Real Life Planning Podcast Episode 59: 10 Real Estate Questions to Ask Your Financial Advisor

In Episode 59 of the Real Life Planning Podcast, Cynthia Meyer, CFA®, CFP®, ChFC®, shares 10 essential questions every real estate investor should ask their financial advisor. Whether you’re a new investor or a seasoned pro, these questions will help you assess whether your advisor truly understands how real estate fits into your financial plan—and how they can support your investing goals.

"  …you want your planner or advisor to be using a piece of software that can model how real estate improves with inflation.” - Cynthia Meyer

This week on Real Life Planning Podcast:

Takeaway Quotes:

" If you have a real estate business and you own real estate as part of your investment portfolio, you want a holistic view of your personal finances.” - Cynthia Meyer

" We’re all on this journey—everyone has some successes and has made some mistakes.” - Cynthia Meyer

The 10 Real Estate Questions to Ask Your Financial Advisor:

1.  What types of properties and other real estate investments are currently in your portfolio? 
2.  How does your financial planning software handle my real estate holdings? 
3.  Will you help me evaluate the next deal? 
4.  Do you have a network where I can find other team members for my real estate team? 
5.  What are the real estate tax strategies that make sense for my situation? 
6.   If I'm looking for an alternative investment like a Delaware Statutory Trust or a real estate syndication, can you help me evaluate opportunities? 
7.  Will you evaluate the risks in my real estate business and make recommendations where needed? 
8.  Will you help me evaluate financing options and lenders?
9.   If I had a rental property with a large unrealized capital gain, what would you encourage me to do? 
10.  What's the biggest mistake that you've made in your real estate investing journey, and what did you learn from it? 

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About the Real Life Planning Podcast

Hosts Cynthia Meyer and Vekevia Tillman-Jones explore practical steps for real estate investors to build financial freedom and make working for someone else optional.

Episode 58 Transcript

[00:00:11] Cynthia Meyer: Today on the Real Life Planning Podcast, I want to offer you 10 real estate questions that you can ask your financial advisor. I've been thinking about this a lot lately because recently I was at a conference teaching a class to other financial planners about advanced 1031 exchanges and there were so many great fiduciary financial planners in the room who were the members of NAPFA, the National Association of Personal Financial Advisors; all fee only, all interested in real estate. But many of them told me that their clients do not ask them real estate questions. And so, I was thinking on the way home, really, if you're working with a financial advisor and you're not talking to your financial planner about real estate, there are some questions that you can ask them that most good financial advisors should be prepared to answer for you. And if they can't, hopefully they can refer you to somebody who can.

[00:01:14] So question number one, what types of properties and other real estate investments are currently in your portfolio? And the reason that you want to ask this is because you're trying to suss out what is your planner or advisors attitude about real estate as an asset class. Do they own rentals or rent their house on an Airbnb or own a vacation property? Have they lent money in the real estate space to somebody else? Are they investor in a syndication or a private lending fund, for example? Are they doing something more esoteric like buying tax liens or being a hard money lender? Maybe doing real estate in a self-directed retirement account. If you have a real estate business and you own real estate as part of your investment portfolio, you want a holistic view of your personal finances, and it's helpful to know what can your financial advisor or financial planner help you with in that area. It's part of your total net worth. Hopefully they know something about it.

[00:02:23] Question number two, how does your financial planning software handle my real estate holdings? Now, why am I encouraging you to peek under the hood at how the financial planning software works? That's because there are different types of software programs that work very well for modeling the risks and rewards of real estate in someone's financial plan and others that don't do that very well. If your planner is using a piece of software, the software subscription we call Right Capital, that's what we use in Real Life Planning. Very robust real estate friendly software and you can model lots of what if situations including 1031 exchanges, cash out, refinance a flip, lots of things that you can do with software like that.

[00:03:15] eMoney, also a very robust piece of software for real estate investors. Lots of financial planners use that software and you can also model lots of things in eMoney with a little training. And so, if your financial advisor or financial planner is using one of those two, two pieces of software, then you're probably can model the ins and outs of what you're trying to accomplish.

[00:03:40] However many financial planners, and in particular many financial advisors that are just mostly selling you investments, might use a retirement calculator that doesn't really handle your real estate cash flows very accurately. So you want your planner or advisor to be using a piece of software that can model how real estate improves with inflation, right? How much are you raising the rents every year? What's your vacancy rate? Do taxes and expenses go up at the same rate or different? What's your vacancy rate? You also want software that takes into account the tax benefits of depreciation expense and accounts for that accurately if you sell a property and you don't 1031 exchange.

[00:04:24] And so understanding a little bit about how the software that your data is entered in is handling the real estate income and expenses will help you judge the real accuracy of the numbers that you're getting in your retirement projection.

