How will one of the most historic elections in our nation’s history affect you?
It’s been an exciting presidential and congressional election process this year. In the aftermath, there are a lot of ecstatic people, as well as a great many who are quite upset. Reasons for feeling either way are many, and every happy or upset person can give you one subject that excites them the most.
Putting all of the political and social stuff aside, real estate investors probably aren’t out demonstrating or even partying based on either candidate’s views on flipping houses or buying rental properties. However, the new administration and the Republican majorities in both houses of Congress may make our investment activities interesting in the next four years.
What if We Just Get More of the Same?
Assuming for discussion that the new President-elect takes office and all of the grand plans for change get bogged down in politics, what will the effects be on our business? Well, it’s probable that young people will still be living at home with their parents, home buying will remain weak, and renting will become more the way Americans live. There may even be another round of foreclosures as regulations and taxes continue to keep new job creation down. This could keep us busy doing just what we have been doing for years now.
This doesn’t mean that cash flows will be fat. If the economy remains in a funk and wages continue to stagnate, we may see rents decline or stagnate as well. Supply and demand will rule as always, but a poor economy may force rental property owners into a competitive environment that will require rent concessions.
What if We See Changes as Promised?
There are a lot of promises flying around about what’s going to happen the first 100 days of a Trump presidency. A business tax cut, simplification of the tax code and lower taxes for the middle class should spur the economy. Even if wages don’t rise right away, keeping more of our income after tax should increase consumer spending.
Donald Trump’s first 100 days have some people excited and some people scared to death
Getting rid of a lot of the regulations put into play by the bureaucracy or through executive orders should spur new business formation and hiring. The economy should get better and put more money into our pockets. Generally, economic gurus say that strong economic growth will be the result of tax system and regulatory changes if they happen.
All of that is great, but what does it mean for real estate investment? If consumer economic sentiment improves and consumers and small business become more prosperous, what about housing? One thing we can safely assume is that home buying will pick up, perhaps dramatically. Home prices have been rising, but recently that’s been more the result of low inventory rather than high demand.
Getting rid of some of the regulations should spur new business and hiring opportunities
With higher demand, many of the homeowners who have been delaying listing their homes for sale are likely to put them on the market. The better economic outlook should make them more upbeat about buying something else with recently regained equity in their homes. However, more buying, especially if first time buyers resurface, is likely to result in a slowing of the demand for rentals.
What is the rental property investor to do? You certainly do not want to aggressively bring new rental homes online if rents begin to soften. Not getting your anticipated cash flow is a concern. Real estate is local, and if businesses are coming online and hiring is increasing, you can probably still do well, as renting has become mainstream since the housing crash. Home ownership isn’t the big dream for many that it was pre-2006. It may never recover, and renting may be the plan for many for years into the future.
If you already own rental homes, this can be the time to consider using the 1031 Exchange to roll into different real estate types or more upscale rental homes. Rising home prices could make it the perfect time to sell and roll your capital gains into commercial or multi-family properties. Commercial properties should see growth with better economic times.
Things look good for smart real estate investors no matter which way the political winds blow. As in up, down or sideways markets of the past, it’s just a matter of understanding changes and adapting our investment strategies and target markets.
Have you already started to see changes in your investments since the election? I’d love to hear your story. Feel free to leave a comment or message me on any of my social media platforms: