Each candidate means for real estate investors - Posted by ProsperityGroup

Posted by Sailor on October 21, 2008 at 05:12:05:

I always felt the same way (well, except for 1988 when the only way I could vote against my lifelong party who didn’t believe my daughters & granddaughter were entitled to equal rights was to wait to cast my vote until the winner was already announced on the opposite coast). This election is difficult for me, too, as I don’t think either candidate is going to truly speak to me. Thought I was decided Sunday night when I thought about the next round of Supreme Court nominees, then when I got up yesterday, it was w/the memory of what happened to Jack Ryan 4 years ago, & I had a flashback back to my memories of Chicago, & the way things are still done there.

I don’t consider myself a mugwump, as I care passionately about about whoever is going to work in the Oval Office. I just don’t trust my party or the other guy to refrain from being, in his turn, ruled by special interests. I’d like to go home again, but they changed the locks on me–

Tye

Each candidate means for real estate investors - Posted by ProsperityGroup

Posted by ProsperityGroup on October 18, 2008 at 21:37:15:

Let me start off by saying FIRST and foremost that I do not want this to become a politically-laced thread where party-line thinking gets thrown in. I was picked to present to my local RE group what a win for either Obama or McCain will mean for real estate investors. I am looking for opinions on what it means for all classes of investors (flippers, rehabbers, apt owners, tax lien purchasers, commercial RE) as well as what it means in regards to opportunities for us to make money. I was picked since I’m a fiscal conservative, socially liberal independent registered libertarian minded person. I’ve also appeared on 3 shows on MSNBC following the 2nd debate. So I know my stuff, and I have my opinions too, but I wanted to get an idea from others around the country see what both Obama and McCain mean for them. Essentially, I want to know “what will you specifically do to make more money in real estate if candidate X wins?”. I’ve dabbled in everything in real estate, and right now my core holdings are 14 rental units, but I’ve also done rehabs, flips, and owned commercial property and a car wash.

Re: Each candidate means for real estate investors - Posted by DJ-nyc

Posted by DJ-nyc on October 21, 2008 at 12:02:17:

Rooming houses, drug and alcohol centers (sober houses), Hostels - Obama

Short sales, flips, bankruptcies, famine, world hunger, soup lines, - McCain

DJ-nyc

WAKE UP - Posted by Kenneth Hocking

Posted by Kenneth Hocking on October 20, 2008 at 15:27:05:

If obama Wins it is simple:

Own Section 8 rentals,

Own community based clinics or Script shops that can be rented to the Gov or Gov-blessed community Helath care groups.

Own all the rentals you can near level 2 Colleges as student loans and Government grants will be made even easier to get and Level 1 schools are already at capacity.

Own all the Rentals you can that can be converted to extremely relaxed FHA guidelines.

For McCain it is a little harder, Even the GOP base recognizes that in the short term that taxes are going to go up the question is will it be Cap Gains or Income taxes or both.

If you fear that cap gains will blossom in a dem congress with a Republican President selling properties while the cap gains is low is your plan why put off today a small tax and exchange it forward into what is gonna become a large tax in the future regardless of candidate.

Regardless of Candidate investing near Major Medical centers where the jobs will increase whether they remain private or become government based jobs Major Medical centers are a recession Proof and Candidate proof play.

And if you can find investments that play to the affordable housing near a major medical center you a positioned very well post election.

The fear for all of us is if the Congress really looks to reset the values of the affordability of the american Dream by resetting the Cap Gains Rate, Removing the Primary residence benefit of no Cap Gains for the first 500K, And removing the 1031 Exchanges thus creating a one time Pay tax upon sale platform to refill the war chest.

Yes these are only theories and it would be awful for values but in 1986 a Dem congress effected a tax reform change that decimated RE values with the removal of certain tax shelters not so unlike 1031 exchanges.

Look at your portfolio and see if you want that differed tax bill to be at 15% or at 30% .

I think this leads to a sell off in commercial not unlike the overvalued sell off in many markets in Residential.

