As of this writing, we’re not sure how the U.S. election turns out.
But we’re guessing the cheering, fearing, wailing, and gnashing of teeth will go on for quite a while.
But although there’s a LOT of clues in the news, investment strategy, or personal development philosophy topics we could yammer about …
… we know virtually EVERYONE is watching and wondering how the election ends and what it means to their lives, work, and investing.
So let’s take a deep dive into some muddy waters. At least we hope it’s mud.
Rock ’em Sock ’em Politicians
Veteran members of The Real Estate Guys™ audience know we tend to avoid politics. But it’s indisputable that policy affects real estate investing in a myriad of ways.
In our experience, discussions of policy primarily become unpleasant when salted with personal preferences and attempts at persuasion.
Those are the political discussions we avoid. So we’re not here to cheer or critique any candidate … or attempt to sway your preferences.
If we’re going to P all over ourselves (getting to be a bad habit) … we find it preferable to parse policy in terms of possibilities, probabilities, and the pursuit and protection of profit.
So now that the polls are “closed,” let’s peer into our crystal ball and consider some of the possibilities potentially affecting YOUR portfolio.
For simplicity’s sake, let’s focus primarily on presidential policy as pandered … er, presented … by the candidates during the campaign.
Of course, depending on how the House and Senate go, a renewed President Trump or a new President Biden will either be hindered or helped by the Congress voters give them.
But regardless of how fast either administration may be able to move … for our purpose of getting into position, their direction is more important than speed.
In fact, it can be argued that slower is better because it lets you read and react more effectively.
With all that said, here we go …
Real Estate Investing under a Biden Administration
In general, Democrats tend to favor more governmental management of resources, businesses, the economy, and people.
They prefer power more centralized in Washington versus spread out among the states. It’s more of a one-size-fits-all approach.
If they get a policy right, it can be argued it’s right for more people faster … and more evenly distributed. More “fair”.
Of course, if they get it wrong, there’s no fleeing one state to find more preferable policies in another. This can drive some disenfranchised voters offshore … especially when many people can work from anywhere.
Last time the U.S. went hard left, our Boots-on-the-Ground teams in Latin America said there was a big spike of interest in offshore properties.
We wouldn’t be surprised to see this again. In a small offshore market, it doesn’t take a lot of demand to move the needle.
Then there’s that pesky virus …
If the national mask mandate proposed by Biden is an indicator of a propensity towards a bigger, broader national lockdown, there are huge and obvious economic ramifications.
We’ve covered all this quite a bit, so we’ll cut to the chase …
A locked-down economy will likely lead to enormous government spending and Fed easing. We’ve already seen it.
BUT … without velocity (money changing hands in an active economy), demand driven (prosperity) inflation might not happen.
But with production of goods and services diminished, inflation might still come from decreased supply (scarcity).
Price inflation without economic activity is an ugly thing called “stagflation”.
One of the tools we think is NOT an option is to raise interest rates. There’s WAY too much debt in the global financial system to do that on purpose.
But spending? No problem. Throw those dollars on the fire!
Our bet is there aren’t enough fiscal hawks to constrain spending. So to “cure” stagflation, we’d expect ginormous government spending and higher taxes.
Spending to stimulate economic activity … and higher taxes to siphon off inflation.
Of course, to make that work, the economy must be open …
Stimulus only helps if the money actually gets spent, and taxes only get paid on income that’s earned when people are doing business and working.
Our bet is if the economy is locked down, it won’t stay locked down for long.
Meanwhile, getting back to the topic of taxes …
Candidates Biden and Harris have promised to roll back the Trump tax plan and then some … including raising capital gains taxes and eliminating real estate 1031 tax-deferred exchanges.
We interviewed CPA Tom Wheelwright just after Biden released his tax plan, and Tom’s bottom line is “it’s not good for real estate investors.”
If true, then real estate investors may be looking to make moves … grabbing tax breaks while they still exist, or dumping properties before higher taxes hit.
Selling ahead of higher taxes could temporarily depress some markets and create a window of opportunity to grab some deals.
Older investors may recall what happened when the Tax Reform Act of 1987 eliminated important tax benefits from real estate …
Prices collapsed and the Saving & Loan industry was destroyed. But there were some good deals to be found.
Moving on to a more energetic and slippery topic …
No one is quite sure where Biden really stands on fracking and fossil fuels.
There’s been well-documented promises to end them, and denials those promises were ever made. What’s true? We may find out.
Energy policy is a GIGANTIC item to watch because it has direct and significant ramifications on many levels.
Obviously, economies which rely heavily on the oil and gas industry for primary, secondary and tertiary jobs will be negatively impacted.
On the flip side, ENORMOUS amounts of money will no doubt be invested into developing alternatives … creating boom towns and industries somewhere.
As always, there’s both crisis and opportunity … winners and losers.
That’s why watching and moving quickly into position is important … as tempting as it is to rant about our preferences.
There’s a lot more to say about a Biden administration because he’d be the new sheriff, but let’s talk Trump because the polls just might be wrong again …
Real Estate Investing under a Trump Administration
If Trump wins a second term, absent a blue wave veto-proof Congress, the Trump tax plan is not going anywhere.
And with a red Congress, more tax breaks could be coming soon.
Meanwhile, our guess is the slow-starting Opportunity Zones initiative will get quite a bit more attention … and might even be expanded.
This could jumpstart some markets and create a fun equity wave to ride.
Another area of particular interest to real estate investors is a renewed and concerted effort to substantially grow domestic manufacturing.
Both sides acknowledge the virus crisis exposed the vulnerabilities of having critical products and supply chains under the control of potential adversaries.
While it’s possible both administrations would be supportive of domestic manufacturing, we think it’s more likely larger and faster with Trump.
A rebirth of U.S. manufacturing could breathe serious economic life into sleepy markets … especially when married to the Opportunity Zones initiative.
If the Democrats keep the house and decide to rerun the 2016 loss playbook, we think Trump’s tax returns could become a hot topic.
Of course, this is a fight which could go in a LOT of different directions. But in all cases, it’s likely to highlight the amazing tax benefits of real estate investing.
When the “uninformed masses” (most people don’t invest in real estate) discover they can substantially reduce their tax bill legally through real estate investing …
… we think it could kick-off a big migration of money into real estate.
Of course, there’s more to say about a second Trump term, but let’s move on to the possibilities and probabilities … no matter who wins …
The Three Secrets to Real Estate … Stimulus, Stimulus, Stimulus
When we peer into our crystal ball, one thing we’re nearly certain of under either a Biden or a Trump regime …
Uncle Sam is going to spend TRILLIONS and the Federal Reserve is going to print it.
Between bailouts, subsidies, infrastructure, energy development, and fighting the virus … we’ll all be investing in a very stimulated economy.
And once the political positioning is mostly past, we’d expect the cash to start flowing free and fast.
Will the dollar survive? Maybe. Maybe not. But if you’re positioned in things which are real, it won’t matter to you … as much.
We’re not saying we see smooth sailing in the near future …
… but there’s likely to be a flood of stimulus creating waves you can ride … if you’re paying attention and paddle fast enough.
So stay tuned and stay focused.
While it’s correct and arguably patriotic to vote and contend for your preferences … when it comes to investing, it’s about reality, possibilities, and probabilities.
If your team loses, there’s nothing to do but accept it and focus on those things you can control.
History says it’ll all work out. So stay calm and keep on investing.
Until next time … good investing!