Rebalancing my portfolio – picking a team of experts

As I continue on my path of rebalancing my portfolio, I am amazed at the number of people I need to consult to put together my grand plan just right.

For example, I now have my EIUL established. I have a rock solid agent that helped me put it together, and whom I know I can call to explain complicated details should I need to. I have learned much about EIULs, but as I recently read, not anywhere near what my expert agent knows.

Just the other day, I saw a posting from Bawldguy about a real life scenario where he helped one of his clients invest in real estate. In his blog posting, he explained that they may reach a point where one of their properties is free-and-clear, and they can sell it off tax free thanks to accumulated depreciation. Taking all that money, one option would be to open a new EIUL and put it there (spread out over five payments). One of the questions that popped up in the comments section was “why not just put that money in your existing EIUL?” I have had the same question appear on this blog as well.

Bawldguy didn’t know, so he tapped his buddy, Dave Schafer to answer. Apparently, dumping such a huge amount of money into that EIUL would force the life insurance policy to raise it’s face value a significant amount (to meet IRS regulations) much sooner than the original plan. If you didn’t know it, insurance costs are directly tied to the face value of a policy. Raising the total fees on this EIUL plan would lead to less efficient performance relative to all the other money being planned for investment.

Apparently, creating a separate EIUL solely targeted for this lump sum would allow the agent to set things up in a much more cost efficient manner without upsetting the plan that was in motion with the first EIUL. Whew! I feel like everyday I learn more and more. It’s why I’m glad I have such a good agent on my team.

Every time I chat with Bawldguy on the phone, it is a hoot. I learn a lot, realize we have some differences of opinion on some things (like investing in dividend paying stocks and gold), but carry many similar ideas, such as investing the whole shebang in real estate up front for maximum leverage and maximum time value of money. (I figure grabbing some chunks of rent a little later on to buy bits of stock and gold should still be possible, right?) I also learn that someone who has been doing this for 35 years knows a heck of a lot more than me.

When I asked him about tax preparation, he indicated that TurboTax probably wouldn’t be adequate when you start doing stuff like cost segregation studies to pool up accelerated depreciation. (Stay tuned for future posts, to find out what that mouth of gibberish was.) He made it clear that I would need an accountant that understood the ins and outs of real estate investments. I was hoping that wouldn’t be the case, but I’m sure he’s right. That’s another team member I need to shop around for.

One thing that has also nagged me for some time has been asset protection. I asked my in laws how they protect their rental assets. Do they have an LLC? Apparently not, because LLCs cost way more in bank financing. But I hear many REI clubs talking about running your rental business through LLCs. And I’ve heard of land trusts as well. Every time I seek to answer one question, I find two new ones. Well, I’ve read posts from Clint Coon, an attorney and a real estate investor that specializes in asset protection of rental property. I will definitely have to pay him a call when I get into the swing of real estate investing. I don’t want someone to get bit by a dog on one of my potential properties and decide to sue me because they discover I have plenty of money. I would prefer they not even know who I am and instead have their attorney tell them their’s no money to be dug up.

After asking a potential expert how many years he has done this and how many clients has he served, I often ask, “what happens 20 years from now, when you aren’t here?” Many of these things are NOT fire-and-forget situations. There needs to be a proper hand off to the long term situation if this expert isn’t going to be a member of my team in the distant future.

So after talking to gobs of experts, collating dozens of opinions, and starting to make some key choices, I am slowly putting together my team of experts to guide me on my path of portfolio rebalancing. But amidst all this need to put together a team of experts, one thing remains:

YOU are the only one solely looking out for YOU.

It’s easy to forget this. You will meet plenty of people that know more than you, and can push you in the right or the wrong direction. Remember that they are there to advise you, not decide for you. Boil everything down to, “if I had to explain this to my mother, would she think it’s right?” Bawldguy often describes a rental property on whether or not it passes the would-you-put-your-own-mother-there rule. Well, I extend that to, would-my-mother-approve-of-doing-business-this-way? That can makes certain decisions crystal clear.

For example, I have read both sides of the argument involving transferring assets without violating a bank’s “due on sale” provisions. I prefer to not violate it, and yet get as much asset protection as possible. When I saw one of Clint’s comments essentially say, “no one tell the bank,” it means I need to review his advice more thoroughly before seeking him as part of my team. I have certain opinions on what I think is right, decent, and honorable, and it is up to me to decide if the attorney I retain to properly protect my assets can see eye-to-eye with me.

If your lawyer, your accountant, your broker, or your agent recommend something you don’t agree with, it’s your responsibility to look elsewhere. It’s not your lawyers responsibility, and you can’t say “my accountant made me do it.” To paraphrase Rod Johnson at QCON during “Things I Wish I’d Known,” it helps to pay good money for good legal and tax advice, but don’t forget to manage your professionals. They like to invent work for themselves. I like to extend that: it is your responsibility to do all this according to ethical standards you intend to uphold.

I am not a licensed financial advisor nor an insurance agent, and cannot give out financial advice. This is strictly wealth building opinion and should be treated as such.

3 thoughts on “Rebalancing my portfolio – picking a team of experts

  1. Kyle K

    Greg,
    Fantastic post. The challenge is to filter through the varous experts’ opinions to come up with the most viable solution for your plan. And, once you do that, retain those experts you trust. I, too, have been building my ‘team’. So far, no complaints with what I’ve got but it is still early.

    Reply
  2. Greg L. Turnquist

    Kyle,

    You’ve hit the nail on the head. Picking a good expert that matches your values is the $64,000 question. Because it’s tricky and takes time, that is why I subscribe to Dave Shafer’s opinion that when you find a good expert that helps you make money, they are probably worth the cost.

    People that sneer at fees and want to pick the cheapest solution are working in the wrong direction. In fact, choosing experts based on costs Cheaper may be better when it comes to buying vegetables at the grocery store, but not when it comes to long term investing.

    Reply
    1. Kyle K

      I’m not sure I agree with buying cheap veggies. I prefer organic.

      All kidding aside, I wholeheartedly agree that true experts are worth their weight in gold and well worth the higher fees. They’re experts; would you expect their time to be worth squat?

      I feel like I’m in a similar situation as you. I recently found an accountant that I feel is going to be a tremondous asset (it is a little early to tell so far, but he’s a true expert). Asset protection is another area that I’ve been researching like mad. There are far too many (and widely varying) opinions on asset protection as it relates to real estate.

      Reply

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