[00:04:41] The third question I invite you to ask your financial advisor is, will you help me evaluate the next deal? Does your planner or advisor have some spreadsheets that they'll share with you to run numbers on whatever type of deal it is that you're looking for, right? Is it whether it's a single family home or a fourplex or an apartment building or a loan that you're considering lending some money to somebody else.

[00:05:09] Maybe you want to create an ADU in your backyard; an accessory dwelling unit. Hopefully, your advisor has some spreadsheets or other tools that they can share with you so you can model those things and talk through the numbers together and how it affects your financial situation, personally.

[00:05:29] Question number four, which is one of my favorites, is do you have a network where I can find other team members for my real estate team? And that includes a real estate savvy CPA, an investor friendly real estate or agent in any market in which I'm going into when we're looking for a new team? A qualified intermediary if I'm doing a 1031 exchange? Maybe a commercial mortgage broker if I'm trying to buy an apartment complex or a piece of commercial property. Corollary to that would be can you introduce me to other clients who might be invested in that market so we can network?

[00:06:07] Question number five is what are the real estate tax strategies that make sense for my situation? If you own many properties or if you're real estating full-time, right? You're doing this for a living or most of your time, right? Does your planner discuss with you any of the potential tax strategies around passive loss matching against active income or ordinary income? And now again, you don't need your financial advisor to be a tax expert. They're not going to give you tax advice, but you want them to understand the different real estate tax strategies. Hopefully, they know things like what a cost segregation study is, for example, and when it should be applied in your situation so they can help you in the planning process.

[00:06:57] Question number six, if I'm looking for an alternative investment like a Delaware Statutory Trust or a real estate syndication, can you help me evaluate opportunities? Can you give me questions to ask the provider? Will you read the subscription documents and help summarize them for me so that I understand them?

[00:07:20] Again, your financial planner or advisor may or may not offer these as part of their practice, right? But are they experienced? Do they understand them and can they help you evaluate them at a minimum by offering you good questions to ask the sponsor?

[00:07:37] Question number seven is, will you evaluate the risks in my real estate business and make recommendations where needed? So I would put those risks in two general categories. Maybe even three gen, let's say. I'll put these risks in three general categories. The first is asset protection, right? So thinking about the structure of the business. Does anything need to be in an LLC? Are there any other asset protection strategies that should be employed? Umbrella liability insurance, for example. Part two of that would be insurance. Looking at your property and casualty policies, your umbrella policy making sure that you're on track for your deductibles. That they make sense in your situation and that everybody that should be named on the policy is named. Helping you understand that policy. Are you covered for all the major risks that you need to be covered for. And the third area of risks are what I like to call operations risks. In particular, if you have a short term rental, you want to be thinking about things like liability for a swimming pool or boats or bikes, or things like that; that your guests might be using. So we want to think through all those questions in the context of an annual risk management review.

[00:08:57] Question number eight, Will you help me evaluate financing options and lenders? So, in the real estate world there's what you might call plain vanilla lending that you get from a banker, a mortgage institution, and there are lots of other ways to borrow money in the real estate space, like a debt service coverage ratio loans, private lending- what's called hard money if you're flipping a house, for example, or doing a construction project. So thinking through that and evaluating the pros and cons of different financing options and potentially helping expand my network by introducing me to mortgage brokers, for example.

[00:09:36] Question number nine, and I'll tell you why I like this question after I ask it. If I had a rental property with a large unrealized capital gain, what would you encourage me to do? And so that question is about figuring out does your planner or advisor know anything about 1031 exchanges? Are they going to try and convince you to sell that property and put the money in securities and pay a lot of taxes instead of 1031 exchanging it into a replacement property or a Delaware Statutory Trust?

[00:10:09] Now, sometimes that may be the right thing to do, but you want to seek out does the planner have an agenda which is about fundraising for them as opposed to doing what might be a more tax efficient strategy for you as a real estate investor? Again, there may be situations where it's not appropriate to 1031 exchange, but you want to make sure that the person that's helping you doesn't have an agenda.

[00:10:36] And then finally, question number 10 is  what's the biggest mistake that you've made in your real estate investing journey, and what did you learn from it? Certainly anybody that's been a real estate investor for a long time has had a situation where they had a difficult tenant or they bought a property maybe that wasn't a great fit or they worked with somebody on their team that wasn't a good fit or something didn't work out. If you're working with somebody that's also been a real estate investor, are they humble? Do they think they know everything or do they realize that everybody's on this journey and, we're all have some successes and have made some mistakes?

[00:11:16] So I hope those 10 questions are helpful. We're going to list them out in the show notes here, and if you want more information about looking for a financial planner who gets real estate, we're also going to refer to a previous podcast where I talked about that. Thanks so much. See you next time.

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