A client of mine recently inherited some money. She’s happy with her investments but has been itching to buy a real estate investment property.  An old friend of hers, who is a real estate agent, found her a newer property close to a prestigious medical school.  Because medical residents need a place to live for several years, it almost seemed like a no-brainer; however, I became skeptical when the real estate agent told my client that she would realize a 13% return on her investment (ROI).

Besides the outlandish ROI quoted by her agent, my other concerns were that my client had never owned any property, not even her own home, and the unit she was considering purchasing was in her hometown, several thousand miles away from where she lives now. I have to admit, though, that the property was very appealing and sounded like a good investment to me—until I saw the numbers.

By “the numbers,” I’m referring to a spreadsheet created by her accountant that looked at this piece of property as a business plan rather than the beautiful home that it is. And boy, did the numbers tell a different story! Her accountant considered all the expenses such as loan service, property taxes and management fees and then compared it to the potential income. After all was said and done, her ROI was not 13%, but 2%.  What’s more, the business plan had projected only $250 each year for home repairs and upkeep.  As any homeowner knows, maintaining a home is very expensive.  I had to shell out $700 right before the holidays for just minor repairs on my own home.

My client also consulted another friend who is a very successful real estate developer.  He told her, “You live too far away, and the numbers are telling you not to buy this property.  Never fall in love with anything that can’t love you back.”  (I love that last piece of advice)!  He also told her to keep looking for property close to where she lives and be patient.  “Wait for a good deal because you make money on property when you purchase it for the right price.”

But numbers don’t always tell the whole story of people’s dreams, desires or other advisors, for that matter. In the end, my client consulted with a very successful and astute businessman–her father. He felt that the property had better than average appreciation potential because in that particular metropolitan area, people are migrating back from the suburbs to the city.  Essentially, they are sick of spending their valuable time in traffic. Her father also pointed out that the property is in proximity to the headquarters of several very large corporate headquarters, and she may get $500- 1,000 more each month in rent.  But, ultimately, what it came down to is my client said she needed something new in her life and starting a new business would offer that.

Regardless of the outcome, this story is a good insight to the financial planning process. My clients and I are partners; I’m in it with them for the long haul.  I give them what I believe is the best advice for where they are in their life planning and where they want to be.  Of course, they are not required to follow my advice, and I don’t take it personally if they don’t.  The goal is to have them succeed financially and to help them do it on their own terms.

To learn more about Jeffrey Bogart at Sila Wealth Advisory, view his Paladin Registry research report.