Why Financial Advisors Won’t Talk To You About Real Estate


Why financial
advisors don’t talk about real estate investing. We’re going to get
the real scoop today. That’s today’s show. Let’s dive in. Hey freedom fighters, welcome to
the “Investing in Real Estate” show. I’m Clayton Morris, your
humble host of this podcast. This is the show
where we teach you how to build financial
freedom and legacy wealth so you can spend
more time with your family. That’s the ultimate goal is
to be able to sit down, just relax with your family,
and not worry about how you’re going to pay the bills. You’re going to pay your
bills with passive income that comes in from your tenants
who are paying every month for you to live the
life that you want. And you’ve got great
rental properties, and they have a
great place to live. So it’s a full circle. That’s what we try to
teach here on the show. So rental properties,
buy and hold real estate. That is the vehicle. That’s my favorite vehicle for
achieving financial freedom. That’s how we’ve done it. That’s how many of
our listeners have achieved financial freedom. So it begs the question,
why in the world, if so many
millionaires are made, so many people are able to
achieve financial freedom, so many people are able to bring
in passive income every month, create an amazing tax
shelter for their families, why aren’t more financial
advisors actually encouraging their clients to
buy real estate? Well, guess what, we’ve
got a financial advisor on the show today who’s going
to break this open for us. And this is the first time we’ve
ever done a show like this. And I’m really excited about it. My guest is Brent Sutherland. He’s a financial planner. He’s a real estate investor. And most recently,
I think he just bought a property through us. So welcome to the family,
Brent, and welcome to the show. Thanks very much,
Clayton, for having me. And I’m excited to talk about
these topics we have lined up today. So I appreciate you
having me on board. My pleasure. I mean, just at a high
level before we dive in, because we’re going to talk
about some great topics on financial planning and
why this is such a mystery. We’re going to talk about
the benefits of income diversification
in your portfolio and some other great topics. But pull the wool back a little
bit here for us, if you would, Brent. I’ve gotten into some
adversarial conversations over the years with
financial planners who say that they have
their clients’ best interests at heart, why
they’re being adversarial against real estate. But to me, there seemed to
be something else at work. Why are financial planners
maybe adverse to real estate and don’t talk about
it with their clients? Well, this is a good subject. And I’m glad I get to go
on broadcasts such as this to discuss it,
because I think it’s an important topic for
people to understand. And really, there’s two
main points and reasons why advisors don’t talk
about real estate investing. And it primarily focuses
around compensation. And there’s conflicts of
interest from a compensation standpoint that keeps advisors
from talking about real estate investing. And two, there’s a
lack of education in the traditional
financial advisory world. Now, we’ll dig into
both of those topics, because I want people to have
a hands-on understanding of why this occurs. So first we’ll dig into the
compensation factor there, is that if you look at the
financial advisory community as a whole, there’s really
two forms of compensation that really exists
predominantly in the industry. One’s a little
more old-fashioned, but it’s the
commission-based structure. And in essence, that means
that the financial advisor gets paid whenever they sell
product to their clients. Now, advisors are licensed
not to sell real estate. They’re licensed to
sell financial products. So this is going to be in the
form of mutual funds, ETFs, stocks, bonds, and
sometimes insurance products or annuities. So if a client
goes to an advisor and they have a
lump sum of money that they want to invest and
put to work in their own world, chances are if
the advisor is not going to get paid to recommend
to go in real estate, he’s not going to
recommend that avenue. So what they do is
they say, OK, here’s what I have laid out for you. There’s some mutual funds. Here’s a portfolio I can
put together for you. When I put you on
these products, I do get a sales
commission in return. So that puts food on
my plate for my family. And so if you think about it,
there’s no incentive for them at all to recommend that
cash goes into real estate investment vehicles. Now, the other form
of compensation that exists out there
is it’s basically a fee per the assets
that are managed. They call it the assets under
management fee-based model. And what this is, if
you go to an advisor, and let’s say you have
$100,000, and you say, I need to put this money to
work, what they’re going to do is they’re going
to take that money, put it into a blended,
diversified portfolio of really paper assets, liquid assets. And they’re going to charge
a commission or a fee based on that total
volume of assets. So in the case of $100,000,
roughly in the industry it’s about a 1% annual fee. So that would be
roughly about $1,000 each year that’s going to go
back to that advisor’s pocket. Now, if you think about that,
if you’re going to an advisor and you have $100,000,
the chances of them saying I think you should
take a portion of this and put it into real
