Do you have a financial Plan?
I hope each of you are off to a great 2014. You are probably wondering why I am writing an e-mail focusing on having a financial plan when I am lender focusing on private/non-conventional lending. I have two primary reasons. First, I have seen way too many instances where a spouse passes, leaving the surviving spouse with real estate assets. Unfortunately more often than not, the surviving spouse does not have the skill set to successfully run a real estate portfolio nor the peer group to help them figure it out. Second, I’m a believer that life is full of random events, but steps can be taken in order to plan for the randomness. A good example of this is about seven years ago my wife left to go to school (she used to teach high school math in a small town SW of Denver: Bailey, CO). The day was like any other day, but on this day it just so happens that a gunmen entered the school (http://www.denverpost.com/ci_4404879 for an article on the event). This all occurred in the classroom across from my wife’s classroom. Close enough that many of the windows in her room had been shot out after she was evacuated.
As a result of the school shooting event and my experience seeing many spouses left with many assets but no direction, I developed a financial plan of all of my assets. This is different than a typical financial plan that just lists all the assets and liabilities of an individual (basically a balance sheet). I’ll call the modified plan the balance sheet on steroids.
I assume most if not all of you on this e-mail are involved in some way with real estate. Making a modified financial plan is more important than with other professions. Real estate assets are not as straight forward as stocks, bonds, or other asset classes. For example you might own a single family home that you are rehabbing or commercial properties with multiple tenants. Real estate is a business. So how do your prepare if disaster strikes and your spouse (or family) is left with assets but not the experience?
First, make the traditional balance sheet. But put a number beside every asset, for each number make a note of not only what the asset is, but the strategy. For example,
Commercial Building: xxx Denver, CO: This is a 10,000 square foot building leased to 8 tenants, the leases are all NNN (rent roll and operating statements in xxx folder). There is currently a xxx mortgage on the property with bank of the xxx due in xxx. The strategy for this property is to hold in the portfolio for long term asset appreciation and income.
You would go through each asset with a little summary like above. Along with the summary for each property make a list of key contacts (insurance, management, etc…) with the appropriate contact info. Along with listing each asset, I identified certain assets that should be sold quickly for liquidity if needed (I have certain stocks that are in non-retirement accounts that are the quickest source of liquidity)
After you have done this for each asset, at the bottom of the financial plan, put a list of overall key contacts (life insurance, maintenance folks, and who to call that you absolutely trust if there are questions). For example on mine, I have two attorneys, a close friend that is knowledgeable about real estate, and a couple subs that I know very well that could help out. Finally review the document with your spouse so they understand everything.
I know the above sounds like quite a bit of work, but not only will it help your family be better prepared, it is a good exercise to update annually. Each year around tax time, I pull out my document from last year and look at what has changed and where I am heading. Putting everything together allows you to reevaluate your strategy and see how the pieces of your portfolio fit together. I hope each of you take the time to make your financial plan on steroids to ensure the success of your family.
If you enjoyed this article please leave me a comment and like it on facebook, twitter, etc… I look forward to working with each of you in 2014.
if you haven’t seen the Colorado Real Estate Journal: see my article: Business Lessons we can learn from our kids
More info on Fairview: www.fairviewlending.com
More info on our Colorado private money and hard money programs: www.cohardmoney.com