsewhere.  I say fund the max amount where your company matches and buy more real estate with the remaining.  Invest in yourself. 

No need to change anything.  Keep buying real estate and put some savings into VTSAX or some other total stock market fund.  No need for complexity or for a full service broker who is broker than you.  Well done...you have the hard part out of the way and figuring out how to set aside some funds over time into low cost ETFs easy.

"Her fee would be 1% of anything I make".  Most fee-only advisors charge around 1% of Assets Under Management (AUM), which usually equals your account balance.

If you make a profit of 10%, her fee is 1%*10% = 0.1%.  I don't think so.

Or maybe you meant that the charge is 1pp of anything you make, so then the fee would equal 1% of AUM while you are making money.  But in a year/quarter that you lose money you owe her nothing, or she owes you?  I don't think so.

Either way, she forgot to mention the sales commissions that she makes selling the things that her employer wants her to sell.  You should study up on the difference between the "suitability" standard and the "fiduciary" standard.


Operating under the suitability standard, Edward Jones brokers can put their individual interests above that of their clients.

Edward Jones employs very likable, helpful, salespeople.  So do used car dealerships.  RUN AWAY!

P.S. Several people have recommended wealthfront.  You should check it out.  It takes the work out of DIY.  And you will be able to set your portfolio to be a well-diversified mix of investments that is tuned to your risk profile.  (I have no association with wealthfront.)

@Ericka Grant I believe Edwards Jones charges a management fee regardless of how your portfolio performs. So, if they lose 5% of your 200k you still pay them the fee... I think it's around 1% of the porfolio as the fee? 

If you are going the stock route I'd say go the low fee index fund route. That's what most people I talk to that have had investments in the stock market for 20-30 years told us. My husband has a 401k  from his w-2 that can't be self directed and that's mostly in low fee index funds. 

Now, the funds that we can self direct, apart from cash reserves and emergency funds, namely cash and self directed 401k are mostly in real estate. Either rentals, promissory notes/mortgages (for the self directed 401k since that's mostly passive) 

@Ericka Grant

I think you should read this article:

Trump Signs Memorandum Shelving Fiduciary Standard For Financial Advisors

"At about 1:30 p.m. Eastern time on Friday, February 3, 2017, President Donald Trump signed a memorandum to roll back the Department of Labor’s fiduciary rule by asking the DOL to review the rule again and likely to delay its April 10th implementation (although at the time of this article a delay has not yet occurred but it is likely coming). Why does this matter? Simply put, the DOL fiduciary rule was designed to make sure that, if you hired a financial advisor to help with your retirement planning and assets, the financial advisor acted in your best interest, avoided conflicts of interest when possible, and was transparent with you about his or her compensation and fees. Many people are surprised to learn that such a rule does not already exist for financial advisors since financial advice, at its core, would appear only to be needed precisely to ensure the best interests of the consumer. While the fiduciary rule was not supported by everyone in the financial services industry, it has been hailed as a workable rule that is a step in the right direction for financial services, and the delay in implementation is expected to be the first step in terminating the rule as it exists today."

You would think that a Financial Advisor should have a Fiduciary responsibility to you, but that's not true at all.

As always, Buyer BEWARE!

That's why I won't trust anyone to management my money unless:

1) They have a Fiduciary responsibility to me

2) They Make more Money that I do

3) They are worth more in Net Worth than I am

4) They have a better ROI that I have, which I don't know Fund and only a few stocks that did better than I did over the last 2 decades

That really narrows down the financial advisors that can actually help me.

In fact, I believe you can strive to be your best Financial Advisor.

Or am I being too pessimistic?

I will check out wealthfront and ask more questions about her fees. I will try to do it myself.

We’ve had excellent luck with our rentals this far in terms of both cash flow and appreciation but I’m not seeing deals lately, so was thinking to put some money in the stock market in the meantime rather than having it sit in the bank

Originally posted by @Dan Rudolph :

P.S. Several people have recommended wealthfront.  You should check it out.  It takes the work out of DIY.  And you will be able to set your portfolio to be a well-diversified mix of investments that is tuned to your risk profile.  (I have no association with wealthfront.)

Hey Dan, great post above.  I found the robo advisors to be problematic for someone with a real estate portfolio plus W-2s.  You end up with a disproportionate amount of bond-like income (W-2s, cash-flowing real estate, and the bond portfolio)...you also double down with REITs in the robo portfolio.  All of these low cost alternatives are great...just some things to consider when you carry a real estate portfolio that the average robo advisor client does not have.

I use Personal Capital.  I like them because they are on the cutting edge of technology and their reporting and tax harvesting suits my needs.  They transact with your funds as often as need be to keep up with their strategy and market changes (you will get an email to see this as it happens) and if you choose something different than their model, they will execute what you want.  They do charge around 0.08% fee (which can be a schedule A tax deduction), but I enjoy the worry-free peace of mind that that provides me.

@Mike Dymski what do you mean exactly? Like tax issues? I own rental real estate and use betterment (similar to wealthfront) and haven’t had any issues so far.

My 2 cents. Charles Schwab for Index Funds. Lowest Index fees in the industry at .03%. I am parked in the Schwab S&P 500 Index as well as the Total Stock Market fund (Dow Jones Industrials). Excellent, low cost Index funds.  ~Cheers!

Yes I’ve heard index funds are great I’m just not sure what they are or how to get into them. Hopefully wealthfront can help that that.

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