estate on the side, and only give me
a minimal amount, it’s not going to happen,
just because it’s not beneficial for the
advisor to do so and their own best
interests financially. So I think those conflicts
there just from a compensation standpoint prevent– and granted, in the industry
that we have these two standards, suitability
standard, which is more geared towards brokers. But there is a
fiduciary standard, which I feel like it’s
sweeping over the industry and it’s becoming
more commonplace that says you need
to put your client’s interests above your own. But if you think about it, if
you’re not going to get paid, advisors just aren’t going to
recommend certain products that aren’t going to put money
back in their wallet. So you have to keep that in
mind and ask the right questions if you’re talking
to an advisor too. And that’s probably
the one thing that you can ask an
advisor, if they’re pushing back on real estate– and it’ll stumble
them– just ask them, well, how are you paid? Tell me about your compensation. And then once they start
digging into those details, I guarantee you’re going to see
the conflicting interests there that will probably prevent them
from recommending real estate, because they’re not
getting paid to do so. Well, Brent, I mean,
this is amazing to me. I really, honestly,
hand to the heavens didn’t realize the
full extent of this. I had some idea that it was
based around compensation, but not fully. So you’re kind of like
a black sheep in this. I mean, you are a
financial advisor who’s a real estate investor. How do you square
that round hole? Well, it kind of happened. You know, I’ve been lucky enough
that throughout my career, it’s been about 12 years of
working in financial services, that I’ve encountered a
lot of successful people and been able to work with
a lot of successful people. And I’ve noticed
there’s a commonality between the certain
individuals that came in that I worked with that
weren’t stressed out over what their portfolio was doing. And it always intrigued me. I was like, why did these
people seem so calm? Because most people
would come in and their livelihood
depended on what their investments were doing
that we were managing for them. But certain people just
had a calm demeanor, almost like they didn’t care what was
happening in their portfolio. They were just there
out of courtesy to have their annual meeting. But what I noticed between all
these different individuals that seemed to have
that calm demeanor is they had something
else going for them. And majority of the time,
they had a large portfolio of real estate
assets on the outside that were providing
cash flows to them. So they weren’t concerned
about what was happening with their investments. That’s when I jumped on board
with the real estate investment train, and I started
looking into it for myself. And so it was an evolution
that happened with me. And once I started
investing myself, then I felt bad sitting across
the table at my prior firm with people that I
couldn’t recommend to invest in real estate. So I had this
conflict of interest that was going on internally. And that’s what forced me
to step out independently and start my own practice. And so now what I do is
I sit with individuals, and we talk about–
and quite frankly, a lot of people, real estate
investing is a new topic. So we have to dig into the
details of what it means, how you can go about doing it. But once they get comfortable,
I feel like more and more people come on board that train. But some people like to keep
an even mix, a blend of paper assets and hard assets, but I
try to incorporate both just to keep a nice, blended
approach into the mix. And if someone’s all
in on real estate, let’s go all in there too. But I always try to
at least bring up that topic with
people, and I try to take at a well-balanced,
blended approach to my financial planning
with individuals. That’s great. So now you have nine properties. I believe you picked up
your ninth property with us at Morris Invest just
recently, which is great. So how did you get
involved in real estate? Take me back to the
first deal and when you realized sitting across
the table with people that there was like a calm
demeanor, and you’re like, I need some of that. I need some of that
peace and quiet. And quite frankly,
that’s what it was. I said, what these people
seem like they have something going on that I want. So I need to figure this out. So yeah, it was more
educating myself about what real estate investing
was, how to properly do it. That took a couple years. So I didn’t bite the bullet
into jumping into real estate until I really understood
what I was doing, which I think is important for
anyone who’s jumping on board real estate
training, is that you need to make sure you are
educated in the subject matter. But what’s funny
is once I started learning about passive income
and the power of real estate, what it can do from a
cash flow standpoint, what I was doing at that
point in time in my life was I owned a condo. And every bonus I got, every
excess savings amount I had, I was throwing at the
loan because I wanted to pay it down as quickly as possible. To me– and this was
a fallacy of mine– I assumed that if
I paid this off, that would be financial freedom. That debt is out of the way. And now I’ll be able to
live a little more freely than I did before. But when I started really
evaluating about OK, I have this equity tied
