By Scott Melbrod
It goes without saying, but as a real estate investor, your finances probably don’t look like those of the average Joe. More than likely, you don’t invest the same way, save the same way, or spend the same way. That’s why Taxable Wealth doesn’t treat your money the same way. We specialize in targeted financial advice that fits your lifestyle. Here’s a glimpse into what we offer for our real estate investor clients.
1. Analyze Cash Flow/Yield on Current Equity
Most of our real estate investor clients focus on the cash flow of the deals they buy at the time of purchase or after, when they upgrade and stabilize the property. We agree these are very important metrics to make sure you aren’t overpaying for a property, but what about 20 years down the road? They have paid down a significant percentage of the mortgage and the property has doubled in value. We think revisiting that “Cash Flow/Yield on Current Equity” annually is an important metric for our clients to visualize. This often starts a conversation about refinancing or selling the property through a tax-free exchange.
2. Debt/Liabilities Review
Taking on debt is just part of the game, but from our vantage point, the key is to have a goal in mind and ensure that taking on any extra liability is part of the plan to reach that goal. For example, if you want to buy more properties and expand your real estate footprint, we believe you will need to hold more mortgages and insurance. How can landlords address concerns regarding liability and mitigate risk pertaining to investment properties? We’ll review your particular situation and goals and design solutions to meet your needs, whether that’s the creation of a limited liability company or umbrella insurance.
3. Diversification Review
When examining your assets, we will look at both your real estate investments and your other assets, such as stocks, cash/bonds, and other businesses or private investments. We don’t push our clients to sell real estate and invest in the stock market like many other firms would (mainly because that is the only way they get paid). We are really trying to measure liquidity and manage taxes.
For example, we group a client’s real estate equity with their private investments and businesses in the “Illiquid Assets” group. Their stock portfolio as well as their bonds and cash are their “Liquid Asset” bucket. This helps them with financing deals as well as making sure they aren’t too leveraged with little liquidity before a market turndown.
Also, specifically regarding your real estate, we’ll analyze your property by location and type to see if it would be prudent to add different types of real estate investments to your holdings. If you are heavily invested in multiple-family dwellings, an option would be to invest in commercial office or industrial real estate, or if all of your real estate is in one geographic location, spreading it out through institutional real estate funds might provide instant diversification. We’ll also wori to make sure your traditional investments suit your goals and decrease your risk.
4. Retirement Plan Setup
Just because you don’t have a 401(k) from an employer doesn’t mean you can’t save for retirement. In fact, you may have even more options as a business owner yourself, like creating your own retirement plan (solo 401(k) or deferred compensation plans), designed to meet your personal needs. We’ll examine all your options and help you set up a strategy suited to you.
5. Tax Planning
The tax code is one of the more difficult documents to decipher, but we believe it is skewed massively in the favor of real estate investors. It’s our job to help our clients make sure they are taking advantage of this. With that said, tax planning is crucial for real estate investors. We look at tax ramifications of everything you do—purchasing properties, recapitalizing them, accelerating depreciation in favorable years, saving for retirement, and operating your business—to keep more money in your pocket or your properties.
6. Cash & Liquidity Management
You need liquidity, plain and simple, but that doesn’t mean you can’t be making money on your cash. We’ll help you set up accessible savings accounts with higher interest rates than the norm and determine the most low-cost strategy for maintaining your lines of credit. Often, we are able to set up a custom lending program through lines of credit secured by clients’ investment portfolios and very competitive rates. This is a great way to help clients without having to liquidate their investment portfolio and take an unnecessary tax hit, whether it’s their first real estate investment or their twentieth.
We Can Help You
At Taxable Wealth, we know what your life looks like, and we’ve structured our services and solutions to fit your financial and business needs. We’d love to help you do more with your money and secure your finances. Call our office at (858) 221-7521 or email me at [email protected].
Scott Melbrod is the founder and CEO of Taxable Wealth, an independent wealth management firm in San Diego, CA. Working with a wide array of clients and focusing on real estate professionals, investors, and business owners, his mission is to provide impactful and targeted financial advice at a transparent cost to people who want to reduce their tax burden and minimize investment and insurance-related fees that eat away at their savings. With more than 15 years of industry experience, Scott uses his knowledge to develop solutions and structured, tailored financial plans designed to guide his clients toward financial freedom.
The information provided in this article is for informational purposes only and should not be considered investment advice. There is a risk of loss from investments in securities, including the risk of loss of principal. The information contained herein reflects Taxable Wealth’s views as of the date of this presentation. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. Taxable Wealth does not provide legal advice. To the extent that any material herein concerns legal matters, such information is not intended to be solely relied upon nor used for the purpose of making legal decisions without first seeking independent advice from a legal professional. Any forward looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. Taxable Wealth is not responsible for the consequences of any decisions or actions taken as a result of information provided in this article and does not warrant or guarantee the accuracy or completeness of this information. No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means, or (ii) redistributed without the prior written consent of Taxable Wealth.