Real estate analysis, as a component of personal wealth management, can benefit most individual investors today.
In fact, most investors have real property in their personal portfolios, at least in the form of their primary residence. Many more have investment properties that generate cash flow and growth in their portfolio.
For this reason, the Certified Financial Planners™ of Divergent Wealth Advisors are available to advise our Utah clients on all of their real property transactions.
What Is Real Estate Analysis?
Essentially, real estate analysis is the process by which a financial advisor determines the potential current and future investment portfolio value of a real property purchase.
When you consider buying a primary or secondary residence or vacation home, the per se analysis essentially considers whether the purchase price represents fair market value and the potential exit strategy for liquidating the property in the future.
For investment properties, either commercial or residential, the analysis will consider the potential cash flow or net operating income (NOI) the investment may generate as well as the potential return on investment (ROI) or capitalization rate (CAP rate).
Because every real property purchase is different, the information used in the analysis will depend on the property itself, its condition and its highest and best use.
When Is Real Estate Analysis Necessary?
Buying real property requires either leveraging debt (credit), liquidating a portion of your financial portfolio or in some cases, both, to complete the purchase. Because any of these approaches can have a significant effect on your assets, it makes good financial sense to be sure the investment is a sound one.
For decades, real property was considered a safe investment because of the tangible nature of the asset. Since the market collapse in 2008-2009, however, investment advisors prefer to perform an in-depth property analysis on each transaction you may be considering.
An in-depth analysis is not only necessary in advance of purchasing a piece of property, but before selling one as well. It is also important to understand how buying and selling real property can affect other portions of your portfolio and your overall net worth.
How Does Utah Real Property Analysis Aid Personal Wealth Management?
Your financial planner will discuss with you how the purchase will affect your overall financial health as well as any potential tax or legal implications the purchase could trigger. Even if the property will create a positive cash flow now and appreciate in value over time, potential tax or legal liabilities could easily offset those benefits, making the investment ill-advised.
Finally, if you are considering selling a piece of real property, always consult with your financial planner to ensure you won’t trigger a capital gains event or another negative financial consequence. In that case, your advisor can recommend strategies such as a tax-deferred exchange to help minimize any financial penalties.
In Utah, contact Divergent Wealth Advisors today to learn more about our comprehensive financial planning and wealth management services, including real estate analysis.