up into this place, what if I sold the property? Or what if I did a refinance and
it took some of this cash out and put that to work
in other vehicles? Boy, that was an
epiphany for me. I was like, I have all
this money tied up, power of cash flow, that’s just
sitting in this idle vehicle. And once I did, my wife and I,
we ended up selling the condo. And we poured all this cash out
and made our first investment property purchase. That it really doesn’t hit you
until you get that first check. And once you get
that first payments, it just seems real
all of a sudden. I think a lot of people
are fearful about taking that step in this direction. I know you hear it a lot. You just have to
take that first step. You have to take
that first step. But I can tell you nothing
is more true than that. Once you take the first
step and you see it working, then you become addicted. And that exact same
thing happened to me. I freed up that
equity, put it to work, and there’s no looking
back, at least for me from this standpoint. Oh, those are my
favorite emails, Brent. I have a whole folder of
first rent check emails that I’ve got in
our email inbox. And it’s amazing, because
when people come in to– we will rehab their property,
and then they get their first rent check, the emails that
come in that are like, I can’t– now my wife believes it’s real. Or now my husband
believes it’s real, and we’ve got our
first rent check. And now we’re ready to do more. And once you start to see
that, look, every month now that same check is going
to start to come in. And yeah, you’re going to have
an eviction at some point, or you may have a
vacancy at some point. But for the most
part, that cash flow is now going to start
to come in every month. And you’ve also, by the way,
built up your net worth. You also built a
tax shelter, right? You’re now able to
claim depreciation. And you’re in a
whole other category. Do your clients get that? What sort of a system do you
take your clients through so that they can understand
the benefits of real estate investing? Well, like I said,
most times it’s almost an introductory course
to real estate investing. But you have to really sell
on the benefits of what it can provide for them. And so from a passive cash
flow income standpoint, I always try to
paint the picture, especially for
younger people, which I’m majority working
with, is that you have to think about the future. And if you’re working
for a company, chances are you don’t
have a pension plan. It doesn’t exist at
this point in time. And down the road,
who knows what’s going to happen with
Social Security. It’s probably going to be
diminished in some way, shape, or form. I don’t think it’s going away. But you have to start
developing your own pension plan today for yourself. And once you frame it that way
with a lot of younger people, and then you start talking about
some good ways to develop cash flows today presently,
and real estate being one of the best ways to do
so, then it starts registering. You can see that light bulb
going off in people’s heads. But even for older investors
too, I try to frame it up, just look at the
potential returns you have from real estate
versus the stock market. Now, another
fallacy that goes on in the financial advisory world
is that a lot of times advisors will frame up the conversation
against real estate investing by saying historically
real estate has only appreciated by about 4% a
year on an annualized basis. Why would you invest
in real estate at 4% if the stock market
historically has generated 10%? It sounds like a
great argument, right? Right, because people
don’t understand that we don’t invest for appreciation. Right, so yeah, that’s a great
way to frame the argument. Then you get a lot of people
shaking their head, yeah, he told me only 4%. Yeah, that makes a lot of sense. But that’s not why
we’re investing. We’re investing for
ROI, which is cash flow. Yeah, it’s just a trick. It’s a trick you use to
get people to come jump on board with whatever
system that you have in place to benefit you. But it happens. The thing is I just like
to try to correct that by putting into play, OK, if
you’re investing for cash flow, you can target and probably make
very easily a 10% cash on cash return. And that’s just from the start. That’s your foundation. If you do get some appreciation,
that’s an added bonus. If you’re using
leverage and someone’s paying down your
principal balance, that’s another added bonus. And plus all the tax
benefits on top of this. You’re looking at
real returns that are upwards in the mid 20%
to 30% range sometimes. And compare that to the 10%
we were just talking about. And who looks like
the winner now? So you sometimes you just
have to break things down in order for people
to really understand, which a lot of my
conversations do involve, is a lot of just
explaining, introducing, and getting people’s
minds thinking in a different direction. Yeah, the tax shelter alone, the
tax benefits, the depreciation, and then cost segregating
your properties. That’s going to blow their mind. That’s like a high-level
ninja way of talking about it. But when you compare
that to the stock market, it’s like a whole
other stratosphere. But I love that idea
that you just mentioned. I’m writing notes
down, your own pension plan, the creating
your own pension plan. Right, because so many
of my parents’ generation lived on the idea of
the pension, right? It is that holy grail. He’s got a pension. My grandfather had a pension