FUN FOR ALL and GOOD NEWS FOR SOME

Re: Each candidate means for real estate investors - Posted by James-Ct

Posted by James-Ct on October 20, 2008 at 06:41:08:

I think a recession will become official and foreclosures will increase with opportunuties in this area.
Obama - slower recovery and more short sales prospects with tax law changes unfavorable to REI.
McCain - REOs and foreclosures.
I’ve read there is $3.5 trillion in cash on the sidelines waiting for the stock market to stablilze. Real estate should get some of that too.
We’ll see.
James-Ct

Re: Each candidate means for real estate investors - Posted by Dave T

Posted by Dave T on October 19, 2008 at 16:55:53:

Regardless of your income tax bracket rate, your federal income taxes are going to increase anyway under current law without any assistance from either of the presidential candidates. Between now and January 1, 2011

  1. Tax rates will rise substantially in each tax bracket, some by 450 basis points;
  2. Low-income taxpayers will see the 10-percent tax bracket disappear, and they will have to pay taxes at the 15-percent rate;
  3. Married taxpayers will see the marriage penalty return;
  4. Taxpayers with children will lose 50 percent of their child tax credits;
  5. Taxes on dividends will increase beginning on January 1, 2009;
  6. Taxes on capital gains will increase, also beginning on January 1, 2009
  7. Federal death taxes will come back to life in 2011, after fading to nothing in 2010. The federal unified credit will reset to $1 million.

The Obama proposal is to only allow the increases to take effect for the high income earners. The McCain plan is to keep the current tax brackets and capital gains rates in play for everybody.

The Washington Post reported that under the Obama plan, taxpayers earning above $250K will see a significant increase in their tax bill in 2009, while the McCain plan gives these taxpayers a net reduction in their 2009 tax bill. Taxpayers earning between $111K and $226K will see a reduction in their 2009 tax bills, although the McCain plan makes those reductions slightly larger than the Obama plan. Taxpayers earning less than $111K, will still see reductions in their 2009 tax bills, but the reductions are larger under the Obama plan.

No matter which candidate wins the election, the next President will be dealing with a recession that may take a couple of years to turn around.

In a recessionary economy, I may have to lower rents to fill vacancies or suffer higher vacancy periods. Capital gains won’t be a problem because there won’t be anyone buying my properties should I be in a market to sell.

Taxes and insurance premiums will still increase for the buy and hold investor, which, coupled with lower rents, will squeeze cash flow.

I will probably not be acquiring any new properties for my rental portfolio for the next two or three years. The credit markets have essentially locked out investors who already have more than four financed properties.

If I have any excess cash flow, I will use it to reduce debt rather than reinvest.

I will probably not change my investment strategies. Subject To and sandwich lease option approaches will be too risky with little to no equity properties. I will only be a buyer if the seller offers an acceptable discount and carries back the financing.

for real estate investors - Posted by Bob

Posted by Bob on October 19, 2008 at 15:13:56:

the most alarming tax changes are the capital gains tax and and estate tax.

In an interview with the Wall Street Journal, one candidate said that in order to fund new initiatives that he could envision raising the CG to 28% from the current 15%.

The other candidate said that he would have a temporary 2 year CG cut to 7.5% then maintain the current 15%.

The estate tax is two tiered at 45% and 55% with a $3M threshold. This is plain and simple a redistribution of the wealth and I’ve seen small businesses and farmer put out of business because they could not pay the estate tax within the 9 months of death as required by the IRS. This tax is a small business and small farmer killer, and social engineering.

Sounds like fun - Posted by Rich-CA

Posted by Rich-CA on October 19, 2008 at 09:18:49:

as well as pointing out to those who want to focus solely on business to the exclusion of politics that the political landscape can have a direct disastrous/beneficial effect on what we can and cannot do to make money.

Some observations:

(1) Tax increases always depress business growth. The reason for this is that taxes take productive capital out of the economy and turn it over to a segment that does not actually produce anything. The GNP shrinks when taxes go up.
(2) Tax cuts, real ones not the kind of rebate cuts that redistribute wealth from producers to non producers (like the ones Obama is claiming are tax cuts where if the taxpayer owes no tax then they will get a check from the gov’t), these increase the amount of capital in circulation which boosts the economy and, oddly enough, tax revenues - mainly because there is more to tax.
(3) The one thing Obama has said and never flip flopped on is that he will allow the Bush tax cuts to expire. That is a tax increase because the current rates will go up.
(4) Increasing the capital gains taxes discourages reinvestment. For all the jaw flapping on Exxon’s profits, they reinvested 90% of those profits in new sources of energy. If they had to face higher taxes, more of that would have gone into reserves to offset the higher taxes and less into business expansion. Business expansion is good for anyone wanting a better economy because there are more jobs to be had.
(5) The wealthy are the ones who create jobs. They are the only ones who have enough $$$ to do this. Those with less $$$ have to borrow the funds to get started and they have to borrow it from people who have more money.
(6) The upper middle class creates jobs in some cases and works at jobs for others in many instances. The ones who run small businesses create jobs.
(7) The middle and lower classes work at jobs. Giving them more money does not create jobs directly and consumer spending is the poorest way to grow an economy because the jobs created by retail are the poorest paying ones in the food chain. This is the biggest problem with the Obama “tax cut”. It only affects those jobs that pay least.

