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Real Estate Investment and the Trump Effect

by Editor | ezLandlordForms

Landlords across the nation had a unique perspective last year when it became clear that one of their own would be moving into the White House. Real estate investors couldn't help but hope for an income boost since, while the new president's current financial success is closely tied to branding efforts, his family built its fortune on New York residential real estate.

Hopes for cuts in taxes and reduced government oversight excited investors and capitalists of all stripes, writes the New York Times' Gretchen Morgenson.

“When Donald J. Trump won the presidential election, investors seemed positively giddy about what he was going to do to improve the nation’s economy. Believing that his promises to reduce corporate taxes and curtail costly regulations would unleash economic growth, investors pushed stock indexes to new heights,” writes Morgenson.

Some accounts have warned that the so-called “Trump Bump” in investor optimism could be short-lived, especially under fickle White House policies. Also, Trump policies could affect real estate investing in different ways, depending on whether investments are in commercial or residential property, and depending on investment location.

As Real Estate Research Corporation President Kenneth Riggs Jr. writes, in Pensions and Investments, the Commercial Real Estate Market (CRM) could see elevated risk.

“The president's protectionist stance on trade and the refugee crisis have generated concerns about global economic growth, giving investors pause. In the CRE market, the president's opposition to illegal immigration, as well as the high percentage of illegal immigrants in the construction industry, might exacerbate existing construction labor shortages,” writes Riggs.

Instead, Riggs writes, “Alternative property types, such as student housing, storage (and) medical-related assets are gaining appeal.”

Could residential be the safest real estate investment?

If the Federal Reserve continues to implement higher mortgage rates in 2017 – rates have already risen a half point this year – potential home buyers will have to delay purchases. And those future homeowners also may have to save a little longer to afford home insurance following the Trump administration's suspension of the Federal Housing Administration's insurance premium reduction.

Those factors are encouraging for a rental housing market that has been going strong since the economic collapse in 2008. When fewer people can afford to buy homes, the tenant pool expands. 

Plus, the new White House has promised to continue the spark in job growth that started under the previous administration. Trump made job growth central to his election platform, and has demonstrated a willingness to fight efforts to move jobs out of the U.S.

As Axiometrics' Chuck Ehmann notes, there is a strong correlation between the rental market and job growth, with the top markets continuing to be New York, Dallas, Atlanta, Los Angeles, Boston, Denver and Riverside.  

What about Real Estate Investment Trusts (REITs)?

Investment expert Brett Owens claims that REITs are poised to withstand any Trump effect. He says that the investment vehicle is protected from potentially higher rates, thanks to efforts to cut debt.

And, he writes in Forbes, REITs continue to routinely outperform stock yields.

“REITs would benefit if Trump’s tax and infrastructure plans goose U.S. gross domestic product, which already grew at a healthy 3.5 percent clip in the third quarter,” of 2016, Owens writes.

The real estate market in general is bound to benefit from a Trump White House, according to Rentec Direct President Nathan Miller.

“The Trump presidency will flat-out improve the real estate market… The reasoning is pretty simple: Trump is a real estate guy and his mentors, policies and cabinet are going lean in the direction of real estate investments. Real estate is a market Trump knows well, so whether it's a conscious decision or not, his moves in the White House will improve the real estate market.”

How important is location?

Geography may be one limiting factor in property investment purchases, although it isn't yet clear how this will play out.

The president's real estate investments aren't limited to New York. That may be the home base for the family's investments, but Trump has expanded real estate investment outside that state and abroad to the extent that Forbes refers to him as a “global real estate man.”

But for the rest of us investing stateside, there could be winning and losing regions for property investment if Trump proposals on immigration become rule.

For instance, as Riggs points out, relying on illegal immigrant labor for construction could be dicey. And landlords in communities with higher-than-average immigrants, such as Los Angeles, Miami and Chicago could see a reduction in potential tenants.

Should you take the leap?

Ultimately, the combination of less regulation on lending, business-friendly legislation and potential volatility in the stock market as a result of Trump policies could make 2017 a good year to become a landlord. However, factors to consider go beyond the current climate in government.

Property investment – especially for a hands-on landlord – continues to require oversight. It is not a set-it-and-forget-it enterprise.

Careful screening of potential tenants, a sturdy lease that meets state laws, routine communication with tenants and rental unit inspections will continue to be minimum requirements for successful property management.  

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