The explosive growth in real estate values of recent years definitely has been a good thing for home owners. Question is, has the rise been equally beneficialor detrimentalto advisors aiming to help those home owners with financial and retirement planning?
Have appreciated property values, as some fear, provided large enough nest eggs so as to make consideration of alternative investment vehicles unnecessary?
Real estate-savvy advisors contacted by National Underwriter say thats not the case. They note the property boom actually has boosted opportunities to market a range of products and strategies. Chief among these are mortgage solutions that help clients unlock home equity to invest in diversified portfolios that yield higher rates of return and vehicles that reduce otherwise hefty capital gains taxes on the sale or transfer of real estate.
Gibran Nicholas, president and founder of Nicholas & Co. Mortgage Planning Solutions, Ann Arbor, Mich., says his clientele, including advisors who attend his mortgage planning seminars, has expanded in tandem with the markets rise. His specialty: showing property owners how they can leverage adjustable rate mortgages, reverse mortgages, interest-only loans and other mortgage techniques to build wealth and pay for current expenses.
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“Mortgage planning may be the single most promising service advisors can add to their full-service practice,” says Nicholas. “Home mortgages are the single largest debt and monthly expense of most clients. Helping them integrate that debt with their overall financial plan is a logical extension of the advisors services and key to implementing a successful financial plan.”
So, too, is helping clients navigate the sometimes emotional issues that attend real estate investments. Jim Niedzinski, a certified financial planner with Sagemark Consulting, Southfield, Mich., notes that many clients who plan to sell their homes at a profit ultimately find the experience of moving too painful. So, he spends time with prospects helping them to establish realistic expectations.
Those who can get over the psychological hurdles may find a range of tax-advantaged vehicles attractive. One example is 1031 exchange opportunities.
Section 1031 of the IRS code allows home owners to avoid paying capital gains taxes when selling a property. If the owner passes away, the propertys heirs receive a “step-up in basis” that fixes the propertys valueand, therefore, the capital gains tax to be paid at the time of saleon the date of the owners death.
Clients looking out for themselves and the next generation can leverage other tax-advantaged solutions. Mark Diederich, president of The Diederich Agency, a Novi, Mich.-based affiliate of Nationwide Mutual Insurance Co., says prospects are very receptive to a new product hes marketing: permanent life insurance featuring a long term care rider.