The most alarming things about the Obama tax plan are (1) increases to cap gains taxes, (2) expiration of the Bush tax cuts, (3) removal of the cap on FICA income (again, a tax increase for everyone making over $172k if I remember correctly, which is a bit below the $250k Obama keeps claiming). We also have to remember the Clinton tax cuts that turned out to be increases once he was elected. We have no evidence that Obama won’t do the same thing, especially with the remarks he made to “Joe the Plumber”.

Gotta go now, more later.

Hilary-ous - Posted by Kenneth Hocking

Posted by Kenneth Hocking on October 21, 2008 at 20:20:56:

DJ That was much funnier than my attempt

But I do think with a Dem Admin and both houses in the Congress going Dem that Entitlement plays are very valid!

Re: WAKE UP - Posted by Mark (SDCA)

Posted by Mark (SDCA) on October 21, 2008 at 08:05:04:

Personally, I don’t think it’s that simple with OBama unless you are buying creatively ie NOT with a bank.

How are you financing your rentals? (Every single time I call up my broker, the standards are tightening, even for blue chip buyers.) I am frankly much less sanguine on the rental market than you are.

Re: Each candidate means for real estate investors - Posted by JHyre in Ohio

Posted by JHyre in Ohio on October 22, 2008 at 08:27:45:

Dave T,

Well conceived answer, as usual. Let me add a few points:

  1. McCain might lift $100k cap on 15% social security bracket, Obama seems certain to do so. Some of that impact is evitable using S-Corporations and Limited Partnerships for self-employed taxpayers, but this penalty on earned income, especially for W-2 earners, will be harsh and make rents, interest, dividends and capital gains less unattractive (no SS/SE tax on those types of income), even if the rates go on those types of income go up. I know plenty of MD’s (for example) who are sick of medicine and want out - add punitive taxes and socialized medicine (which will doubtless be every bit as efficient as Medicare and Medicaid), and talent will be leaving that field, which tends to drive costs up and/or service down.

  2. Raising taxes, among other New Deal policies, made a depression the Great Depression. I think both candidates inferior in this regard, with both likely to “Do Something” to appease the public (kindof like Oxley Sarbanes, which drove foreign capital from our markets and hit the banks with fatal mark-to-market rules), with Obama more likely to really Do Something…dramatic.

  3. I AM buying cheap properties, and demanding owner financing. Specifically, I’ve been picking up (and will continue to pick up) cheap trailer parks in down-and-out portions of Indiana (friendly legal environment) and pricing lot rent/MH payments very favorably…I am happy to compete on price, especially given that decent 3BR 980 sq ft MH’s are very cheap and easy to come by in my area right now. These areas have been in a recession for years, present events will not have as large an impact, relatively speaking. “The banks aren’t lending” is a great intro to “I need you to carry”, assuming seller has the equity to do so at my price…and many do (free & clear, depreciated out for tax purposes still equals tax gain, if at recapture rates on much of it), which is why cap gains rates are still relevant.

I do think tax rates will go up under either “the maverick” (a polite term for someone who has no governing philosophy discernable to mere mortals & therefore hard to predict) or THE ONE (talk about a cult of personailty where the facts just do not matter), which makes a nasty recession more likely. Liquidity will decrease as credit crunch combines with investors looking to avoid higher taxes by sitting on assets, see Great Depression and Carter compared to Reagan years. Taxes + Do Somthing + credit crunch…good for renting, if you bought/buy right. Do not even get me started on inflation…

John Hyre

Re: Each candidate means for real estate investors - Posted by Mark (SDCA)

Posted by Mark (SDCA) on October 21, 2008 at 08:12:43:

Excellent post. I agree with pretty much all of it.

"In a recessionary economy, I may have to lower rents to fill vacancies or suffer higher vacancy periods. "

People have to live somewhere. I am sure there will be some doubling up but I think residentials will be ok. Commercial will get crushed (already starting in my area).

