Recognizing the critical role of real estate in clients' financial lives, advisers are finding different ways to incorporate real estate expertise into their practices.
For JSF Financial LLC, the answer was to recruit former mortgage broker Zev Fried three years ago and hire him as a financial planner.
“Because of my background, I'm the resource in the organization who consults with clients about real estate matters — refinancing, purchasing, selling and building residential or commercial properties,” he said.
Mr. Fried said that he spends about 35% of his time on real-estate-related matters.
“I can shepherd [clients] through the whole mortgage process and anticipate issues such as not having enough income to qualify for a loan, or not having enough reserves, or not having enough value in the property,” he said.
Mr. Fried also speaks to banks and mortgage brokers to help clients avoid fees and get the best rates and services.
John Mazzara, a financial adviser, mortgage broker and real estate broker with Financial Planning Associates, is also incorporating mortgage expertise within his practice.
Although he originates mortgage loans, clients aren't required to work with him.
"SMOOTHING EFFECT'
Mr. Mazzara's broad background allows him to counsel clients in areas such as purchasing, managing and selling distressed properties, how to deal with being “underwater” on mortgages and landlord issues.
“I spend about one-third of my time on traditional financial investment needs, one-third on real estate and one-third on origination,” he said. “Different income streams make for a smoothing effect.”
Jude Barcenas, president of BFG Financial Benefits Inc., also benefits from splitting his time between differing roles as a real estate broker and an adviser.
“Over time, I noticed that during the summer, my [financial advice] book of business was slow, but real estate was peaking, so I decided to continue both businesses,” he said.
Real estate services represent 25% to 30% of Mr. Barcenas' practice.
“[My clients] look at real estate as a form of investment, and I assist by selling them houses and referring them to mortgage companies. I also advise first-time homebuyers and people who have difficulty qualifying for mortgages,” Mr. Barcenas said.
The two complementary lines of business result in cross-referrals.
“In the beginning, most of my real estate clients came from my advisory business. But now people are contacting me for real estate services, and then they're being converted to my financial services clientele,” Mr. Barcenas said.
At Red Triangle, a registered investment advisory firm that focuses on high-net-worth clients, real estate investing is a core focus.
Helen “Cokie” Berenyi, a certified financial planner and the firm's president, has teamed up with her husband, Tony Berenyi, a real estate developer for 25 years, to offer real estate private placements to their clients.
“We are operating under a net-worth model that includes [our clients'] real estate holdings. It doesn't matter where their assets are,” Ms. Berenyi said.
"NO UMBRELLA'
“They don't need to be under my umbrella, because as an RIA, I have no umbrella,” she said.
“We wanted to be able to offer all classes of investments ... There's long been a bifurcation between investments and real estate, and most financial advisers are limited in what real-estate-related vehicles they can suggest,” Ms. Berenyi said.
Michael Black, owner of Michael Phillips Black Wealth Management, has become an expert in one such vehicle, non-traded real estate investment trusts, and cautions that advisers often use these incorrectly.
“It's an overly used asset class and underresearched,” he said.
“Many advisers select non-traded REITs based on the
dividend distribution, but they need to ask: Is it earned from the underlying real estate or is it artificially paid from the capital raised? The real estate performance may be 20%, while the investor performance is 5%,” Mr. Black said.
“It takes a fair amount of research to understand the underlying real estate, and the packaging and fees,” he said.
“It's also important to be aware that different real estate sectors are in different cycles. For example, many strip malls are hurting but not "necessity-based' [grocery-anchored] strip malls.”
Mike Haubrich, president of Financial Service Group Inc., facilitates a multistep real estate transition process for his clients.
“We first focus on what's not working with their current real estate situation. Is it not lifestyle-relevant? Is it too big? Too small? Empty nester? Growing family? What is the misalignment?” Mr. Haubrich said.
The next steps are to “get the property's approximate market value, focus attention on the perfect property for their lifestyle needs and the appropriate price, and help the client accept that market price,” he said.
This is followed by finding a new property and getting it under contract without a sales contingency on the client's old property, then marketing the old house to a cash buyer at a realistic market price, Mr. Haubrich said.
