When you’re a real estate investor, changes in the market will always be of interest. With a major shift like Biden’s administration coming into power, there are bound to be both long-term and short-term changes that can affect your investments in many ways.
Since real estate requires a lot of attention and planning, it’s best to stay in the loop and keep on top of things. Here’s what you need to keep in mind so that making plans for future and current investment becomes a more informed process:
1. Consider Mask Mandates
The Biden administration is likely to seek a country-wide mask mandate. At the moment, the coronavirus pandemic is showing no signs of letting up. Several states are still experiencing surges in the number of cases and COVID-related deaths, and the Biden campaign itself was centered around stemming the outbreaks.
At the beginning of the pandemic, it seemed as if wearing masks and following other forms of safety protocols could wreak havoc on most businesses. Now, however, we may hope that wearing masks will help to make the virus less pervasive, and hence, improve the economy.
If following these protocols results in businesses staying open, it means good news for those investing in real estate. With a better economy, you have more people who want to rent or buy housing.
2. Affordable Housing
Biden is planning to help out those who want to buy homes instead of renting. There’s also talk of working with Congress and aiming to get a new kind of tax credit for renters. The end goal of all this is to reduce the rent plus utility cost to a maximum of 30 percent of the income for certain tenants. This would be the group that doesn’t qualify for any housing vouchers but is still in the low-earning spot.
This plan could create an increase in the demand for starter homes, which will give more lucrative opportunities for investors like house flippers and developers. Another possible result is that the tax credits make it easier for renters to pay up on time. If this happens, landlords will have a more stable income than before.
3. More Renter’s Rights
Real estate investors also need to understand that Joe Biden is promising to expand renters’ rights. This includes the concept of making it difficult to evict tenants based on their inability to pay rent. With such policies in place, the result might be unpaid income taxes and/or property taxes.
This isn’t really good news if you’re planning to invest in real estate or have already done so. Property liens might be one of the reactions but your specific situation will also count as a factor. Make sure you take these influences into account when planning to invest in real estate or changing up your real estate portfolio.
4. More Home Ownership for Single Families
With Biden in charge, the plan to have more single-family homes for Americans will probably go forward. This includes offering tax credits plus fiscal policy support for families who are looking to purchase their first homes. The mortgage rates will also be lowered and the down payment might be paid for them.
If this plan takes off, real estate investors will have to assume that their rental units will no longer be in such high demand. Rent rates might go down to the extent that the marketing for single-family housing could crash. However, one can hope that the plan also includes offsetting such situations.
In the meantime, real estate investors might want to consider investing in property that they want to sell instead of renting. Having mobile homes for sale or mobile homes for lease might also be a few ideas for future investments.
5. A Possible End to the 1031 Exchange
Real estate investors have gotten several tax breaks up until now but some of these might come to an end very soon. Among these tax breaks is the like-kind exchange, also known as the 1031 exchange. This is actually a loophole in the law, which allows the investors to exchange one real estate piece for another and not pay the taxes for capital gains on the sale.
Like-kind exchanges make up an estimated 20 percent of all deals concerning commercial real estate. Biden has mentioned eliminating this break which might result in a much larger tax burden on real estate investors. This will probably be a good time to get in touch with a lawyer specializing in real estate and getting full information about what to reasonably expect.
6. More Funding
Another likely plan for the future involves more funding for the cities, especially those who mostly voted Democratic. New York, especially, is said to be in critical need of funding from the federal state. The Trump administration had refused funding for Seattle, Portland, and New York, all of which were cities holding large protests against the police based on the Black Lives Matter movements and the death of George Floyd in May.
These issues were resulting in a definite downturn in the quality of life within these cities. All the systems, from the garbage collection to mass transit, were doing down very rapidly. With the Biden administration taking over, these cities are likely to get the funding they need and bounce back as soon as they can.
Stimulus money is also a factor here. But it’s also expected that Biden will push the federal stimulus package to go up to $3.5 trillion.
Overall, Biden is also planning to have more taxes for the wealthy classes and more support for the lower and middle classes. This is a good thing for renters and buyers who earn an average income but not for the real estate investors who are in the top few income percentiles. The latter might not benefit from such tax plans but they're hardly likely to go broke either.
Many real estate investors are still hopeful that the future of their market looks brighter than before. At present, cities are lacking federal and national assistance and not making much more. With a bailout from Biden’s government, there might be more flexibility in the funds department. Brokers are quite hopeful of the market stability that might come with the Biden presidency. At present, the real estate market is in shambles due to the pandemic. The previous administration has contributed to this situation by withholding funding.
7. More Confidence
In general, experts agree that stability does lead to better and more lucrative markets. With a downward turn in the real estate market, more real estate investors were previously looking to exit for good. However, with the monetary injections in strategic cities and a hopefully strengthening economy, it’s to be hoped that the real estate market will also become more predictable for at least the next four years.
There’s also another result of the expected stability for the future of America. More people are probably feeling a bit more confident and stable now than they were a year ago or even before that. When the general feeling of the market is leaning towards a positive state, people are much more willing to take risks. In the case of real estate, that might mean that more investors are entering the market and might offer more competitive rates. On the other hand, there will probably be more renters and buyers to offset this competition.
8. Removing the SALT Cap
The SALT cap is the name given to limitations on the itemized deductions for local taxes, home mortgage interest, etc. This cab was enacted under the Trump administration and is geared towards benefiting those who are in the larger cities of the nation.
Property taxes are usually higher in the suburban districts. So, this means that the SALT cap is mainly targeting them. Repealing this cap will mean that the suburbs start booming on the real estate market. Those who chose to relocate to the suburbs from the big cities during the coronavirus pandemic are likely to benefit the most from this decision.
According to Garrett Derderian, who is the market intelligence director at Serhant, the locales who benefit from the highest SALT deduction on average include New York, California, New Jersey, Connectivity, Illinois, and several others. He also added that the housing sector has performed very strongly during the pandemic (other than the coastal markets that have lost out on so many sales). For now, it seems like there’s a lack of homes available in the market, especially when we talk about entry-level offerings.
The Takeaway
It’s evident that Joe Biden plans to change up the real estate market in the near future. For now, however, his plans seem to be a bit mixed and are still up in the air. Once the implementation starts, though, Biden’s operations still need the Senate lawmakers supporting them.
The tax code changes might take some time but real estate investors still need to keep all the proposals and promises in mind. There’s no need for any panic or celebration just yet; what investors have to do is realize the possible changes and start planning accordingly.
Benzinga's Related Links:
- Valuable Real Estate Tax Benefit Should Escape The Chopping Block, But For How Long?
- 5 Value Stocks To Watch In The Real Estate Sector
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