Should I speak with a Financial Adviser or similar professional?

Question

My wife and I are considering purchasing a residential rental investment property in Baltimore, MD. My wife would like to consult an expert before we move forward. The basic question that we are interested in answering is, how much can we safely invest? We're not sure who would be the best person to answer this question. Most advisers are likely to encourage us to invest in a way that financially benefits them. A loan officer would likely provide a different answer than a financial adviser who generates fees from mutual funds. Is there another professional that would better be able to help us with our current situation? Have you found any professionals helpful with your real estate investments? Are there any software solutions that we should use?

Ned Carey · Answer

@Daniel Kauffman I go alon with @Caleb Heimsoth. Most "financial advisors" don't really know much about real estate. That is especially true about creative real estate. They may know how to allocate some of your funds to a real estate investment trust (REIT) or some stock that is real estate related but they don't get much training in vast variety of real estate investments. I am not knocking financial planers, it is just not their area of expertise. They tend to be very well trained in paper assets and other assets available through financial markets. Imagine asking them how much you should allocate to rare stamps or collectable art. Those are very specialized fields which they just don't know well.

Caleb Heimsoth · Answer

If you speak to a financial advisor, certainly make sure their a fiduciary and deal with real estate. I thought about trying to find someone like this before but most financial advisors don’t deal with real estate. Since that’s the case you may look to find a CPA, who deals with real estate investors. That’s what I did and it’s worked out we so far. For general personal finance or stocks/bonds I just talk to my family members who work in finance. They aren’t useful for real estate though.

Omar Khan · Answer

@Daniel Kauffman As a CFA charterholder, I can speak on behalf of asset allocation. The boilerplate answer is that it depends on your investable capital, ability/willingness to take risks, unique circumstances, investment horizon, legal concerns and liquidity (among a few factors).In your particular case (assuming you're under 35), it boils down to ability/willingness to take risks and investment objectives (closely tied with education and investment expectations). This is a real estate forum, so most advice will be real estate focused. Hence, take everyone's advice, including mine, with a grain of salt as everyone's situation is different. This should get your started: Vanguard's Asset Allocation Questionnaire . Although this is tilted towards financial products (equity/fixed income mutual fuds/ETFs), it will give you a basic idea about your personality type and investing style. Using that information, you can then take a step further and decide to allocate your resources among financial and real estate assets. You are on the right path by educating yourself. Don't rush yourself to invest in anything. But do invest once you have a reasonable level of education. Don't let the fear of making a mistake, stop you from investing. Everyone makes mistakes and learns along the way. BP is a great, supportive community with a lot of valuable real estate advice. We are always here to help each other in our journey to success. Best of luck!

Abigail Hollar · Answer

@Daniel Kauffman,As a planner, you're probably going to have a hard time finding someone with the skill set you're looking for. I suggest making a shopping list for your search before you start making calls, then get some numbers from the NAPFA website and the CFP Board's planner search site. Also, you're going to pay a lot for this advice, if you can find someone capable and willing to give it. I would be surprised if anyone would work on your one-off project for less than $1,500, but you never know until you call.(BTW--There is no "safe" investment, you're just choosing what risks you will assume and how exposed to them you'll be, in the hope of making a return for accepting those risks. Maybe a better question to ask your planner is "How much is it prudent to invest in real estate, given our risk tolerance, risk capacity, and goals?")Good luck!

David Fernandez · Answer

Hi @Daniel Kauffman,I recommend you to first learn about what type of real estate investment and asset class you would like to do (buy and hold, flip, SFH, Multifamily, commercial, etc.). Once you know what you want/like, network with people that already do what you want to do. You can easily find them in local REIA meetings or here at BP. These people are the people you should be asking questions, not only about how much you should be investing, but also learning a lot from then about how they do what they do (it will save you A LOT of money). I won’t ask for advice to someone that is trying to sell me something and, definitively, I won’t ask for advice to someone that does not invest in real estate (and probably go further, I won’t ask for advice to someone that does not invest in the similar type of investment that I’d like to do). If they’ve never done it, you won’t get a complete answer.

Nicole B. · Answer

Keep in mind that bigger payoffs will always come from riskier investments. I think success in real estate starts with seeking the knowledge through books, networking, BP, etc. Then, building your network/team.I also think speaking with a financial adviser and explaining you want to invest in a few different ways (mutual funds, RE, etc) is a great way to start!

Paul Allen · Answer

If there was one right answer to this question there'd be an app for it. There are a ton of variables, most of them specific to you and your wife. What are your goals, and what is your comfort level with investing in various asset classes? How much can you invest before you start losing sleep?If you just want to work through that question, find someone with an hourly rate. Don't pay for comprehensive planning services if you aren't using them. And like @Bill Hampton said, make sure they are a fee-only fiduciary.Best of Luck with Your Real Estate Investing!

Ola Dantis · Answer

@Daniel Kauffman Hey Daniel, welcome to BP, and this is an interesting question :)It really depends on your investment strategy and how diversified you want to be from an investment standpoint. Some investors only invest in Stocks, while other investors love to invest in things they can physically touch such as Real Estate assets. In addition, safely is relative, meaning that a billionaire can safely invest $20M in a large apartment deal. In contrast, a not so wealthy investor may be willing to invest $20k to acquire a buy and hod rental. I'd suggest you start immersing yourself in the RE investing world in order to see what type of strategies you like to invest in and what you enjoy doing in RE investing. After doing this, you guys should be in a better place in terms of deciding that initial capital investment value based on what you can afford. Hope this helps. Goodluck. Thanks! - Ola

Bill Hampton · Answer

@Daniel Kauffman, look for a fee only financial planner that is a fiduciary and doesn't work on commissions. A financial advisor that is a fiduciary has to work in your best interests. A fee only financial planner charges a fee for creating a financial plan and doesn't charge commissions. Also look for a financial planner that understands real estate investing. In the meantime I would be happy to discuss your situation. Good luck and let me know if I can be of assistance. Regards, Bill Hampton

Daniel Kauffman · Answer