For the past half-decade, in millions of advisor-client meetings across the country, even the most productive of sessions would frequently hit a big speed bump when the conversation turned to real estate. Ultrahigh-net-worth clients looking to sell a property or two often found no buyers. Older clients and upper-middle-class clients who wanted to downsize, as well as those who didn't need to lower their costs or raise capital but needed a new location, often found market conditions froze them in place. Indeed, while real estate as an industry has fully entered the Digital Age, real estate as an asset class was stuck in the Ice Age.
Finally, the thaw has come.
In our four stories on real estate in this issue, advisors and other money managers demonstrate just how varied real estate opportunities have become and how they can help clients bolster their portfolios.
In "Roof, 4 Walls ... & Income," planners discuss the pros and cons of vacation properties, being an absentee landlord and restructuring real estate holdings to take advantage of tax laws. One planner helped his client set up a charitable remainder trust and then gift a building to the trust, allowing the client to sell without paying taxes on the increased value. "It ended up doubling his cash flow from this asset," the planner says, adding that it made more financial sense for the client to now rent rather than buy a new home.
For advisors who have older clients with changing health care needs, turn to "Elder Housing Options," in which we dissect seven strategies and look anew at the potential merits of a reverse mortgage.
In "Hot Properties," we explore the portfolio of a real estate mutual fund in which the manager stays true to his mission - but largely avoids REITs.
And in "Cash-Flow Real Estate," we take a close look at the practice of California CFP Rich Arzaga, who has 55 clients - 80% of whose net worth is in real estate and closely held businesses not reflected in his firm's AUM of $50 million. That math might not make a lot of planners happy; Arzaga counters that "about one-third of the nation's wealth is in real estate and the topic is barely mentioned in the CFP curriculum." He adds that investment real estate is hardly a recommendation to make lightly: "Most clients do not properly understand the cash flow."
In guiding clients, advisors will want to focus on opportunities: ones to avoid because the risk-reward ratio is too severe, as well as ones where real estate can diversify portfolios and offer noncorrelated, tax-advantaged opportunities for gains. Isn't that the American dream?
- How to Find Cash-Flow Real Estate
- Picking Baron Real Estate's Hot Properties
- New Rules for Real Estate Investing
- Elder Housing Options for Clients