We've been through four years with a real estate owner and investor as our President, and we are about to transition to a very different administration. Whatever we thought of President Trump, many in the field thought that he would help us, and, in some ways, he did. Now we are moving forward with another team, and the jury is out. What should we expect?
While taxes will likely rise, it won't be instantly. It also may well focus more on income in general, and not on the type of income that you have, meaning that real estate would not be targeted. Would we expect that business meals will continue to enjoy complete deductibility? I'd guess not. That may help us slightly now, but removing it isn't aimed at real estate, and it won't be a big surprise.
Some of the tax advantages that real estate has had are pretty obscure for the population as a whole, and maybe even for Congress. Are there enough 1031 exchanges to have a focus on eliminating them, or tightening the rules? Again, probably not.
What could help us? First of all, interest rates. There are signals that they won't be increasing any time soon, and that helps real estate more than anything else could ever do. After all, it's the payments that matter, more than the price.
Biden will also be helping those who have been impacted by the pandemic, and they have to live somewhere. It seems plausible that rental properties will do very well in the upcoming year, and that tenants will get enough help to be able to afford the rents. This may be particularly true in Connecticut, as a blue state. We have been at the bottom of the list for so much federal aid in recent years, and the new administration should change that. Cities may benefit, which is where the bulk of renters live.
Once we achieve herd immunity from COVID-19, or when a majority of the population receives the vaccine, there should be a big upswing in retail, restaurant, and entertainment activity. In fact, it may well exceed the norm for some period of time, as people revel in getting out and doing things. Travel will help hotels, as well as the other categories listed above.
All in all, it's a new day, and one that savvy investors will use to determine where to place money. More of us may switch from stocks to real estate, and those who have moved to Connecticut for the open space will often stay, and spend money here. Prices for real estate will continue to rise, and only supply will limit growth. Since there is more supply on the commercial side, that's even better news for investment property owners.
Happy New Year!
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