Wealth manager Chris Snowden shares financial strategies for making the most of your real estate investments with real estate agent Amy Choliu and CPA Maeda Parias.
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Real estate professionals are familiar with real estate values, but when it comes to incorporating a property into a broader asset portfolio, there’s a lot more to consider than curb appeal and neighborhood appeal. .
chris snowden
Chris Snowden, founder of Channel Wealth Management in Santa Barbara, California, is a contributor to the FiscalFitness family. Snowden recently shared his insights on real estate investing. His perspective is invaluable to anyone looking to make real estate a strategic part of their financial planning.
Here’s what Snowden had to say about using real estate as an investment vehicle, and practical advice for working with your financial advisor to make informed decisions.
Why real estate?
“There are many reasons why real estate is a good investment,” Snowden explains. “Scarcity, tangibility, tax incentives, and your own deep market knowledge all play important roles. But to ensure success, you need a clear-eyed assessment, and this is where financial advisors come in. It’s your turn.”
What is the key to success? Avoid selling yourself short on the property’s appeal. Instead, focus on cash flow and how your investments fit into your broader financial goals.
Assess rental income potential
Assessing rental income is one of the first steps in determining whether real estate is worth pursuing.
1. Know your market: Use comps to compare current rental rates to estimate realistic income.
2. Forecast growth: Evaluate inflation, market trends, and population trends to predict potential rent increases.
3. Cover the basics: Make sure your rental income is enough to cover your mortgage payments, taxes, insurance, and maintenance.
“All real estate comes with predictable and unexpected costs,” Snowden emphasizes. A financial advisor can help you analyze these.
Fixed costs: Fixed costs include property taxes, insurance, mortgage payments, and HOA fees. Variable costs: Repairs, maintenance, vacancy, and management costs can change, so it’s important to budget for them. Capital Investments: Big-ticket items like a new roof or HVAC system require long-term planning.
Calculating these costs in advance can help you avoid surprises that can hurt your profitability. A financial advisor will provide a detailed analysis to see if the property will generate stable income.
Choosing the right financing option
How a property is financed has a significant impact on its profitability. Snowden offers these tips:
Compare mortgage rates: Lower interest rates improve your cash flow, so work with your advisor to find the best deal. Evaluate your down payment: A larger down payment will reduce the loan amount, but it can also affect your cash-on-cash return.
It is important to maintain an appropriate balance between debt and equity. “Nobody wants to be thoroughly exploited, unless we’re talking about weightlifting,” Snowden jokes.
Avoid tax implications
Real estate offers significant tax benefits, but it’s important to get the details right. Snowden recommends working closely with a certified public accountant who specializes in real estate.
Depreciation: Rental properties depreciate over time, giving you a valuable deduction. Deductions: Expenses such as mortgage interest, property taxes, and operating expenses are generally deductible. Capital gains: When you sell, you pay taxes on the gain. Advisors can minimize these through strategies like 1031 Exchanges.
“When it comes to tax planning, the right advice can make a big difference to your returns,” Snowden points out.
Risk assessment
All investments involve risk, and real estate is no exception. Snowden outlines important areas to consider.
Tenant risks: Vacancy, late rent payments, or property damage can impact cash flow. Market Risk: Changes in local real estate values and demand can affect returns. Interest rate risk: Rising mortgage interest rates may increase future costs. Liquidity risk: Unlike stocks, real estate is not easy to sell quickly if you need cash.
A financial advisor can help you prepare for the worst outcome and ensure you have adequate cash reserves by modeling potential scenarios.
Align with your financial goals
Snowden’s final advice is simple but important. “Real estate should fit into your broader financial plan. For example, if you are nearing retirement, a highly leveraged property may not match your immediate income needs.
In such cases, equity building investments may not be the best choice. “The key is to work with an advisor who takes an objective, numbers-based approach, rather than being driven by aesthetics or emotion,” he said.
Investing in real estate is a powerful way to diversify your asset portfolio, but success depends on careful planning. From assessing rental income to addressing tax implications and risks, working with a financial advisor can help ensure your decisions align with your long-term goals.
Amy Choliu is a practicing real estate agent who works in the state of Connecticut, listing investment properties and well-prepared homes. Since 2008, Amy has participated in speaking engagements across the country, teaching industry professionals about technology and sales strategies to help improve their businesses. Connect with her on LinkedIn and Instagram.
Parias Maeda has been a certified public accountant for 40 years. Her CPA firm focuses on helping small and medium-sized businesses increase profitability and business owners grow their personal wealth. Connect with her on LinkedIn.
