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What Should He Do? Meet Frank the Real Estate Owner

 

Have you ever been stumped by specific questions about your finances? Do you wonder if anyone else has dealt with the same issues and are curious about what solutions brought them success? I’d like to take some time to show you a few examples of issues our clients may have faced in the hopes that you will be able to apply the knowledge and principles from their circumstances to your personal financial situation. Today, I’m going to introduce to Frank and his questions, and later in another post, we will look at the options available to him.  

The Client

Frank is a real estate owner and landlord who also has a full-time job. He is married and has two children currently in high school. Frank owns two apartment buildings with a total of 25 units. Combined, his property is worth about $1,900,000 and his mortgage balance is sitting at $985,000.

The Concerns

Frank is quite the handy man, but he doesn’t see himself as financially savvy. He knows that real estate is a great opportunity to build wealth, but he is also aware that real estate (apartment building) is not an asset that can be quickly sold or liquidated. His wife has a stable job with $150,000 in an RRSP and both owned a TFSA account that amount to $95,000. But Frank has neglected to invest as much in other asset classes and his family’s wealth is strongly biased towards real estate. Moreover they would like to open two RESP account for the children’s education saving. Their money is spread in many bank and investment accounts is not globally managed and is held with a large bank with high management fees. As it is often the case given their low amount of investable assets they are getting a low level of investment advice and they also feel their whole wealth is being overlooked.  

 

He doesn’t want to sell his buildings but is always worried his cash flow might be tight going forward. He feels asset-rich but cash poor. He is tempted to sell due to the ongoing costs of maintaining his property and the potential for an increase in vacancies. If he chooses to sell, his top concerns are capital gain taxes and the inability to manage such a substantial amount of money. Frank had a number of questions. Some of his questions included:

 

  • Would it be wise to refinance or sell?

  • Could we reduce the amount we pay in fees if we consolidate our investment accounts and switch to an independent wealth manager?

  • Should I better diversify my wealth into more liquid asset classes?

  • Is there a way to take into account my largest asset of real estate while creating wealth in a more global approach?

What Should He Do?

Do you see any problems with Frank’s current financial strategy? Can you relate to his questions and concerns? Here are some questions to keep in mind when brainstorming solutions to Frank’s worries:

 

  • How aggressive should his investment portfolio be, considering how heavily invested he is in the income producing asset of real estate?

  • If the interest rate for his mortgage loan increases, how much risk does that add to Frank’s investment?

  • How long will it take to pay off the mortgage? How will that event affect Frank’s cash flow at retirement?

 

What are your thoughts on what steps Frank should take to reach his goals? Stay tuned for our next installment where we will discuss the best options for Frank’s unique situation.

 

At Montag Private Wealth, there is nothing we like more than constructing customized portfolios that will capture growth while also mitigating risk. We desire to give clients confidence and peace of mind that their money is in the best hands possible. If your finances have you losing sleep at night or you feel like your situation is too complicated to handle alone, book an appointment now!

 

About Carl

Carl Martel is the president and portfolio manager of Montag Private Wealth. Along with more than 15 years of capital market experience and 10 years of experience in real estate hard assets, he is a Chartered Investment Manager® and hold a Certificate in Derivatives Market Strategies from CSI Global Education, a Masters of Science from Laval University, and an MBA from l’Université du Québec à Montréal. A focused and pragmatic, results-oriented investment professional and entrepreneur, he specializes in serving the unique financial needs of high net-worth individuals and families, foundations and endowment funds, and business owners. To learn more, visit http://montagprivatewealth.com/ or connect with Carl on LinkedIn.