80% of Financial Advisers invest in real estate

[MrHamilton]

So a client of mine/Hamilton investor/REIN member who works for one of the major Canadian financial institutions tells me three years ago she was working on a special project.



You see, all financial advisers (aka mutual fund sales people) must disclose to their employers what businesses and investments they have outside of their employer's investment products and she learned that 80% of their financial advisers owned rental properties (commercial and residential). 80% eh? That's pretty significant when RE investors make up what? 1% of the market?



Just some food for thought..



Erwin

 

[wgraham]

Very interesting. Is there a report or any media we can refer to? Would love to send it out to my people!

 

[richardkp]

Hi Erwin,

We are finding that most people we meet who are Independent Financial Advisors are asking more about RE as well as have at least 1 properties themselves. Would love to see a report or any information that you have on this to help with clients.

 

[MrHamilton]

Hey Wade!



I wish! Any publicly available report would be damaging to the mutual funds industry. Funny enough, I just happen to have about five clients who are also REIN members who are financial advisers yet they invest in real estate. I'm sure they wish they could make money off selling real estate investments...



Cheers,

E

 

[EdRenkema]

[quote user=MrHamilton] I'm sure they wish they could make money off selling real estate investments...
Well they can can't they?

Its just more believable and saleable to sell mutual funds. Its also
more sustainable for these salespeople since they receive commisions
based on their aggregate amount of investments not on the performance of
those investments.

 

[MrHamilton]

[quote user=EdRenkema] they receive commisions
based on their aggregate amount of investments



and a commission is paid EVERY YEAR that the client's money is held in their accounts. What a lucrative business!!

 

[Rickson9]

[quote user=MrHamilton]So a client of mine/Hamilton investor/REIN member who works for one of the major Canadian financial institutions tells me three years ago she was working on a special project.



You see, all financial advisers (aka mutual fund sales people) must disclose to their employers what businesses and investments they have outside of their employer's investment products and she learned that 80% of their financial advisers owned rental properties (commercial and residential). 80% eh? That's pretty significant when RE investors make up what? 1% of the market?



Just some food for thought..



Erwin




Damn, that's another good reason for me not to buy Canadian investment real estate. I've avoided financial advisors since I graduated from university. Let's just say that I'm not very impressed with financial advisors and leave it at that.



Thanks for sharing! +1

 

[Thomas Beyer]

[quote user=MrHamilton]I'm sure they wish they could make money off selling real estate investments


They could .. and many are !



There is a fairly new category called "Alternative Investments" or "Exempt Markets". To sell these securities you have to be a licensed rep with an EMD. Alternative means 'alternative to traditional stocks, bonds and mutual funds" and exempt means an exemption from the requirement to issue a prospectus. [Although the OM we and most issuers produce is easily 80+ pages and fairly close to a prospectus as it relates to audited statement and disclosure of relevant facts]



Many life insurance and mutual fund reps are also starting to move into this new space, created by the fall 2010 changes in the securities industry (NI 31-103 to be precise) which essentially states that people in the business of selling securities have to be licensed, [similar to real estate agents.]



I spoke this last weekend at the www.emdshow.com in Calgary where about a dozen EMDs and maybe 20 issuers show cased their various offerings. Related topic here on my blog of Feb. 2011 on "10 items to be aware of when investing in (real estate) syndications":

 

[Nir]

[quote user=MrHamilton]80% of their financial advisers owned rental properties.. That's pretty significant when RE investors make up what? 1% of the market?




Hi Mr. Hamilton, interesting point!



However, there is no connection between the numbers 80% and 1%. you see 80% of their financial advisers owned rental properties and 100% of RE investors own rental property. we still dont know what % of the market financial advisers own



Regardless, it actually presents them positively perhaps they do know where to invest. oh.. but they can not tell you. saying that as I never worked with a financial adviser before for the same reason Rickson9 mentioned

 

[gwasser]

[quote user=MrHamilton]You see, all financial advisers (aka mutual fund sales people) must disclose to their employers what businesses and investments they have outside of their employer's investment products and she learned that 80% of their financial advisers owned rental properties (commercial and residential). 80% eh? That's pretty significant when RE investors make up what? 1% of the market?



Just some food for thought..



