How you should leverage your financial advisor

Whether it’s refining your business model, mastering new technologies, or discovering strategies to capitalize on the next market surge, Inman Connect New York will prepare you to take bold steps forward. The Next Chapter is about to begin. Be part of it. Join us and thousands of real estate leaders Jan. 22-24, 2025.

Real estate professionals are no strangers to the value of the property, but when it comes to integrating real estate into a broader wealth portfolio, there’s a lot more to consider than curb appeal or neighborhood charm.

Chris Snowden

Chris Snowden, founder of Channel Wealth Management in Santa Barbara, California, is a contributor to our FiscalFitness family. Snowden recently shared his insights on real estate investments, and his perspective is invaluable for anyone looking to make property a strategic part of their financial plan.

Here’s what Snowden had to say about leveraging real estate as an investment vehicle, along with practical advice for collaborating with your financial advisor to make informed decisions.

Why real estate?

“There are plenty of reasons real estate makes an excellent investment,” Snowden explains.“Scarcity, tangibility, favorable tax treatment and your own deep market knowledge all play a role. But to ensure success, you need a clear-eyed evaluation — and this is where a financial advisor comes in.”

The key to success? Avoid selling yourself on a property’s charm. Instead, focus on cash flow and how the investment fits into your broader financial goals.

Evaluating rental income potential

Assessing rental income is one of the first steps in determining whether a property is worth pursuing.

1. Know the market: Compare current rental rates using comps to estimate realistic income.

2 . Anticipate growth: Evaluate inflation, market dynamics, and population trends to project potential rent increases.

3 . Cover the basics: Ensure rental income is sufficient to cover mortgage payments, taxes, insurance, and maintenance.

“Every property comes with costs — both predictable and unexpected,” Snowden emphasizes. Financial advisors help break these down:

• Fixed costs: These include property taxes, insurance, mortgage payments and HOA fees.
• Variable costs: Repairs, maintenance, vacancy costs and management fees can vary, and it’s crucial to budget for them.
• Capital expenditures: Big-ticket items like a new roof or HVAC system require long-term planning.

By calculating these expenses upfront, you can avoid surprises that might erode profitability. A financial advisor can provide a detailed analysis to confirm whether the property will generate consistent income.

Choosing the right financing options

The way you finance a property has a significant impact on its profitability. Snowden offers these tips:

• Compare mortgage rates: Lower rates enhance cash flow, so work with your advisor to find the best terms.
• Evaluate down payments: A larger down payment reduces the loan amount but may also impact cash-on-cash return.

Striking the right balance between debt and equity is essential.“Nobody wants to be leveraged to the hilt — unless we’re talking about weightlifting,” Snowden quips.

Navigating tax implications

Real estate offers significant tax advantages, but it’s vital to get the details right. Snowden recommends working closely with a CPA who is familiar with real estate.

• Depreciation: Rental properties can be depreciated over time, offering valuable deductions.
• Deductions: Expenses like mortgage interest, property taxes, and operating costs are typically deductible.
• Capital gains: When selling, you’ll face taxes on profits. Advisors can help minimize these through strategies like 1031 Exchanges.

“Tax planning is where the right advice can make a huge difference in your returns,” Snowden notes.

Assessing risks

Every investment carries risks, and real estate is no exception. Snowden outlines key areas to consider:

• Tenant risk: Vacancies, late rent payments, or property damage can impact cash flow.
• Market risk: Changes in local property values or demand may affect returns.
• Interest rate risk: Rising mortgage rates could increase future costs.
• Liquidity risk: Unlike stocks, real estate isn’t easy to sell quickly if cash is needed.

By modeling potential scenarios, financial advisors help you prepare for worst-case outcomes and ensure adequate cash reserves.

Aligning with your financial goals

Snowden’s final advice is simple but crucial: “Real estate should fit into your broader financial plan. If you’re nearing retirement, for example, a highly leveraged property may not align with your need for immediate income.

In those cases, equity-building investments aren’t the best fit. “The key is to work with an advisor who takes an objective, numbers-driven approach rather than one swayed by aesthetics or emotion,” he said.

Investing in real estate can be a powerful way to diversify your wealth portfolio, but success depends on thoughtful planning. From assessing rental income to navigating tax implications and risks, working with a financial advisor ensures your decisions align with your long-term goals.