© 2020 Arizent. All rights reserved.

Help clients navigate real estate investments

Register now

While many advisors use real estate investment trusts as a way for their clients to generate income through real estate exposure, some clients prefer "real" properties to REITs.

For those clients, it may be appropriate to invest a small portion of their portfolios in residential or commercial real estate. Such investments can offer income as well as the potential for capital gains upon the sale of the property.

Advisors need not be experts in real estate to do this. But they do need to know enough to determine if real estate may be a suitable investment for a particular client, and to have a network of professionals they can call upon to help clients locate, buy, and sell appropriate properties.

Whether real estate investments are right for clients, particularly retirees, depends on many factors, says Ronsey Chawla, an advisor at Per Stirling Capital Management in Austin, Texas. "Those in retirement, for instance, may not want the day-to-day operational hassle of finding tenants or fixing broken toilets," he says. Beyond that, he says, "the tax implication of how the investment is held may have bearing on the scenario as well."

And regardless of income, Chawla warns, an even more important consideration is how much of one's portfolio the real estate investment comprises. "I would imagine that relatively few retirees would want a single real estate investment or even a broader pool of real estate investments for that matter to make up their entire portfolio," he says.


For any client interested in income-producing real estate investments, advisors recommend bringing in outside experts to help.

When advisors put themselves out there as "true financial family advisors," says Bob Steinke, head of managed and insured solutions at Janney Montgomery Scott in Philadelphia, they need to be well-versed in strategies such as cash-flow real estate ownership. "Even though we may not agree with the use of the product or may not be able to make specific recommendations, it still behooves us to be able answer client questions, and refer them to experts who know more about the strategies and any tax or other implications," Steinke says. "We need to provide our clients with general information, without pretending that it's an area that we really play in."

Chawla also notes that costs and commissions can play a larger role in real estate than in other investments. When making referrals, he looks specifically to business professionals who can see beyond the immediate transaction and help his clients pursue their long-term goals. "My role is to filter through the noise and identify strategic partners and agents who help look out for my clients' best interests," he says. At times, Chawla has been able to negotiate fees with real estate agents and other professionals to lower overall transaction costs for his clients.


Clients who trade often in real estate may encounter cash flow problems if a closing to buy is timed a month or two before a closing to sell. In that case, says Michael Lecours, advisor at Ohanesian/Lecours in West Hartford, Conn., his firm has sometimes helped clients use the 60-day rollover clause in their IRA to buy one property and then return the funds to their account after the sale of the other is completed.

"This can also be done in retail accounts by leveraging the right of reinvestment, which can reduce or eliminate new sales charges for mutual funds," he says. Of course, this comes with its own set of complications, and Lecours advises clients to speak with their accountants.

Katie Kuehner-Hebert is a freelance writer in Running Springs, Calif. She has contributed to American Banker, Risk & Insurance and Human Resource Executive.

This story is part of a 30-day series on Social Security and retirement income strategies.

For reprint and licensing requests for this article, click here.