All Forum Posts by: Paul Allen

@Chad Olsen I suspect you represent the majority opinion among BP members, which (as you have correctly surmised) is not my target audience in terms of client acquisition. Not that there is anything wrong with the members here, but this is a forum for committed investing DIYers who know what they want to do and how they want to go about doing it. They don't need me to help them make a plan, they already have one. 

I was just wondering if some of the real estate investors had some knowledge of blending a securities and real estate portfolio. I've asked this same question among the dedicated securities investing crowd and they had no answers for me. I thought I'd try the same question among the RE crowd. 

It might be there isn't an answer supported by academic research, but I'm gonna keep looking. 

Thanks for your response and best of luck on your journey!

Hi @Greg Pugh

The money you are spending now is not an 'expense'. It is a 'capital improvement' and will be used to adjust the depreciable basis of the property when it is placed in service as a rental.

I'm sure your wallet can't tell the difference between an expense and a capital improvement at this point, but that's how the tax code classifies them.

Best of Luck!

Congratulations to your parents for their life long success!  Encourage them to see a FEE-ONLY FIDUCIARY financial planner to discuss strategies for efficiently preserving and transferring and their wealth.

@Abigail Hollar

Yup. It's that "disregarding things like personal residence and accidental rental" that bothers me, though. We don't take that position because we KNOW its in the client's best interests to do it that way. We do it that way because we don't know how to model real estate into the rest of the investment portfolio.

I'd fret less about it except there are some things in portfolio management that are downright counter-intuitive (such as adding higher risk securities to lower the overall risk of the portfolio).

Has there been no economist since Markowitz who thought about adding real estate to the efficient frontier?

@Andrew Johnson

I agree - I am a big fan of tax diversity as part of retirement planning.

My question, though, is essentially this:

Say I have a client that has $300,000 that is 100% invested in securities (no real estate) and I have determined the best asset allocation for the client is 60% stocks, 40% bonds.

Then s/he inherits a $200,000 residential property and decides to keep it as a rental unit. Do I need to alter the stock/bond ratio of the remaining portfolio as a result of adding real estate to the mix?

@Abigail Hollar

You are correct. While I have a few clients who are intentional real estate investors, I have many clients who are accidental landlords. Lots of military in the area, so a higher-than-average density of folks who wanted to enjoy the American dream, bought a house, and then received orders requiring them to relocate. They decided (often without much forethought) to turn the house into a rental.

They come to me as financial planning clients and I've never been quite sure how to factor their $XX of real estate equity into their asset allocation for TOTAL investment portfolio management.

You would need to paper file it. I would write "Superseded Return" in red across the top of it and include copies of your ID. Maybe even a cover letter explaining why you are filing a superseded return. Nothing long and fancy just one or two sentences explaining your purpose. Make it easy on the agents receiving the returns to understand what is going on. Especially your Virginia return. The folks in Richmond seem a bit overwhelmed (again) this year.

@Monica Marusic You could file a superseded return before April 18 and fix it now. Or you could file an amended return after April 18 to fix it (as long as you have not filed the wrong way twice - which you haven't yet).

@Henrik Lemos good luck with your search. I am a financial planner and my goal is to BECOME the guy you are looking for. (I'm not there yet.)

Finding (reliable) resources on the topic is tough. I have taken the courses and passed the test to become a Certified Financial Planner, and almost none of it was on real estate. Financial planning is awash with securities and insurance product information - things a financial adviser can sell to make money. Not many advisers want to deal with clients with real estate because they can't get paid to manage it like they can get paid to manage a securities portfolio. Many advisers even discourage real estate investing - they see it as hurting their own bottom line.

Let me know if you find what you are looking for. I would be interested in knowing more about that.

(And I know all about old women who won't take advice from family.  My mother....arrrggghhhh!!!)

I appreciate the 'softer edges', but I was in the Navy for 24 years. I've had worse. :-)

Lesson learned. I participate in other forums where academic discussions about the tax code are the norm. I'll be more careful to keep those where they belong in the future. 

And to be clear, not taking your depreciation is a horrible idea. I would never recommend that as a tax strategy. 

Be well, y'all!