that he’s living off of. Well, pensions are
pretty much gone, right? So it’s incumbent upon us now
to create our own pensions, or cities can’t even pay
their pensions anymore, right? They’re going
bankrupt and so forth. So it’s like it is so important
and incumbent upon us to create our own pension plans. I love that way of
thinking about it. Yeah, I think so. And it’s just, again,
this is just something to protect yourself. And in addition too, for
younger people, a conversation they like to hear
is that look, we can establish some
income streams below you, create this foundation
of cash flow that’s coming in that will allow
you to step away from your job if you’re not presently
happy, to go out and pursue something
that’s going to generate a lot more I think
just motivation in your day to day. So younger people,
especially today, especially with the millennial generation,
they want to hear that. They want to know that they can
go out and make a difference. And if they’re not
happy somewhere, they want to find
a vehicle that’s going to allow them
to get to the point where they can go out, be
creative, and do something more independently. And what better way to
do that than passive cash flow, and real estate being
one of the best vehicles to get you there? Yeah, I want to go
back just a little bit, because I don’t want
to gloss over why– the whole point of
this episode really is around why financial
advisors are not keen on real estate investing. And two of the
things you mentioned, of course, the compensation,
but the fee-based model. Now, they’re not able
to charge a fee based on the selling of the property. So I’ve gotten into
arguments, not arguments. I’ve had financial
advisors call me from California and
other places who wanted to work with us at
our company Morris Invest. And they said, look, I
want to offer my clients something else, because their
rate of return in the stock market is just not good. I want to be able to bring in. I want to be the
guinea pig first. So I want to buy a
couple of properties and then be able
to speak about it and then start to bring
in other clients who then can purchase real estate. So at least there is
a movement, I think, along financial advisors
seeing the benefit of that. But they’re also
still being hamstrung by this fee-based
model where they’re not able to sell the
properties unless I guess they’re buying them. I don’t know how that works. But that really is
going to pigeonhole them from really recommending real
estate, wouldn’t you say? Absolutely. And the only way you
can get around that– and this is a small minority
of advisors out there today that are actually working
this type of model– is if you offer a fee per
service or an hourly fee model. So you only charge
while you’re working with a client on something. And if you’re not managing
the money on an ongoing basis, and there’s no incentive
for you to make sure you get as much
on board with you, as much money on
board with you as possible to put into paper
assets and portfolio assets, then you’re always going to
have that conflict of interest. And the way I’m
structured and the way a lot of other
younger advisors that have started their own
firms are structuring is that they’re basically just
charging a fee per service. Hey, we can put together
a financial plan for you. It’s going to be this fee. And then you’re on your own. If you need help down
the road, come back and we can work
through something else. So therefore it
cuts that conflict that you have with
trying to sell product, trying to manage
as much as possible to get you paid in return. And it’s just more transparent. I think it’s more fair. It’s unbiased, quite frankly. And that’s what we need
a little bit more of. I would love that. I got into a fight
actually with one woman who was going to invest. Said I would love
to schedule a call, and I’d love to have my
financial advisor on the call. I said, OK, I’ve never
done that before. But I’m happy to do it. It was one of the most
adversarial conversations I’ve ever had on the phone. And this person was ready
with like an arsenal, like, well, what do you
pay a property manager? And I said, well,
it’s 10% a month. And he was in California. He said, 10%? I don’t pay anybody
more than 4%. I said, what are you–
what, what, what? He said, that’s really high. I said, that’s actually not. That’s fairly– 10%
is like a common pro– you know real estate. You’re paying 10% a month for
property management pretty much across the country. I mean, it was the most
adversarial conversation I had. You could tell. And I guess I just didn’t
understand his motivation. It was like, I guess you don’t
really have your client’s best interests at heart here. 10% to 12% return net versus
what you’ve been offering? No wonder you’re in
such a pissy mood. Well, I can believe that. At my last firm, and I’m
not going to call out names, but I got reprimanded for
advising a client to pay off some bad debt they had. It was high-interest debt. And so we liquidated a
portion of the portfolio. It was in the right
interest of the client. But then, of course, I got
a call from my higher ups, saying why did we do this? That’s less revenues
coming into the company. Wow. But once you have those
targets and those sales targets and those goals
that are always– the trajectory
always goes upwards. They’re never wanting
to see that it go down. Then there’s always
this pressure to sell, to bring
in more assets, even if it’s not in the best
