No, I’m not. But by the same token, financial planners are not Realtors!

I don’t give out stock tips, so I’m not sure why financial planners are giving out real estate advice…

First, the disclaimer…

The following is merely my opinion, and I don’t expect all of my readers to share my views.

If you are a financial planner, financial advisor, life planner, life coach, stock broker, bond trader, investment banker, investment planner, investment counselor, investment assistant, investment associate, investment dude, investment gal, or anything in between, chances are – you might take issue with some of my thoughts.

If this is the case and you don’t share the following views, then I encourage you to fight fire with fire; grill me on discount brokerages, commissions, the Competition Bureau, dual agency, confilicts of interest, misleading advertising, shady Realtors, and anything you see fit.

It’s only fair, right?

A few weeeks ago, I got a sign-call on one of my listings from young kid that I would say was about 23 or 24 years old.

He came to see the property that I had listed at $329,000, and he said that while he absolutely loved it, he didn’t think he could afford it.  He told me he was looking “around three-hundred; maybe a bit more” and that this just fell out of his price point.

I didn’t get into a discussion with him about how a $329,000 condo only carries for about $89 per month more than a $310,000 condo because I felt that he clearly had a price ceiling, psychological or otherwise, and I didn’t want to rock the boat just yet.

We looked at another condo at $314,900, and he decided this was an excellent fit.

I had him speak with my mortgage broker for a pre-approval, and my broker told me that this kid wouldn’t be able to buy the condo.

Here’s the thing about my mortgage broker: he’s the best in the industry and he’s a huge part of my business, but he never discusses my clients with me.  I forward them to him, and he works on their behalf.  But I don’t ask about their personal finances and he doesn’t tell me.

So when my broker told me that he couldn’t get this kid approved, he said, “Sorry but for the parameters he’s set and taking his objectives into account, he can’t get this condo.”

That got me thinking, so I asked the kid what his financial situation was like.

I said, “Do you not have 5% to put down?”

I assumed that perhaps given his age, he was one of these first-time-buyers that underestimate the cost associated with buying real estate; the land transfer tax, legal fees, moving, furnishing, etc.

He said, “No, I’ve got more than 5% down.  That’s no problem.”

So I asked, “What are we talking here?  Are you trying to get to 10%?  Are you at 20% – are you trying to avoid high ratio?  Because I can tell you that likely 80% of my first-time-buyers don’t have 20%.”

He said, “No that’s not the problem.”

Then he dropped this bombshell on me – one I have yet to recover from.

He said, “I need about $110,000 to buy this condo, and I only have $90,000.”

Wow.

I was speechless.

I couldn’t make sense of the numbers!  We were looking at a property priced at $314,900, and he “needed” to have $110,000 in order to buy it?  What was I missing here?  I was incredibly impressed that at his age, he’d already amassed $90,000 in savings!  This money wasn’t coming from his parents – believe me, I asked!

So I inquired rather directly, “How did you come to determine that you need $110,000 to purchase this condo?”

That’s when he dropped bombshell #2; the words that will lead me into a rant from which my blog might never recover:

“Because my financial planner tells me I need to make a 35% downpayment on any condo I buy.”

I’m sorry, but I disagree.

Financial planner?  Huh?

Call me biased since I sell real estate for a living and I get paid when people BUY, but I don’t think anybody really “needs” to put down a certain percentage, let alone 35% for a first-time-buyer.

The fact that I’ve had 10-12 clients this year alone buy with 5-10% down has no bearing on my opinion.

The fact that I had a client purchase for $1,100,000 last year with 5% down also doesn’t matter.

And the fact that in 2005, I had a client purchase a $1,160,000 house with zero down and cash back via the 107% financing option also won’t factor into my opinion.

Every buyer has his or her own level of comfort when it comes to the amount of debt they take on, and we’re all born with different risk tolerances.

I am NOT suggesting that every buyer put down 5-10%, or even suggesting that people who have 5% down should even be in the market at all!

But I vehemently disagree with a financial “planner” that tells a 24-year-old kid, who has accumulated $90,000 in savings, that he can’t buy a $300K condo.

It’s ridiculous.

