The Truth About Financial Planners and Real Estate: Why It’s Not Always Recommended

What’s Up With Financial Planners Not Recommending Real Estate?

Have you ever noticed that most financial planners never recommend investing in real estate? Even though it’s a popular investment option, especially for those who are looking for long-term wealth creation. 

Financial planners are one of the first resources investors look to for guidance, so their advice should reflect every opportunity for you. Their expertise in finance and investment strategy can be invaluable when making important decisions about your money and future. However, it's not uncommon for investors to feel frustrated when their financial planner fails to recommend real estate as an investment option. Why is that?

Here’s some not-your-average insights, straight from a financial planner herself, giving you the reason they may not be recommending real estate investments.


Understanding the Financial Planners Investment Strategy with Real Estate

To understand why financial planners don't always recommend real estate, we need to look at the investment as a whole. Real estate can be a great investment opportunity, but it comes with its own set of risks and challenges. For example, the high cost of acquisition and maintenance can be off-putting for some investors. When compared to a stock, where the risks are often much lower, investing in real estate may not seem like the best option.

Additionally, financial planners must consider the bigger picture when making investment recommendations. They need to consider a client's overall financial situation and long-term objectives. While real estate can be a great investment for some, it's not always the right choice for everyone. Financial planners must weigh many factors when making their recommendations, which can sometimes mean that real estate investing takes a backseat.

Another factor to consider is the incentive model that many financial planners work under. For instance, if an advisor works for a large financial services firm that manages investment portfolios, they're incentivized to recommend stock and bonds over real estate. This is because the firm only makes money when they're managing assets – something that doesn't happen when a client invests in a rental property. As a result, financial planners may be more likely to recommend investment options that align with their own financial interests.

Finally, there's the issue of education and experience. Many investors don't fully understand real estate as an investment option, which can make them hesitant to invest in the asset class. They may not have experience managing rental properties or dealing with the many complexities that come with real estate investing. As a result, they may be more likely to stick with investment options that they're more familiar with, such as stocks and bonds.

According to Kelly Berenbaum, Lead financial planner of Blue Tree Financial, there are two reasons she theorizes. (You can also watch her discuss them, here.)


#1 Reason Financial Planners don’t recommend Real Estate: The Investor Profile

When financial planners look at any investment, they consider the cost to acquire said investment, the risks involved, and the return it can generate. For rental real estate, one of the main challenges in recommending it is the high cost of acquisition. It’s not just the upfront cost of buying a property, but also the additional expenses that come along the way, such as maintenance, repairs, and property management. This can add up to a significant amount, which can impact the overall return on investment. 

Additionally, investing in real estate is not as easy as investing in a stock market, and it requires a lot more hands-on attention. That’s why financial planners may tend to focus on assets that are more straightforward, cost-effective, and less labor-intensive.


#2 Reason Financial Planners don’t recommend Real Estate: Incentives and Conflicts of Interest in Financial Services

Suppose a big firm employs the financial advisor you’re working with. In that case, there could be a conflict of interest when recommending investment options to clients. 

Many financial planners get incentivized for managing investment portfolios with stocks and bonds because they earn a percentage of the assets under their management. Naturally, this aligns well with someone who recommends marketable securities. However, since rental properties are not managed by financial planners, they don’t stand to earn any incentive or commission by recommending them. Therefore, it’s essential to take your financial planner’s recommendations with a grain of salt and research investment options that suit your financial objectives.


Why the Average Investor Doesn’t Understand Real Estate the Way We Do

Most investors lack the experience and knowledge needed to invest wisely in real estate. If you’re new to the world of investing, it’s understandable that you may not have the expertise to make informed decisions about rental properties. Moreover, there’s a lack of awareness and education about the benefits of real estate, which makes it harder for people to grasp the concept. With the right guidance and education, anyone can invest in rental properties and generate better returns (in Jacksonville) than you can find in the stock market.


Invest in Rental Properties with JWB

We understand the benefits of investing in rental properties (they’re hard to miss), but we also recognize that it’s not a one-size-fits-all solution. Ultimately, it’s up to you to do your research, seek out financial advisors who are knowledgeable in real estate investment, and assess whether rental properties align with your financial goals. If your financial advisor feels out of touch, give us a call, and we can help you understand rental property investing and help you make an informed decision about your investment portfolio.

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If you’re ready to get started with JWB, schedule a strategy session with our property investing experts now!