interests of the client. So I guarantee that
advisor you talked to, he already came in
with a game plan, talking points,
really a battle plan, to go at you with
certain different talking points he probably picked up
from someone else in the office or online just through
a Google search. You always hear
the, what are you going to do whenever the– you
don’t want to deal with someone calling you about a
toilet broken at 2 o’clock in the morning. They’ll bring up some legal
issues and some liability issues and whatnot too
with owning real estate, but really that’s just to
try to frighten you to keep your money in their pocket. So that’s important takeaway
just for your listeners, just to know that they’re going
to come with a battle plan. Just as long as you’re
informed and you’re aware of what they’re
already going to discuss, I think you can come
prepared for those types of conversations yourself. No, that’s great. That’s great advice. I mean, this is really great
advice for our listeners. One of the things we wanted to
talk about before we wrap it up is the importance of
this income diversification over the portfolio
diversification. Can you explain that? Yeah, well, I do think if you
have an investment portfolio, diversification is important. You need to have a mix of
stocks and bonds and some cash if you’re feeling
insecure about the market. But even in that
blended mix, you need to have
international assets and local US domestic assets. But I like to take
a step back and look at what are the real risks with
someone’s financial picture. And if you lose
your job or you get injured or a spouse
that’s working has to step away from
work for a while, quite frankly, if there’s a stress
on income in your household, it doesn’t matter how your
portfolio is diversified. What matters at
that point in time is if you have cash,
available cash and income to pay the bills, to
put food on the table, to get you through
that hump until you can reach that next point where
you guys are in good shape again. So just looking at it from that
standpoint, the real risk I see with most people is if
the primary breadwinner loses their job, what are
you going to do? If you can’t pay the mortgage
bill, you can’t pay the rent, and you get kicked
out, that’s going to cause a major stress
for you and the family. And again, like I
said, it doesn’t matter– even if your
portfolio is doing really well, that doesn’t save you
at that point in time. At that point in
time, the real risks are you providing
for your family. So that gets overlooked quite
often, more times than not. And having these other passive
income sources coming in, if you do lose your primary job
or primary source of income, if you have a couple of
properties that are generating some cash flow for you
in the interim, that’s going to get you
through that rainy day until you hit another day
where you can relax and sit back and get back
to that lifestyle that you had grown
accustomed to. So again, that’s
the main reason why I think that’s more important
than portfolio diversification. It’s just that the immediate
risk factors of losing a job are always predominant to
portfolio diversification. Hm, I love that idea, right? Because if you can make it
through those rainy days when it gets dark out
there and the clouds start brewing on the
horizon, if you’ve got passive income coming
in from real estate, then you’re able to get through. You’re able to push through. Yeah, absolutely. One of the other
things you talk about– and you talk about
preparation and being aware of the horizon– is preparing proper
planning techniques for getting access
to some of the money that you may have tied up
in some of those retirement accounts. Obviously we talk about it quite
extensively here on the show, tapping into a 401(k) or a Roth
IRA or those types of things. What sort of planning techniques
would you advise your clients to prepare for if they want to
tap into that for real estate investing? Well, you can get creative. And I always like to
minimize as much as possible how much money you give back to
Uncle Sam in the form of taxes and penalties, if you can. So you have to at
first understand the different types
of account structures that are out there and the
risks and the penalties involved with liquidating. So in a general sense, you have
really two types of retirement vehicles that exist. And there’s the traditional
retirement plans, the IRAs. And then you have a Roth version
of some 401(k)s and 403(b) and then the Roth IRA. The traditional IRA is going to
be less flexible in accessing that money. The Roth provides a
little more flexibility. So just to provide
some examples, say you had $100,000 IRA. You’re a young professional. You want to access this
money because you caught this real estate investing bug. Just know that if you’re
in a decent tax bracket, let’s just say you’re
in the 25% federal tax bracket, if you
decide you’re going to liquidate these funds– let’s say that you’re in
the 25% federal bracket, maybe you have a 5%
state income tax– you’re going to
also get hit if you liquidate before age 59 and
1/2 with a 10% federal penalty. So all of a sudden,
that $100,000 count is quickly diminished
to $60,000. Now, if you have a
Roth, and let’s just use the same example,
maybe have a Roth IRA that has $100,000 in it– and say over the past 10 years
you’ve contributed $50,000. The remainder $50,000
is the growth. The IRS says you