Erwin




Even more interesting would be to know how many real estate investors own a stock and bond portfolio. In other owrds, how many real estate investors have a truly diversified investment portfolio?

 

[Thomas Beyer]

What gains have folks made in real estate or stocks/bonds over 5, 10 or 15 years ?

I love to be more diversified AND make a high gain in either category .. But have been unable to. Am I the only idiot out there who couldn't make 50 or 100% in stocks from 2001 to 2011 ? Love to double my money in stocks in a few years as it is far less work. I know how to do it in real estate, but not in stocks/bonds.

 

[Nir]

[quote user=ThomasBeyer]Love to double my money in stocks in a few years as it is far less work.





That's why you can't unless you take a higher risk. where more work is required like in RE, there is usually less risk.



(assuming other factors are the same of course such as skills of investor, knowledge level - meaning this statement would be correct even if you had the same knowledge level in stocks. one factor that contradicts this a bit is the possibility of stocks being a more complex investment meaning a more unique skill/expertise required which would actually explain the less work needed to achieve the same expected result/profit from stocks for some individuals)



Sincerely,

Nir

 

[Rickson9]

[quote user=Nir]That's why you can't unless you take a higher risk.


Fortunately this is not true.



I find investing in stocks and RE to be similar. An individual can make it as complex or simple as they wish. As long as an individual knows what they're doing, there's a lot of money to be made either way in stocks or RE.



As an unrelated aside, I find diversification, asset allocation and re-balancing to be the top 3 most worthless concepts in stock investing. One should only do these things if they have a strong desire for mediocre to disasterous performance. Only my opinion and based solely on personal experience.

 

[housingrental]

Very few from the people I've encountered



[quote user=gwasser] [quote user=MrHamilton]You see, all financial advisers (aka mutual fund sales people) must disclose to their employers what businesses and investments they have outside of their employer's investment products and she learned that 80% of their financial advisers owned rental properties (commercial and residential). 80% eh? That's pretty significant when RE investors make up what? 1% of the market?



Just some food for thought..



Erwin




Even more interesting would be to know how many real estate investors own a stock and bond portfolio. In other owrds, how many real estate investors have a truly diversified investment portfolio?

 

[gwasser]

Thanks for the reply Adam. My point exactly, it seems that many real estate investors walk around with blinders on. Both real estate and stock market investing are risky. But many real estate investors feel they have to do better than the stock market. Look at the U.S. real estate market since 2007 and its carnage. How many real estate investors have made big bucks in Alberta over the last 4 or 5 years? So how is that different from the stock market?



Duuh!!



Neither do I agree with Rickson that asset allocation and rebalancing doesn't work. Nonsense. It works alright. But the results are lately not very exciting. By the way, over the last decade or so, bonds have clearly outperformed stocks. IN GENERAL.



You see, if you invest in the stock market, you have no control over the assets you've bought and as such, you want to limit your exposure to a single company to a small portion of your portfolio. Stock market ETFs help you to achieve that.



In real estate you have more control over the properties you buy and hence, you can put proportionally more money in a single property - the chance that it goes sideways is somewhat less. Afterall, you are behind the wheel!



Also, there are situations, e.g. owning shares in the company where you are employed and thus you are closer to the 'action' than a normal retail investor. I made a lot of money through savings plans and options provided by my employer. So, in that case, you can have more than just a little in your portfolio.



Run of the mill stocks provide over the long term a decent return. The statistics have proven this over and over again. My own portfolio shows the same. But it does not happen in a smooth fashion. In fact, as Rickson says, real estate and stock investing have something in common. The rent or the dividends provide the cash flow. The appreciation is unpredictable and some years it is great and then there are many years that the appreciation is poor or even negative. On average appreciation makes up around 50 to 60% of your profits and cash flow 40 to 50%.



Oh, and yeah how long did it take you guys to learn about real estate? What is your time horizon? Don't you think the same is true for paper securities? Finally, part of your real estate returns is for you labour, something that is not required when investing in paper securities. So, when evaluting real estate and comparing it to say the stock market, take your personal labour into account.



Sometimes it sounds like real estate investors need to compare their performance with the stock market because of a sense of inferiority. Like companies that always try to put down the leader in their sector. This is a useless exercise. In each portfolio there is a place for real estate and stock market and bond and commodity and god-knows-what-other investments. Sometimes things go right for the stock market; other times real estate does better and sometimes both are driving you up the wall. That is the nature of things. Be flexible, open minded and make money!

