Real estate is frequently one of our clients’ largest asset classes, and it can come in several forms, like personal residences, commercial buildings, rental property, and more. This means that the financial health of our clients often relies upon prudent management of real estate. However, real property like that is not what we manage here at Stifel. We are typically dealing with assets like stocks, bonds, life insurance, and alternative investments. With this in mind, we felt compelled to remind our readers about some important aspects to managing their real estate.

Diversification
One cornerstone of asset management is diversification. Since it is sometimes our clients’ biggest asset class already, we rarely recommend real estate inside of their investment portfolios. Real estate may be an excellent long-term investment; however, I believe there are risks that go underappreciated, so diversifying away from real estate in their Stifel accounts is important. Some of the risks of real estate include price volatility, illiquidity, tenant vacancy, cost of maintenance, property taxes, and more. We can help you diversify into other asset classes like equities, fixed income, and alternative investments.

Should I Pay Off My Mortgage?
Personal finance involves a lot of decisions where the qualitative advantages of one choice are at war with the quantitative advantages of the opposite choice. Quantitatively speaking, it likely is a poor decision to pay off a mortgage with a 3% interest rate. The odds of long-term assets outperforming 3% on average are high. However, the relief that a client feels when a mortgage is paid off is hugely fulfilling, especially on their home. So, what’s the best decision? The answer is that it’s personal. Let us look at your individual situation to give you personal financial guidance so that you can make an informed decision. 

California’s Prop 19
A lot of our clients are based in California, and if you are too, it’s important to know about Proposition 19, which was passed in 2020. This gives property tax benefits to older people who are moving to a new home or to homeowners that are transferring the asset to their heirs. It also has similar provisions for disabled people or people affected by natural disasters. This may be something you will want to discuss with your tax advisor, particularly if you are a senior looking to downsize.

Capital Gains
If you want to move on from a piece of real estate property, it frequently comes with a hefty tax bill. One way to defer the tax bill on investment property is to invest in another piece of real estate via a 1031 exchange. If you execute this properly, you will be able to defer the taxation of the capital gains. Note: These are complicated transactions that require proper advisors in tax and real estate.

It’s also important for homeowners to know about the capital gains exclusion if you sell your personal residence. There are specific requirements to qualify for the exclusion, but if you do qualify, a married couple selling their long-term home can likely exclude up to $500,000 in capital gains (or $250,000 for a single individual).

Conclusion
In sum, real estate can be an excellent investment that can complement your other assets. It’s not without risks, and it can be very complex. Working with the appropriate tax advisors, real estate professionals, and of course, financial advisors can help you make the best decisions for you and your family. Our team can integrate real estate into your overall financial plan to help ensure that all of your assets are moving you toward your long-term financial goals.

Diversification does not ensure a profit or protect against loss. Stifel does not provide legal or tax advice. You should consult with your legal and tax advisors regarding your particular situation.

Robert’s Corner
Thank you, Anne! 

If you are a client, you have likely received a birthday card from us with a picture adorning the front and a personalized message inside. These cards feature majestic birds, grand vistas, beautiful flowers, and more. We’ve used them for over 15 years, and we want to recognize the artist responsible for putting these cards together, Anne Hamilton.

Not only is Anne an excellent photographer, but she’s also my mother-in-law! Even in her nineties, she continues to be engaged in activities that bring her joy. She is a local photographer, humanitarian, and is an amazing grandmother and great grandmother – and of course, I won the grand prize in the mother-in-law contest. Not only does she take the pictures, but she puts the cards together as well. Then we buy them from her at what I assume is the friends and family rate. Thank you, Anne, for your support, your service, and your art!

October is Cybersecurity Month!
We can’t emphasize enough how important it is to remain vigilant against cybercrime and scammers. These criminals are smart, and their schemes are ever-changing. Call us for more information on how to best protect your data and assets from cybercrime.

What Can You Do to Protect Yourself From Cybercrime and Fraud?
Don’t get hooked by phishing.
Don’t carelessly open attachments or click on hyperlinks in e-mails. Viruses, ransomware, and password theft could be one wrong click away. Many phishing e-mails will create a false sense of urgency appealing to your sense of hope or fear. Be leery of e-mails you weren’t expecting, even if they appear to come from someone you know.

Make your password strong.
Make your password easy to remember, but hard to guess. Don’t use obvious words (names) or number combinations that are easy to guess (birthdate, year, etc.).

Passwords are the key to your information and assets.
Bank accounts, e-mail, computer, and social media account passwords should always be protected. Don’t share or provide a password over the phone or through a link you receive in an e-mail. No financial services or IT professional will ever have a legitimate reason to ask for your password. 

Social engineering.
Cybercriminals rely on fear, hope, and trust. E-mails and phone calls with a sense of urgency, legal threats, or an incredible offer are a few tactics used to get your personal information or money. Don’t trust unsolicited phone calls or e-mails asking for payment or personal information.

Don’t re-use passwords for multiple accounts.
Is your e-mail password similar or the same as your
bank password? Change them as soon as possible.