can always obtain access to those contributions
penalty free and tax free. So that $50,000 that you
contributed over the past 10 years you can pull out and
use towards down payments, purchases, whatever you want
of real estate property. Now, that’s just
setting up the framework for how these operate. If you do want to access
some of these monies, especially in the
traditional IRA, which has less flexibility to
it, if you’re presented with an opportunity where
maybe you lose your job or you’re stepping away
for a career change, and you find yourself in a
little bit lower of a tax bracket, look at
the silver lining in those types of situations. Maybe it makes sense to
liquidate a portion of it if you want use that towards
a down payment or a property that you really, really
want, an investment property. Or you could use that
to go through a Roth conversion, where you can take
a portion or all of that IRA and convert that to
a Roth IRA, which is going to give you more
flexibility to access that money down the road. Now, you have to know that
if you do even the Roth conversion, those monies get
taxed as ordinary income. So it’s going to bump
you up a little bit. But I always try to
encourage people, if you’ve hit a little
bump in the road and maybe the job this year is
not paying as much, you have a bad sales year
or you’re in transition, look at this as an opportunity
to access some of that money and put that to work
in other places. So you have to
keep that in mind. I always hate when someone
wants to cash out entirely when they’re having
a fantastic year and they’re in the highest
tax bracket possible, because you see almost
half of that money go straight back to Uncle Sam. But there’s some other
ways to think about it, and you can access that money. So just always
keep those in mind. And sometimes, quite
frankly, if you look at the cost benefit of
just cashing out and paying the penalties and the taxes,
and you find a great property, sometimes it just makes
sense whether or not you’re in a high tax bracket
or a low tax bracket. But just be aware. Do proper planning. Weigh that out, cost benefit
pros and cons versus cashing out versus maybe saving
for another day when it might make more sense. But just be aware of those
taxes, those penalties that can come into play if you
do access those monies. Yeah, we went
through that process recently cashing out,
leaving a job with a 401(k) and how were we going
to leverage that, and being that we had to buy a
certain amount of real estate in order to offset that
tax penalty because we wanted to transition it
from a traditional 401(k) over to a Roth. So we wanted to do it as we were
increasing our tax brackets. And we knew how much
real estate we had to buy in order to offset it. But those are the things
that we planned ahead of time so we could get
those numbers in place. So yeah, that’s really smart. Well, Brent, I don’t want
to keep you too much longer. But I’d love to know where– you have nine properties now. What is your goal? What is your freedom
number look like? You’re a financial advisor. You’ve got to have that
number probably right up on your refrigerator,
I would think. Well, quite frankly,
I’m pretty close, because those nine properties
are generating about $3,000 of passive cash flow for me now. I have some other
vehicles that are generating, some other
passive income sources. So I’m about $4,000 a
month in passive cash flow. I would be fine at this number. My wife is still
working, and she doesn’t want to step away
at any point in time. So really, I just love
talking to people. I love going through
this process with people and probably the same for you. You’re at the point, right,
where you’re set now too. But I’m sure you just
like helping people out. Right. I really want to target maybe
another half a dozen properties to get to the point
where I’m at 15. And I think that’ll
provide enough for me to just feel stable. I’m still going to do
this, but it’s just nice having a little bit more
of a cushion beneath me than I have now. So 15 is my target as
far as properties go. And I have a few other things
on the side that are generating some cash flow as well. So I’m getting close,
which feels good. That’s great. Well, Brent, thank you
so much for joining us. We really appreciate you
pulling the wool back on this whole process
with financial advisors. I’m sure our listeners
probably find it as eye-opening as I did,
or ear-opening as I did. So thank you so
much for your time. Oh, you’re very welcome. Any time you want to have
me on, I’m happy to be here. Oh, I love that. And any final words of
wisdom for new real estate investors who are just
getting started out there? Well, I think you’ve probably
heard this time and time again, but just take the plunge. Once you get in– I mean, do your
homework up front. Make sure you’re educated so
you’re buying smart properties. But just get involved. And once you get involved,
you’re going to be hooked. I guarantee it. That’s wonderful. Yes, take action. Well, thank you so much, Brent. Thank you so much, everyone,
for downloading and subscribing. We’ll be back here
with another episode. Now go out there, take action. And I love what Brent said. Create your own pension plan. That’s really the key
to financial success and being able to create
that passive income for the rest of your life. So go out there and take action. We’ll see you next
time, everyone, here on the “Investing
in Real Estate” show. Thanks, everybody.

