Top Strategies for Advising Clients on Residential Real Estate Investing

Many people look to invest in residential real estate to diversify their portfolio and make a large profit. Residential real estate investing is a high risk, high reward scenario and it's your job as a financial advisor to help your clients navigate through the decision process with some impactful and proven strategies. SII Investments is dedicated to supporting its financial advisors with the tools and services they need to be successful. If you are looking to guide a client through this investment journey, keep in mind some of these top strategies for those looking to invest in residential real estate.

Prepare an Exit Strategy

Real estate is a unique investment that is much different than stocks and bonds or other financial strategies. There are many moving parts and it's crucial to urge your client to have a plan in place. Author Andy Heller of Buy Low, Rent Smart, Sell High, shares that the single most important first step for aspiring real estate investors is to determine one's exit strategy. The two basic routes to take are:

  • Flip the piece of real estate, making a large profit at the end of the sale
  • Become a landlord of a rental property that you purchase and then hold

Once your client decides on a route, it's imperative to put an action plan in place to ensure that all the moving parts are satisfied. Details such as lines of credit, a time frame, and creation of a business plan will all help your client move towards their exit strategy, thus leading them to hopefully recoup money beyond their initial investment.

Insulate Their Portfolio Against Potential Losses

For those clients that are looking to invest in real estate, it is important to educate them on insulating their portfolio in the event of a potential loss. Real estate requires leveraging money and other assets to be successful. Joel Cone, contributing financial author for US News, shares that investors should set aside money to act as a buffer in case the unexpected occurs. Real estate is a traditionally unpredictable market and it is advised that investors should have enough cash on hand to recoup 10-15% of their losses every year.

Don't Look at Personal Property as an Investment

For a client that is a novice investor, a typical mistake made is choosing to flip a home and then making it their primary residence. In lieu of being a primary resident of a home, there are many added expenses the come along, some of which include:

  • Property taxes
  • Utility costs
  • Homeowners insurance

These costs offset the appreciation of your client's property value and detract from their end goal of making a profit and following through with their exit strategy. US News explains, "A real estate investment produces income or appreciates in value after all costs are calculated, not so with your house".

Find a Niche Market

There are a myriad of real estate investment options for your client to decide from. Many seasoned veterans share the best strategy is to focus on one type of investment area and navigate through that successfully. As noted before, each market is unpredictable and ever-changing. Focusing your efforts is the key to success. Some potential niche market options to share with your client include:

  • Raw Land
  • Single-Family Homes
  • Apartments
  • Real Estate Investment Trusts

We are dedicated to providing a community of support to our affiliated representatives through service, innovation, and integrity. Learn more about becoming a financial representative with us and contact SII Investments today.