Real Estate Planning
Real Estate Planning
People from all walks of life find investment real estate an exciting asset to hold. The reasons include:
- Real estate does not disappear
- There always seems to be high demand
- Real estate values do not drop as much as the stock market
- Parents or friends have done well with real estate
While passion for this asset class is high, finding advisors who work with clients on directly held real estate investment is uncommon. It was such a significant gap in the early 2000s (and still today) that it was the reason one of the principals at Cornerstone enter financial services. As a result, Cornerstone has always been an advocate for those who seek help understanding the merits of owning investment real estate.
Here is why working with a financial planner who is also a real estate specialist is a good idea:
Investment real estate requires a substantial amount of capital. This generally means hundreds of thousands of dollars. For many, as a percentage of total net worth, this is double digits. Having a substantial portion of your net worth (over 5%) in a single investment is a insurance called “holding a highly concentrated position.” In creating a prudent retirement asset allocation, highly concentrated positions should be avoided. The trouble is, what if something terrible happens to that single holding? If a large percent of a retirees’ portfolio is in a troubled asset, it creates risk for their retirement plan.
Investment real estate has risks that go beyond what an investor can control: An unruly tenant, rent control, required capital repairs and replacements, legislative risks, personal liability. These are a few considerations that extend beyond managing for tenant quality and cash flow. As we have seen with COVID-19, a tenant can be legally allowed to not pay rent for a period without recourse.
Cornerstone loves real estate planning. We understand each of the factors covered above. One of the principals at Cornerstone own commercial real estate, and since 2005 has taught real estate investment classes to financial planners in the UC Berkeley Personal Financial Planning program. Cornerstone has seen thousands of investment real estate cash flow models and has advised clients on many of these matters.
If you have a hankering for real estate in your asset mix, you will get better advice from planners who have considerable experience in these matters. People with a passion for real estate will feel at home with Cornerstone.
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