32 thoughts on “Why Financial Advisors Won’t Talk To You About Real Estate

  • We have investment properties, and it was a good source of cash flow, but… two of our properties had roof failure, HVAC issues, and a number of other costly repairs, and one tenant moved out… eating up all the profits that were made, causing debt for the cost of repairs. My husband now thinks it was a big mistake getting into investment properties. Help, any advise?

  • Wow. They look after there interest first, THEN, the clients. Appreciate your honesty. If I ever need a financial advisor, that's the guy I'm going with. Kudos.

  • Self-directed investment vehicles will never be recommended by financial advisors. For that reason, financial advisors are worthless to investors. Pre-packaged, professionally managed and/or government sanctioned savings programs are for lazy people who want to work their whole life and never achieve financial success or freedom. Managing your own capital, evaluating investments, reducing your costs and controlling your ROI yourself, are critical to success. Handing those tasks off to sales people with no experience with investing is monetary suicide. Whether you choose businesses, real estate, paper assets or a combination of those, you are far better off doing the work to educate yourself, gain experience and build a system. Generating upward of a 5% per month ROI, regardless of market conditions, is easy once you've learned the basic rules of being a self-directed investor. Then it's just a matter of compound, rinse and repeat every month.

  • Wow. Clayton you are a very honest man!! But the problem is, what if everyone in going to be a real estate investor, who is going to rent then?? Can everyone in the country achieve financial freedom?

  • Great video! Question: Where are you getting your financial education/training?  The Answer 99% of the time… people are getting it from the financial institutions thats causing the problem in the first place. This is why most people are in trouble and their financial situation will never improve. "It ain't what you dont know that gets you in trouble.  It's what you know for sure that just ain't so." Mark Twain

  • Great interview!

    I'm new to REI, and I'm ready to take the plunge!

    Btw, and perhaps you've already done a video on this, would you be so kind as to do a video on the REI strategy of Wholesaling, how to get into it, defining what it is, how to write up a proper contract for the Seller and the Buyer, how to negotiate a fair sales price with the (Motivated) Seller, what to charge your (Cash Buyer, I've heard 10-50% of the "spread"), etc.

    Wholesaling is an investment strategy that I'd like to engage first as I start off my REI career, eventually branching out into Rental Properties, etc.

    Thx!

  • Amazing content. Stinks that we have been living in this Wall Street Matrix world regarding 401ks and financial services, and the lies that we have been promised by them. Love it Brother Clayton. Preach on!

  • Good interview. Particularly the last question about using our IRA. This is something I have been considering recently, especially since I suspect there will be a sizable correction in the market anyway. Converting to a Roth IRA was something I didn't know about. Thanks again Clayton.

    -Ken
    http://www.LaserGuidedLoogie.com

  • You know, the more you work in this profession, the more you see. I agree with Brent. Most people mistake corporate "Advisors" for independent fiduciaries. But as an independent guy (only 1.6% of investment advisors are independent) and after doing this for over twenty years, I have to say I LOVE real estate investors.

    Every dime you put into real estate is a dime that I won't be managing the risk on or charging you to manage. WIN-WIN!

    If YOU as a client are called to do real estate, there are many ways I can help you and you'll be better off for having gotten the help.

    Here's the REAL reson that fiduciaries don't "encourage" clients to go into real estate….
    If you follow some internet guru who tells you to buy unit after unit and leverage yoruself 10-30X going into a simultaneous recession and secular rate hike cycle… too bad for you. The guru certainly isn't on the hook for your failure and he did get paid in advance.
    If a FIDUCIARY advised you that based on your goals and the welfare of your family, that you should leverage yourself that much…. he's on the hook also, in the sense that you could conceivably sue him for your failure.

    That's how much skin real advisors have in the game.

    See, financial advisors have a much depeer obligation if they act as fiduciaries. They can't just tell you all about the blue skies and forget the risk. That's why they won't encourage someone they meet for the first few times to try this.

    But if YOU, as a client already have the cojones (which no advisor or guru can supply) YOU are the one who's blazing a trail and YOU are the one who's Fixing, Flipping, Renting and Relaxing, then a wealth advisor can be an incredible ally.

    Jus' sayin.

  • Brent and investors out there, have you read anything from Roccy Defrancesco, JD? Specifically, "BAD Advisors: How to Identify Them; How to Avoid Them". www.BadAdvisors.com. I am currently reading "Peace of Mind Planning, Losing Money is no Longer an Option". Read all his books. He hits the nail on the head. He educates advisors, cpa's, and attorneys. We all have so much to learn about this business. Thank you for your honesty and time.

  • Yes. We had a liquidity event in late 1999. The money managers descended from around the country like vultures, winin' & dinin' us.

    We thought we'd picked the most sincere one, but in our ignorance we followed his advice to not buy gold, not pay cash for our personal residence, and he never even mentioned buy & hold real estate or flipping or anything like that. He lost gobs of money for us (for a fee!) throughout the lost decade of the 2000s. Thankfully we put our remaining cash into our primary residence, which we now realize could be working much harder for us in buy & hold. I will cry myself to sleep for the foreseeable future now that I've run the numbers on how much money we would have earned and preserved had we known about buy & hold back in 2000. Where were you in 2000 Clayton!! LOL. DON'T GIVE YOUR MONEY TO SMITH BARNEY GOLDMAN SACHS MORGAN STANLEY MERRILL LYNCH etc … <crying emoticon>

  • Wow now it makes a lot of sense as to why the guy from bleep didn't want me to do real estate. Thanks Clayton for this interview. Thank you Brent for being transparent as well

  • So, okay let me get this straight. I was trying to calculate how I’d achieve $500,000/year in real estate income, which would mean I’d need around $41.6k/month to get there. Which would mean I’d need about 83 units generating $500 in positive cash flow per month. I’m not sure if that’s correct (I think it is), but when it’s broken down, it feels SO achievable. (I say that now, as I don’t own a single property yet, but it makes these goals/dreams not seem so daunting when you really look at it).