So I asked the kid a few questions…

“Who is your financial planner?  How old is he?  How long has he been in the business?  What’s his real estate portfolio like?  Where does he live?  What kind of car does he drive?  Do his kids go to private school?  How does he dress?”

Sure, these things are all material, but far be it for me to say that a “financial planner” could be some 28-year-old shlub with no money to his name, who merely dishes out advice over the phone.

“How much money does this guy make for his clients?  What is his track record like?  What is his client retention rate?”

I think these are all fair questions.

The kid told me, “My financial planner is leaning more towards the stock market and he’s shying away from real estate right now.”

Really?  Based on what?

When you’re picking a stock broker, financial planner, financial advisor – or whatever they’re called, I don’t think it’s unreasonable to ask the ‘tough’ questions.  Ask them what they bought for their clients yesterday.  Ask them what they bought for their clients four months ago, and how those investments have done.  Ask them what they bought for their clients two years ago, and why they did so.

If somebody asks me for a reccomendation, I won’t just say, “Buy at 230 King Street East.”  I’ll give them an hour of my opinion, if they can stand me that long.

When I was 19 years old, I sought the advice of a 60-year-old financial advisor who had been through three different market downturns.  He told me to put all of my money in the world into ONE single stock: Nortel.

I bought at $50/share, and he didn’t tell me to sell it at $45, or even $40.  At $30, he said, “It’s just a paper-loss.  If you sell now, you’ll end up losing $6,000!”  At $25, I had lost half my money, but he urged me to hang on.

I sold it for $2.00 when I transferred my RBC account into what was then E-Trade, and began managing my own finances.

No, this story does not encompass the whole industry, and I’m aware that not everybody is equipped to manage their own portfolio.

But to say that I have little faith in miracle-worker stock-pickers is an understatement.

Arrogant, unsophisticated 27-year-olds were primarily responsible for the tech-bust in 1999 and the sub-prime crisis a decade later.  The grey-hairs were responsible too, but just from a higher floor with a better view.

Three years ago, a guy I knew from high school asked me to lunch so he could “earn my business.”  I agreed to meet with him.

He pitched me on himself, his company, and his “knowledge base,” and I failed to be impressed.

He raved how he “only” smokes pot twice per week now, instead of every single day like only yesterday.

He said that he managed “Millions and Millions of dollars” worth of portfolios, and again, I didn’t see how this related back to me.

But it wasn’t until he told me what he was buying for his clients that I wanted to throw up.  You see, the fact that he was buying anything was the problem in the first place.  The S&P and TSX were both down over 30% that year alone and had been trailing for 18 months.  I told him that I had short positions out on every single Amercian bank, financial, and tech stock that I could get my hands on, and that it was treating me well.

That’s when he said, “Oh, well, at my company – we’re not allowed to short sell.”

That made absoluley zero sense to me.  Shorting is half of the market.  For every buy, there is a sell.  How can you ignore one half of the equation?

More importantly, how could you make money BUYING in a market that was doing nothing but go down?  Sure, perhaps he had a 3-5 year outlook and I was only focused on the next 1-2 years, but I truly don’t think he thought that far ahead.

However, the icing on the cake was when I found out from an industry colleague that his firm, wait for it……only sold equities which they underwrote themselves.

Talk about a conflict of interest!  They were being told from management to only sell companies which they had a stake in!

That’s like me only showing properties that I have listed myself!

If there are one-million companies you could buy stock in, these guys were only selling a hundred!

I have very little faith in “financial planners,” but that’s just me.  That’s based on my own experiences, and basically every book I’ve ever read about finance in the last fifteen years.

For a financial planner to tell a 24-year-old kid that he MUST make a 35% downpayment on a property is the worst advice I’ve ever heard.

But what really irked me was that this financial planner didn’t back up his advice whatsoever.  He told this kid things like, “Just trust me.”  That’s what I heard, ver batim.  If you’re going to make a statement like “Only buy with 35% down,” then you should give, you know, a reason!

I’m not a financial planner, and I don’t give out stock tips, nor do I take part in long-term weath planning.

I don’t think that financial planners should be giving out real estate advice.

I had another client whose financial planner told her, “I really don’t like that building.  I don’t think you should buy there.”  But that’s a topic for another day…