“Taxes and insurance premiums will still increase for the buy and hold investor”

Maybe, maybe not. Property values have decreased and I dont expect a run up in values any time soon. I plan on appealing my assessments across the board next time they come up.

“The credit markets have essentially locked out investors who already have more than four financed properties.”

Spot on. I was amazed to learn this yesterday. Talk about a rebound over-reaction. BTW… exceptions/waivers do exist but this seems to be the prevailing rule.

“I will only be a buyer if the seller offers an acceptable discount and carries back the financing.”

Again… spot on. I think the opportunities will be here. Buying with owner financing then renting/re-selling (also with owner financing).

Great post…

Mark

On the Money - Posted by Truth Teller

Posted by Truth Teller on October 20, 2008 at 06:23:31:

Care to run for office?

Well stated - Posted by Rich-CA

Posted by Rich-CA on October 19, 2008 at 21:13:11:

nt

Re: for real estate investors - Posted by ProsperityGroup

Posted by ProsperityGroup on October 19, 2008 at 19:55:03:

Here’s what Barry Ritholtz of the best market blog (bigpicture.typepad.com) says about capital gains discussion:

I think the debate on Capital Gains Taxes is now irrelevant.

Why?

The huge stock market losses.

Here’s a thought:

Most people do not have any Capital Gains. I think the vast majority of investors, traders and business owners won’t have to worry about paying Capital Gains taxes for quite a few years – they will have a capital loss to carry forward instead.

That’s currently capped at a tiny $3,000 per year per person.

How about raising the current limit of loss write offs to $10,000 or even $20,000 per year?

Re: Sounds like fun (long) - Posted by Sailor

Posted by Sailor on October 19, 2008 at 17:24:43:

Rich, you said “The middle and lower classes work at jobs.”

That includes moi (even though I supposedly retired long ago), so I’d like to point out that we are a much more diverse group. Although my teaching & research career was as a government employee, even as a small business owner I have contributed a great deal of $$$ to the economy as both an employer & as a contractor of services. (First thing tomorrow, I’ll be calling my HVAC guy, begging him to come to work right away on one of my homes. Ka-ching, there goes another goodly sum into the local economy.) No matter if I had never worked for anything but the hourly minimum wage, my pay would have gone back into the economy as I paid my landlord, doctor, grocer, & car dealer. In fact, under those circumstances I would have also lined the pockets of more than one finance company. Instead of being able to Save a portion of my salary, under those circumstances, I’d have contributed 100% of my earnings to our economy.

Those are the circumstances of most of my tenants. The rest of them are on disability–no, not because they ever wanted to live that way, but because they lacked accessible health care that could have prevented or corrected their problems. They live in a society that has yet to recognize that basic universal health care is cheaper than a lifetime of gov’t checks.

There is nothing morally wrong with these tenants; in fact, I’d love to have all my units filled w/folks like them. They pay me $$$ like clockwork, have low expectations of me as a landlord, & never leave. Not only do they pay me thou$ands of dollars every year, but they are grateful for the box of chocolates I bring them at Christmas (unfortunately, the box only holds 14 oz. instead of a full lb. these days).

Those tenants who can still work, don’t make more than $11.50 an hour, which isn’t enough to put food on the table & $3-4 gas in the tank. It’s a payday to payday existence. The only way in my area for working folks to get more money is to become an entrepreneur. If they can scrape together enough to buy some equipment & do lawn care or some other service business that mostly pays in ca$h, they can eventually do well. Let me point out this only applies to males here. It takes more money here for a woman, as opening a beauty salon is almost the only option for women. There is a booming drug trade, though. That is our fastest growing industry; not only does the product provide temporary respite from daily life, not only necessitating the expansion of the Sheriff’s Dept., but the building of a large new jail. Oh, yes, & the drug-related (the accused’s alibi is his crack dealer) double ax-murders have sold newspapers & kept prosecutors & defense attorneys at full employment as we have just opened the 3rd trial. Thrift shops are doing a whale of a business as no one can afford Wal-Mart anymore. Yes, & the Women’s Shelter is at full capacity because more men are responding to their circumstances by beating up members of their own families.

Prospects have always been bleak for most folks here, & the record-busting energy prices have broken up some families as some fathers have gone elsewhere looking for jobs & mom + kids have moved in w/relatives where they all hunker down together.

