Why Business Owners And Real Estate Investors Can Use A Financial Advisor

Founder & CEO of Artisan Financial Strategies LLC. She is fascinated by the interplay between gender, money and power.

Business owners and real estate investors often think they don’t need a financial advisor. Here’s why they shouldn’t try to go it alone.

It’s common for real estate investors and owners of privately held businesses to reject the idea of retaining a financial advisor. What could the engagement possibly offer these money-savvy professionals that they don’t already know? It’s just an unnecessary investment of time and money without any real payoff, or so the rationale tends to go, supported by thoughts like:

“I have great rental income from my properties.”

“My business gives me a 25% annual return. Why invest in marketable securities?”

“I’ll just give my family my properties. It’s a large portfolio and they will be grateful.

That kind of thinking is rational, but it’s dead wrong. Far too often this approach leads to unforeseen problems for owners/investors as well as their families.

More Engaged, More Informed, But …

Admittedly, there’s more than a psychological difference between financial assets that you can feel, smell and touch versus a portfolio of intangible stocks where the only thing you have are account statements. More engaged almost invariably means more informed; entrepreneurs and those active in real estate already know that their best ROI comes from reinvesting dollars back into the business—and may even have a better understanding than an advisor of how to target that reinvestment for maximum return.

Despite all that engagement and business acumen, both business owners and real estate investors need professional financial advisory services for two important reasons. First, while they have an understandable bias toward assets over which they have a sense of control, their blind spot is typically the diversification of assets.

Asset Diversification

When one asset class is such a strong focus in your life and pays off so handsomely, it’s hard to think of diverting resources anywhere else. And yet, it’s critical to “skim the cream off the milk” annually to establish a diverse asset base outside the business or real estate holdings.

Having guaranteed assets as well as marketable securities builds other pockets of money that can play an essential role during bad times for the business or real estate slumps. And lest you think, “But I’d see that coming and take preventive action,” let me just say, “Coronavirus pandemic.”

Surprises happen in the real world, and anything that takes the economy by surprise tends to knock it for a loop, at least for a while. Will recovery take months, years or decades? There’s no way to know, and no way to anticipate beforehand.

That makes diversification critical for every business owner and real estate investor. After all, you may want or need to enter a “work optional” phase of life at one of those down times and really appreciate not having to sell at an inopportune moment.

Survivorship Scenarios

There’s another major reason not to forgo a relationship with a financial advisor, and this one is more emotionally loaded. You’re going to die one day, and survivorship scenarios often play out in a complex way that’s totally different from how estate owners envision it happening.

Your business or property portfolio is your baby and you love it. But while it may be a powerful engine that’s driving your balance sheet smoothly now, it’s very likely to create significant headaches upon your passing.

Families usually want liquidity to settle an estate or more easily divide assets after a loved one passes—even when a family business has been central to the financial picture for multiple decades or generations. What may be a great asset while you are alive could be a dog for your family, or at worst, cause a nightmare scenario of infighting and acrimony.

Your physician daughter across the country doesn’t want the carrying costs and hassle of keeping up ten rental properties. In her haste to unload them, your carefully nurtured properties could easily become fire-sale fodder. And that noble feeling that comes from leaving your prized $2 million commercial building to your family? They may not share the feeling—or the building. With leases to be renegotiated, appraisals to be done, tedious sibling arguments about raising rents or why someone wants/doesn’t want to sell the property—it’s a problem.

The fact is that survivors tend to prefer cash over hard, illiquid assets. Life insurance can be the great equalizer here by creating tax-free instant liquidity to cover carrying costs and settlement fees (lawyers, CPAs, valuation experts, property managers, etc.), but other tools can help too.

As you embark on a journey to think through all of these scenarios, remember that what works well for you and your immediate family now might not be so great if you got hit by the proverbial bus. You owe it to yourself, your family and the business or portfolio you’ve worked so hard on to get help resolving that issue now, rather than after the fact.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.


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