How can a financial advisor help me as a real estate agent?

It is crucial for a real estate agent to have a good relationship with a financial advisor, but not just any advisor. He or she must be an advisor who knows and understands the “ins and outs” of investing in real estate. Historically, financial advisors and realtors have been on opposite sides of the fence. The advisors want their clients to invest in the things that they sell: stocks, bonds, mutual funds, annuities, etcetera, because that is how they make their money. In fact, many realtors have received responses from clients saying, “My financial advisor says that real estate isn’t a good investment.” So it is no wonder that this partnership is not very common. But if a realtor partners with the right financial advisor, it should be a beneficial relationship for all.

A financial advisor who understands real estate can help a client to structure the deal correctly, figure out what funds to use to purchase the property, and how much and what kind of leverage to use—if any. Though a mortgage advisor is the expert on the programs available, only financial planners can model the loan into the purchasers’ financial plans to see how the tax benefits and loan affect their long-term financial planning goals. When gathering important data for the financial package, the advisor can also submit financials in one statement, verifying funds on deposit. Although there are several parties involved to make sure real estate transactions go smoothly, it is beneficial for both the real estate agent and the client to work with a knowledgeable advisor. For example, often times it makes sense to transfer the ownership of properties into a family trust and many times it does not; knowing the different options is important.

The biggest reason that real estate professionals should work with well-trained financial advisors is that they should be able to help them sell more real estate. One of the biggest reasons that people hold on to real estate is due to capital gains taxes. And other than the $250,000 exemption if filing as a single person and $500,000 if married filing a joint return, few people understand the strategies that make it possible to avoid capital gains taxes. My personal opinion is that capital gains taxes are avoidable in almost every circumstance; it just takes some planning to do so. Thus, if an elderly couple wants to downsize but is afraid of the taxes, a good financial planner should be able to design a plan to avoid paying them and in the process create more retirement income than they had before.

Investors in real estate make many mistakes from a financial perspective. One of them is getting “too comfortable.” That is, an investor may have bought an investment property 20 years ago and, although it may have been a great investment then, it may no longer be a good investment today. Also, paying it off may mean losing tax benefits and deductions. Another common reason investors do not want to sell their properties is because they feel that it would be impossible to do so in today’s market, or that capital gains taxes would be too high if they did. However, a good financial planner can help to determine whether or not the property in question is still a good investment, and also establish a plan to get increased income (even tax free!) from the property in retirement.

The bottom Line: It is important for real estate agents and financial advisors to work together. The benefits are unlimited.*

Troy V. Collins, RFC.
President, McKinley Financial Group
Phone: (650) 551-8900
CA Insurance Lic. No. 0B96613
www.mkfinancial.com
 
* This article is oversimplified in many ways and is for illustrative purposes only. McKinley Financial is not recommending any specific product, nor are we recommending that you purchase real estate.
** Registered Representative offering securities through First Allied Securities, Inc., a Registered Broker/Dealer Member FINRA/SIPC.
Investment Advisor Representative offering services through First Allied Advisory Services.