Again I’m showing my age, but I recall times when families could own their own home & buy a brand new car every few years with only one working parent. If fathers worked some overtime & mothers stretched the grocery budget, they could even send kids to college. What’s the difference? J-O-B-S allowed families to stay together, & even if they didn’t exactly prosper, they could still dream the children would succeed where they couldn’t. My first 2 years of college were tuition-free, & the last 2 years I paid $90 a semester. (I didn’t request a diploma because it cost $5) Grad school was $180 per quarter. There was no such thing as a Pell grant, but then we didn’t incur 100k in student loans, either.

So if jobs propelled the economy then, why not now? Oops, did we forget to keep open our factories? No, it isn’t really that simple. However, if we can temporarily brush aside the cobwebs of foreign financing of our national debt, hedge funds, trade deficits & other complex factors, it comes down to the fact that we don’t have make things to sell. It’s actually pretty simple–if you want sell @ a flea (or any other) market, you have to bring products.

In my opinion, tax credits (though I love 'em), tax increases, tax decreases, vague campaign promises–they are all band-aids. We can busy ourselves putting various fingers in the dike, but I do not see hope until we recognize & address the fact that unless we manufacture goods, all we have to sell is ourselves & the futures of our children.

The Chinese have learned that people like & need “stuff.” When did we forget that if you take raw materials & add value by making them into products people want, you can exchange those products with others so that all sides prosper?

This isn’t political, as I haven’t heard either side offer possible solutions, or even display any common sense. This isn’t the 1st negative campaign (anyone remember 1964 or even 2000?), but I’m becoming a little testy about the failure to propose what amounts to mega-baksheesh to special interest groups. Pay-offs don’t really trickle down all that much & aren’t going to rescue a very sick economy. Heck, we couldn’t even pep it up by fighting 2 wars @ the same time.

What I want to hear politically is that we value our diversities, but that because of them, just like a gene pool, we are stronger for them. I want to hear that our country is great & good, & that our common goals bring us together. I want to hear recognition that, yeah, things are bad, but that we’re going to join together succeed & be even greater. I want to hear that we are going to not only show the rest of the world how decency is done, but share w/it a map of the road to financial & political freedom. I want us to learn from our mistakes, & I want Common Sense 101 to be a required subject. I don’t want change as a political slogan from either side; in fact, I want solidarity & the sense of greatness & patriotic pride I felt as a child when I looked at our flag & recited the Pledge of Allegiance. Yes, right now I’m feeling pretty greedy–

Tye

Entitlement default swaps anyone? - Posted by James-Ct

Posted by James-Ct on October 22, 2008 at 07:20:49:

nt

Re: WAKE UP - Posted by brandoncbsre

Posted by brandoncbsre on October 22, 2008 at 06:01:06:

I agree with Ken. Start calling your BANKER not your BROKER! Small banks will loan on rentals using commerical loans. The closing costs are WAY cheaper and there are no silly loan limits on commercial loans.

My last was one was a $56k loan and my closing costs were less than $500 and that included the appraisal.

Hey Mark 20-25 year Amorts - Posted by Kenneth Hocking

Posted by Kenneth Hocking on October 21, 2008 at 20:18:59:

All local bank lines just like I learned at the Lenders workshop from Ed and Terry…

Also we have stepped up the use of others self directed IRA through Entrust. Seems current stock market action has LOTS of people looking for steady returns on projects they can drive by and look at.

Re: Defining Terms - Posted by Sailor

Posted by Sailor on October 22, 2008 at 11:10:31:

Seems “socialized” medicine is one of those nasty-sounding words like “matriculation,” something best left unsaid in polite company! Can you briefly define what you mean by “socialized medicine?” Will affordable preventive health care bring about the fall of Western Civilization? Would making prenatal health care, which prevents many congenital (& expensive) birth defects, universal really destroy our society?

Was it socialized medicine in the early 50’s when nurses came to the elementary schools to administer the newly developed Salk vaccine or was it good public policy? Is it politically evil that a family of 4 in Costa Rica can pay $24 a month for full insurance coverage?

I’m all for individual responsibility, but the scientist in me gets concerned when we don’t explain our terms. Lack of definition can result in serious miscommunication. I think clear communication is just as important in politics & economics as it is in science. Please help me out, John, & tell me how you define this term. It’s hard to agree or disagree when I’m not sure what you really mean. Thanks!

Tye