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Turnkey Real Estate Investing

4 min read

9 Topics to Discuss with a Financial Advisor BEFORE Buying a Property

Thu, Jun 13, 2024

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Every investor benefits from the counsel of a financial advisor. Ideally, your advisor knows you, what you want and need, and the essential aspects of your investment strategies. Their perspective and know-how help construct effective action plans and mitigate risk along the way.

But advisors aren’t just there for big-picture talk. Before you move forward with a property acquisition, consult your advisor to ensure you’re making the best decisions possible for the health of your investment portfolio.

As a passive real estate investor, here are some key topics to cover:

9 Topics to Cover with Your Financial Advisor

Topic #1 – Financial Goals and Strategy

Investment Objectives: Clarify your short-term and long-term investment goals. You and your advisor must be on the same page! They should understand what you want from your investments now and in the future. 

Risk Tolerance: Assess your risk tolerance. This threshold may change with time, so revisiting the topic is worthwhile. Knowing what you’re comfortable taking on helps your advisor recommend the right strategies and assets for your portfolio.

Diversification: Discuss how this particular SFR investment fits your portfolio diversification strategy. You may find another property, neighborhood, or market is more effective at diversifying. 

Topic #2 – Budget and Financing

Budget: Determine your budget for the investment. Include line items like purchase price, closing costs, and reserves for unexpected expenses. Remember, acquisition costs aren’t the only ones associated with owning a property. Consider ongoing costs like insurance, utilities, renovations, and management fees. Your advisor helps ensure your budget is accurate and realistic. 

Financing Options: Explore financing options at your disposal, from a traditional mortgage to private lenders. Go over the interest rates and loan terms. Your financial option ultimately impacts cash flow and ROI. Your advisor ensures you have all the details for an accurate evaluation. 

Topic #3 – Market Analysis

Location Analysis: Evaluate the market conditions where you plan to buy. Discuss trends in property values, rental demand, and economic indicators. Your advisor may or may not be an expert in real estate investing, but they walk alongside you with valuable input while you analyze the market.

Comparable Properties: Running comps is a great way to see what you can expect from a rental property. Discuss these comps with your advisor – it’s another way to ensure you’re working with accurate numbers.

Topic #4 – Cash Flow and Returns

Projected Cash Flow: Calculate expected rental income, operating expenses, and net cash flow. Once you understand your passive earning potential, factor in how vacancies or maintenance costs could impact cash flow.

ROI and Cap Rate: Analyze metrics such as ROI, capitalization rate (cap rate), and cash-on-cash return to gauge the investment’s profitability. Discuss the metrics that matter most with your advisor so you’re both focused on the same things. What you look for may differ from other investors.

Topic #5 – Tax Implications

Tax Benefits: Discuss potential tax advantages, such as mortgage interest deductions, depreciation, and other real estate tax breaks. You’ll want to be sure you capitalize on appropriate tax opportunities! 

Tax Strategy: Develop a tax strategy to optimize your after-tax returns, considering income and potential capital gains taxes. Your advisor may not be a tax professional, but discussing taxes now sets the stage for effective communication with your CPA. 

Topic #6 – Property Management

Management Options: Decide whether you will self-manage the property or hire the pros. Discuss the costs and benefits of each option. If you’re a turnkey investor, you likely already have an established, consistent property management team. This makes evaluations much easier! 

Topic #7 – Legal and Regulatory Considerations

Liability Protection: Discuss ways to protect yourself from liability. Common strategies involve forming an LLC or other business entity and purchasing appropriate insurance coverage. There are specific types of insurance for property owners to consider, too. 

Topic #8 – Exit Strategy

Selling Plan: Develop an exit strategy, including potential timelines and conditions under which you would sell the property, from property performance to market and economic conditions. If you would sell based on poor performance, discuss those benchmarks and for how long they need to persist before you exit the investment. Additionally, discuss options like the 1031 Exchange, which involves “trading” one property for another, tax-deferred. 

(This is a rudimentary explanation…if you want to know more, read How Turnkey Investors Benefit from the 1031 Exchange.)

Topic #9 – Contingency Planning

Emergency Fund: Set aside an emergency fund for unexpected repairs, vacancies, or other unforeseen expenses. Your advisor helps determine an appropriate amount to maintain.

Economic Downturns: Plan for potential economic downturns. How will you handle a drop in demand or a prolonged vacancy? Believe in the best, but prepare for the worst.

A thorough discussion with your financial advisor before you buy a property helps ensure you’re making informed, wise decisions for building lasting wealth. Don’t neglect this essential part of due diligence!


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Chris Clothier
Written by Chris Clothier

Entrepreneur, writer, speaker, ultra-endurance athlete, husband & father of five beautiful children. Chris puts these natural talents on display every day. As a partner at REI Nation, Chris addresses small and large audiences of real estate investors and business professionals nationwide several times each year. Chris is also an active writer, weekly publishing real estate, leadership, and endurance training articles.