If you hang around real estate investors for a while, you will always hear the disclaimer that “I am not a lawyer, CPA, or financial advisor”. You will even see it on each of my blog posts J.
Confusingly, that disclaimer can often be followed by comments that sound a lot like someone giving you advice. But really, they aren’t. The person is giving you their perspective about something. That perspective is highly subjective and may or may not apply to your situation. That is why there is usually the additional comment that and “you should always consult your own advisors before making any investment decisions “.
This is important advice to follow. Your situation is likely very different than the situation of the person you are talking with, and so what has worked well for them may not work for you. As a simple example, if they are classified by the IRS as a real estate professional, the tax advantages they get from depreciation are very different than what you would get if you are not. Since they only have a high level idea of what you do, they aren’t in a position to authoritatively tell you whether or not what they are suggesting will work for you. As a result, what they are saying falls more into the realm of general information than advice.
You need someone who knows your situation to be able to really know what information is relevant to you and what isn’t. While how to invest your money is ultimately your decision to make, it is important to take general information, filter it through your own investment philosophy, and then dive deep into the weeds to see how it applies to you. Since the details are important, highly technical, and change constantly, it is extremely important to have a CPA and a lawyer you can trust to help you evaluate opportunities.
A well informed CPA should be able to tell you how a specific strategy or deal (ie general information) can be applied to your circumstances. Of course, they aren’t going to know what information you are interested in, so you need to be responsible for having high level conversations and figuring out what questions to ask. However, by having the right professional familiar with your situation, you don’t need to know all the details, they can tell you whether or not the information is applicable to you and if so, what the final results would be.
The same holds true for a lawyer. When you find a deal you are seriously considering, having an experienced lawyer look over the documents can provide great insight. They can identify things that fall outside of the norm and highlight risks within the deal that you would otherwise miss because they look at hundreds of deals a year, while you may be looking at only a handful or two.
Unfortunately, all professionals are not created equal. There are experts and barely qualified people in every field. And, making things even more complicated, someone who is fantastic in one area may not be the right person to advise you in another. A great SEC lawyer isn’t going to be the right person to help you with asset protection or defend you in a murder trial. Similarly, a tax professional that focused on preparing taxes for people who only have W-2s and 401(k)s isn’t the right person to advise you on how a particular syndication will impact your taxes.
That is why it is so important for you to do your own initial filtering of the information up front. By coming up with focused questions and figuring out what information is worth exploring further, you are able to identify what specialized skills you need your advisors to have and make the most of everyone’s time.
One time saving strategy is to find people doing investments similar to the ones you are interested in and ask them for referrals. Then use those referrals as the starting point (not the ending point) for your investigation. However, referrals from people who are doing something completely different than you are (or want to) may not be as useful. For example, an accountant who is great for a house flipper (an active business) may not be as helpful for someone who is an LP in a bunch of syndications. While they would certainly be able to do the job, they aren’t necessarily as familiar with the nuances of how to best save you money as someone who specializes in passive investors would be. So always consider the source of your referral – you don’t want to be paying for the professional’s continuing education, you want to benefit from their existing expertise.
Of course, both CPAs and lawyers should be reasonably compensated for their time. The best professionals are in high demand and can charge a lot for their expertise. But finding the right professionals for the types of opportunities you are interested in is well worth the investment.
If you have any questions or comment about this post, please email them to me at blog@mbc-rei.com, I will reply to the questions that are straightforward and will turn the questions requiring more detailed answers into future blog posts.
This article is my opinion only, it is not legal, tax, or financial advice. Always do your own research and due diligence. Always consult your lawyer for legal advice, CPA for tax advice, and financial advisor for financial advice.