BusinessPostCorner.com
No Result
View All Result
Thursday, June 5, 2025
  • Home
  • Business
  • Finance
  • Accounting
  • Tax
  • Management
  • Marketing
  • Crypto News
  • Human Resources
BusinessPostCorner.com
  • Home
  • Business
  • Finance
  • Accounting
  • Tax
  • Management
  • Marketing
  • Crypto News
  • Human Resources
No Result
View All Result
BusinessPostCorner.com
No Result
View All Result

How to manage client rental real estate investments

April 29, 2025
in Accounting
Reading Time: 3 mins read
A A
0
How to manage client rental real estate investments
ShareShareShareShareShare

If financial advisors ask clients the rate of return for their rental real estate investment property, they should expect to hear a number at least 5 percentage points higher than the actual one, according to the founder of The Real Estate Whisperer Financial Planning.

That’s because of calculations based on “optimistic assumptions, untracked costs and the absence of formal benchmarking” among many owners, said Rich Arzaga, founder of the Monument, Colorado-based firm, in a presentation at this week’s Financial Planning Association Retreat in Oak Brook, Illinois.

“It’s where ownership bias meets the reality of returns,” Arzaga added. “Whatever they say, knock out at least 5%.”

Despite the substantial role of real estate in wealth, the asset class may sometimes get overlooked by planners who leave an often-emotional decision that is critical to clients’ retirements to professionals from other fields who work more closely on investment properties. 

READ MORE: The tax benefits of real estate investing

A void in the profession?

Instead, more planners should maximize their value to clients by taking them through a realistic cash-flow estimate incorporating every expense that they can then apply to a long-term forecast of their assets in retirement, Arzaga said. Even for high net worth clients in particular who generate tens of thousands of dollars in rental income each year, the risks and costs of a property that isn’t meeting their investment expectations can eat up their holdings over time.

“I want to propose that this is an idea that you can use that will expand your thinking about the way we approach this business,” Arzaga said. “I think the way we approach it now is great, but I still don’t see it in any of the curriculum — whether it be the licensing certifications, none of the designations — none of them focus directly on real estate investments.”

Arzaga shared the case study of two 58-year-old clients from San Francisco he called Kevin and Lynn who had a net worth of $3.6 million and rental income of $75,000 per year through a property that was separate from their residence. Through debt service payments and other expenses, however, their costs on the property amounted to $76,000. If the couple followed through on their plan to retire when they turned 65 while keeping the same quality of life that cost them $312,000 a year, they would run out of their assets by age 84, Arzaga estimated.

“Somebody with a $3.6 million net worth, this is kind of not what they expect, right?” he said. “So that’s why they come to us. And luckily, they came to us.”

READ MORE: Ask an advisor: When is real estate an investment?

A better course of action

If the couple were to sell the property in a tax-advantaged 1031 exchange for a better-performing asset or simply spin off their rental holding, absorb the taxes and reinvest the holdings into their long-term portfolio strategy, their assets could amass value hundreds of thousands of dollars or even millions higher than their current scenario.

One of the main misunderstandings stems from the cost of maintaining rental properties, according to Arzaga. In his example, the clients mentioned their amount of income and told him that the number included their expenses. He saw that they had miscalculated when he examined their itemized deductions on Schedule A of their tax returns.

Operating expenses include taxes and the preparation of them, insurance premiums, legal fees related to entity filings and other matters and two major areas — maintenance reserves and property management. In terms of maintenance, the owners should build in costs of about $30,000 to $40,000 every decade for concrete, foundation work, a roof replacement or similar upkeep, Arzaga said. Property management poses difficulty as well.

“Most people like to do that on their own. Most people aren’t capable of that,” he said. “It’s important, and it’s a big asset. And some decisions they’re making are because they’re not professionals in this area.”

READ MORE: The top 20 real estate funds of the decade  

Providing value outside investment portfolios

These realities may be tough for the clients to hear, but they usually come around after planners lay out the cold calculation of the costs and risks involved with a lot of small-scale rental properties. Assisting clients in making smarter choices about their real estate is “more significant than beating the S&P 500” and a “much more noble cause,” Arzaga said.

“Understanding how real estate can impact a family’s finances, I think, is essential to being a comprehensive advisor,” he said. “You’ve got to be comfortable talking about these things. You don’t have to be an expert, but addressing them, to do a service for your clients.

Credit: Source link

ShareTweetSendPinShare
Previous Post

PCAOB chair fights proposal to shut down audit regulator

Next Post

Circle Gets Abu Dhabi Nod—Will Its $4B IPO Follow?

Next Post
Circle Gets Abu Dhabi Nod—Will Its B IPO Follow?

Circle Gets Abu Dhabi Nod—Will Its $4B IPO Follow?

Trump doubles steel tariffs to 50%

Trump doubles steel tariffs to 50%

May 30, 2025
Metaplanet Adds 1,088 More Bitcoin — Total Portfolio Climbs to 8,888 BTC

Metaplanet Adds 1,088 More Bitcoin — Total Portfolio Climbs to 8,888 BTC

June 2, 2025
OPEC+ agrees on third oil supply surge despite Russia’s qualms

OPEC+ agrees on third oil supply surge despite Russia’s qualms

May 31, 2025
Total college enrollment rose 3.2%

Total college enrollment rose 3.2%

June 3, 2025
State and local health departments that do invisible but critical work are being hollowed out by cuts

State and local health departments that do invisible but critical work are being hollowed out by cuts

May 31, 2025
Iran has increased enriched uranium by 50%, says UN watchdog

Iran has increased enriched uranium by 50%, says UN watchdog

May 31, 2025
BusinessPostCorner.com

BusinessPostCorner.com is an online news portal that aims to share the latest news about following topics: Accounting, Tax, Business, Finance, Crypto, Management, Human resources and Marketing. Feel free to get in touch with us!

Recent News

Donald Trump attacks ‘hostile’ Elon Musk as row over tax bill erupts

Donald Trump attacks ‘hostile’ Elon Musk as row over tax bill erupts

June 5, 2025
Binance Research: RWA Token Market Hits B as Private Credit Leads 260% Surge in H1 2025

Binance Research: RWA Token Market Hits $23B as Private Credit Leads 260% Surge in H1 2025

June 5, 2025

Our Newsletter!

Loading
  • Contact Us
  • Privacy Policy
  • Terms of Use
  • DMCA

© 2023 businesspostcorner.com - All Rights Reserved!

No Result
View All Result
  • Home
  • Business
  • Finance
  • Accounting
  • Tax
  • Management
  • Marketing
  • Crypto News
  • Human Resources

© 2023 businesspostcorner.com - All Rights Reserved!