  • So nice to hear the truth about this subject. This is what I really needed hear. Thank you… Thank you… Thank you.

  • Well, it is certainly against their interest but there are more pressing reasons than that in my opinion. For one, a financial advisors realm of expertise is in the financial instruments he is familiar with and works with on a day to day basis. There is a chance that the financial advisor has little experience in the realm of real estate and his or her advice, if it turns out to be wrong, can constitute malpractice. You don't even want him or her giving you advise on real estate in the first place.

  • I'm anxious and hopeful that you will do a video explaining how you actually pay your personal monthly expenses with cash flow when it seems that you are not actually using that rental income but putting it back into the business (mortgage, expenses, etc.). Am I wrong in thinking that you are using that additional return to pay down the mortgage (heloc, etc)?

  • I’ll add that some FAs charge flat fees for planning and investment mgmt so although what Brent mentions as the more common forms of compensation, there are financial advisors that don’t have these conflicts of interest regarding compensation.😉

  • The reality is that 99.999% of people should not be recommended to buy real estate and potentially become a property manager in a retirement plan. Most "high level professionals" that advisors target have no idea what a skrewdriver is and would be eaten alive by contractors taking advantage of them in the bidding process. If they go with a property manager, they charge higher fees for a single family and are becoming difficult to get. You would need to buy a property with a very large gross return built into it which is difficult to do near all time high housing prices. Those lower prices homes have risen much faster than it should, suggesting dumb money is being piled into the market. (much much harder to find great deals than it was even than last year) Maybe I'm just a finance nerd with a few properties, but today's overall newbie real estate investors education has dropped substantially and I'm genuinely concerned about it. Investors are piling in wholesaling and owners are increasingly trying to sell their properties on a 15% interest only contract with a final balloon payment of an already over priced property.

  • This is why there is the movement toward making the fiduciary agreement a requirement for all planners/advisors. Personally, I just became a financial planner and I am working on my CFP certification, but only doing fee-based planning so that I can have that fiduciary agreement signed and only make moves in the best interest of the client. This way I do not make any commissions on products or investments I recommend. All advisors should be working this way to remove that incentive for advisors to only recommend certain investments/products.

    Good planners and advisor should be real estate investors and be involved in the real estate investment community so that when opportunities present themselves the advisor can introduce the clients to the investors so that they too can become real estate investors and give guidance on how to invest. Not all clients are going to want to be property managers, but they don't have to be. A client or a group of clients can come together to become private lenders.

    This takes the right kind of advisor/planner, the kind that I am trying to become. Currently, I own 1 rental property but am still new to the real estate investment community. I don't know how to charge for being that middle man between current clients and real estate investors since it is an investment avenue. I am toying with the idea of charging a separate fee for "real estate investment services" because there is quite a bit a knowledge to gain and teach before a client makes a decision on what way to put their money to work. for example: charging a flat $300 for a separate meeting that is limited to 4 hours, and in those 4 hours we talk about each type of way they can invest their money into real estate with the pros and cons of each path. then after deciding on a path, we move forward to invest or find an experienced investment partner. The goal would be to educate them, and move forward with an investment, we would take as much time as needed to find that right investment or partner, no more upcharges past that $300 fee, regardless of how long it takes to find that investment.

  • Former financial advisor: We have strict guidelines about what we can recommend and talk about. Real estate was an alternative, but through REITS. We could have been fined and held liable for recommending someone buy a rental.

  • This is why it’s important to go to an advisor you TRUST COMPLETELY, or is a FEE BASED advisor who does not receive commissions.

    Most people think $1,500/year for advice?! No way! Well, they have no incentive to push certain investments. They will do right by you, and the value of that is worth much more than the fee they charge. I’m a former advisor, I left because of the conflict of interest.

  • well done agree with all your points ,have streams of income is a great plan .Blend of Index funds based on age /risk tolerance ,with passive income with growth in real estate is a winner in a good market I stay in "A" type SFH .

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