Economic News, Smart Spending

Don’t Trust a Financial Advisor Unless…

Mark Twain famously (and facetiously) said he would not want to be a member of any club that offered him the chance to join. So it is with financial advisors, a much-mistrusted breed.

You undoubtedly already know this but financial advisors are everywhere. Surf the Internet and you’ll find no shortage of them telling you what to do with your money.

They are invariably stock market-minded, however, unless they are of a religious persuasion (some of whom suggest you will get God’s attention and probably His blessing for a large donation to their secular cause). Far fewer are financial advisors who will help guide you in real estate.

This situation with all those stock market analysts around has not led to great satisfaction. One recent study found that only 15% of those polled had any trust in financial advisors. A major reason was self-interest. Many advisors were also selling products.

Over the years, I have met a lot of informal real estate advisors (never paid), and if you want to have some trust in anyone offering suggestions to you, here are a dozen questions they should be asking you to help you determine their sincerity:

  1. 1. Expecting a quick profit with little work? Don’t. Though they may have existed, and still might a times, don’t count on it. They are not common. Flip and get a big profit? Not likely. It’s not going to be easy to make money.
  2. 2. Why are you doing this? Your answer is to make money, of course. Why else? So why not admit it?
  3. 3. Do you understand the importance of location? You’ve heard that old cliché about it. But this is something you better get right away, and not forget.
  4. 4. Do you intend to buy local? That’s the market you know most about. Your own neighborhood (this is particularly important if you are just staring out. Later, you can spread your wings, as another cliché has it, to find other investments). I can think of more than one individual who just bought the house next door to him. He (and others) have made a small but steady stream of profit from renting it out. If repairs are necessary (as they inevitably are), he is right next door to do the work himself. Or to easily oversee the work of people he has hired.
  5. 5. Are you interested in the best bets for investment? That is vacation homes and one-bedroom condos. The vacation homes are obvious winners. As for one-bedroom condos, they are popular with singles, divorcees and even retired folks. They are like what a Ford sedan used to be: reliable and steady. Also easy to manage without a lot of help from anyone else.
  6. 6. Are you good at math or at least can you work with numbers? You will need to have that skill. An old rule-of-thumb says if you can buy a property for 12 times the amount of its annual rent, then you’re getting a good deal. Hopefully, you will do better than those numbers: maybe nine or 10 times the annual rent (there are variations, of course, and it’s only in math class where there’s only a single right answer).
  7. So the right answer here is trust your mother, but cut the cards. ###