By Constantinos Massonos, APC Sports Consulting, Nicosia, Cyprus
The process of setting up a financial plan, requires athletes to decide, ideally with the help of a trusted financial advisor, how their hard-earned money can be invested to generate even more money. Whilst saving money can protect athletes’ wealth and should be the first priority in any financial plan, investing allows them to beat inflation and exponentially grow their money.
Athletes are not expected to have an in-depth knowledge of all types of investments available or to have the time to follow market indices, which is why they pay their advisors. But, investing adheres to some very basic principles, such as not putting all your eggs (money) in one basket (investment) or if something (an investment) looks too good to be true, it probably is!
A very simple yet rewarding form of investment is investing in real estate. An athlete can buy and own real estate properties which can generate rental income and appreciate in value with time. Alternatively, athletes can invest in real estate without having to own, rent out or operate any property by investing in a real estate investment trust (REIT).
One of the main reasons which make investing in real estate a good fit for athletes and their profession, is that it allows them to receive a passive income, without having to be involved in the management of the property. Further, the long term and low risk nature of real estate investment can fit athletes’ plans to have a stable income after the end of their sporting careers. If athletes have a different plan for their post-sports careers, the real estate in their possession can also act as leverage to raise funds to help turn any other of their financial goals into reality.
To truly appreciate the associated risks and benefits of real estate, one needs to be familiar with the pros and cons of the market.
On the plus side, the real estate market, whilst not as profitable as other investment options, tends to be less volatile and risky compared to the stock market. Property owners are more likely to benefit from tax deductions and other such government-related benefits. Moreover, people with the ability to purchase multiple assets can count on a lucrative flow of cash upon which they can count for their main source of income – an ideal situation for athletes. Finally, in the long-run real estate assets are very likely to increase, although, as previously mentioned the profit is likely to be lower.
For instance, between 1990 and 2019, the increase in the S&P 500 was almost four times higher than the increase in real estate prices. Moreover, real estate assets are highly illiquid. That means that, in the case of emergencies, real estate owners are unlikely to be able to raise funds swiftly by liquidating their assets. Also, something that investors and others tend to overlook, are the associated costs of owning real estate assets. Whether you choose to live in your property, rent it out or try to resell, you will most likely face high maintenance and other costs. Not even to mention the daunting task of dealing with tenants. You will have to deal with such things as leaks, reparations and overdue rent - to name but a few!
There is a good number of former athletes who have invested their money in real estate and successfully managed to grow their wealth. Former NBA star and Hall of Famer, Hakeem Olajuwon, continued to impress after leaving the pitches by dominating the real estate world. Olajuwon made approximately US$110 million in salaries during his basketball career and he invested some of that in real estate. Four years after his retirement, his returns from his real estate investments had almost surpassed his total sporting career salaries.
Another Hall of famer and NBA all-star, David “The Admiral” Robinson, has founded his own very successful real estate investment firm: “Admiral Capital Group”.
For further information on understanding real estate investing and/or for professional assistance in setting up financial plans, log onto: ‘www.apc-sport.com’.