 

[bizaro86]

[quote user=gwasser]Neither do I agree with Rickson that asset allocation and rebalancing doesn't work. Nonsense. It works alright. But the results are lately not very exciting. By the way, over the last decade or so, bonds have clearly outperformed stocks. IN GENERAL.




Asset allocation and dollar cost averaging are a great way to get an average return. If Rickson can pick specific companies and do much better than the averages, that's a better strategy.



As it happens, most people aren't built for stock picking, and an average return is much better than what they would otherwise get, so dollar cost averaging into a reasonable asset allocation and rebalancing it occassionally is preferable.



Regards,



Michael

 

[Thomas Beyer]

[quote user=bizaro86]pick specific companies and do much better than the averages, that's a better strategy.




Bill Gates didn't asset allocate or diversify or $ cost average. Neither did Steve Jobs nor Warren Buffett nor Donald Trump nor Don Campbell.



Diversification is great for wealth preservation, once you've built it.



Wealth creation is always done through concentration !



[and yes, for every Bill Gates there are a hundred software engineers or entrepreneurs who did not make it .. I, for example, with 2 partners started a wireless firm in the late 90's enabling mainframe access to the then popular PalmPilot .. and after spending $250,000 among the three of us we realized that a further $1M was required for a 3rd version (we built 2, one in Java that was too bulky for the real world handheld devices and then a slimmer one in C) and more beta testing and prototyping and abandoned the venture .. I did however became quite successful with rental pooled condos, later apartment buildings from 2000 in a highly concentrated effort]

 

[gwasser]

Warren Buffett is quoted as saying that for the average investor stock market index investing is best as there are very few retail investors with the skills to pick consistently individual stocks that perform or even more desirable 'out perform'. Most are happy with market perform and that you can do quite simple: buy stock market indexes and reinvest the dividends. As Don Campbell often says: boring investments are often good investments.



One issue is that many investors, including myself, think we can do better than average market performance. But it is not being called 'average' for nothing! Also, because it is 'average', short time horizons are not desirable. Some day-traders may luck out from time to time and hit the jack pot, Most lose money though.



People like Bill Gates and Steve Jobs did not get rich from investing in the stock market. They started very succesful businesses! That is one of the things that makes real estate so attractive to more entrepreneurial investors such as Thomas. You invest in properties that you run as a rental (or renovating, or hospitality or etc) business. In other words you use the properties to run a profitable operation.



BTW Did you know that 80% of new businesses fail within the first five years? So that is not quite risk free either. Failure is not always a disaster though. I ran several small businesses and learned from it and usually broke even. Some made decent money - my current holding company Eucalyptus Consulting Inc. for example (started in 1994). Thomas did not say that he LOST $250,000, he just moved on to better things or just other things.



In today's world, it is not only one thing that is right. You do many things and some will work better than others. Look at Motorola, RIM, Nokia, and soon to join them Apple. Businesses are cyclical and have their good days and their fading days. That is especially so in High Tech but e.g. oil&gas is no stranger to this either.



So spread out your wings and make the entire world your own. Don't restrict yourself. Even Tiger Woods got bored playing golf. Then you're up to no good as Tiger can attest to.

 

[bizaro86]

Thomas, you and Godfried are both correct.



Diversification will never make you Bill Gates/private jet wealthy. Anyone seeking significant wealth needs extremely high returns, which requires concentration of capital. (It's hard to generate 100% plus returns for years on end, but probably impossible to do it with 10 investments concurrently)



Diversification will provide the average person with an above average retirement, as diversification and rebalancing will produce returns very close to the averages for the asset class. Since most people do worse than the averages due to poor timing and asset selection, this would be an improvement for many, many people.



As with just about every financial decision, the goals and abilities of the individual making it must be considered.

 

[Thomas Beyer]

[quote user=gwasser]Thomas did not say that he LOST $250,000, he just moved on to better things or just other things. I didn't say it .. but I guess it was implied. I was a minority investor/owner at the time.



However, you learn from every failure. there was even a few real estate deals I lost money on .. not many .. but less than a handful out of over 40 transaction over the last 14 years.