How President Biden Will Affect Real Estate Investors

Joe Biden won his place in the White House, but what does that mean for real estate?

There seems to be a false notion that Trump would have been better for real estate, but the numbers indicate otherwise. Some of the biggest players in real estate donated more to Biden’s campaign than Trump’s, and the reason isn’t surprising. 

Though Biden may attempt to enact certain policies that could be detrimental to the wealthiest real estate investors, ultimately, his win over Trump could be a blessing. Real estate friendly Donald Trump led a controversial term as President, putting the country in a volatile position. 

The good comes with the bad, and though Biden’s win looks like a mixed bag for the real estate world, real estate investors should benefit from a steadier four years to come.

Biden Might Actually Get COVID-19 Under Control

The pandemic has been a disaster, and nearly every rental property owner has been feeling its effects. Many rental property owners have seen a rough year, with the number of non-paying, jobless tenants growing and no ability to evict them or collect the income. And as long as the virus circulates, it will not get much better.

The Trump administration did little to keep the pandemic under control, unfortunately, but there’s more hope for Biden’s term. His sense of urgency in rolling out a plan to decrease COVID-19’s effect on the country is promising, detailing the deployment of a vaccine, cost elimination for COVID-19 treatment and preventative care, as well as increased availability of free testing. Biden’s plan also includes aggressive economic relief to those who’ve been financially affected.

An Extension on The Eviction Moratorium Is Possible

For real estate investors struggling with non-paying tenants, this can be a frustrating one to swallow. However, it might not have a devastating effect on real estate investors if it comes with an aggressive plan to pay the unemployed. The eviction moratorium passed under the Trump administration required renters to certify that they had attempted to receive all aid available to them before defaulting on rent payments. If unemployment benefits increase and another round of stimulus checks go out as Biden would have it, rental property owners should have an easier time getting paid.

First Time Home Buyers Programs Could Increase Homeownership

One of Biden’s initiatives for affordable housing could include a tax credit for as much as $15,000 for first time home buyers. He would also like to provide down payment assistance to service workers.

Both of these programs may cause an increase in the already high demand for homes in 2021 and beyond. Though an increased interest in homeownership might not be in favor of rental property owners, as occupancy rates could drop, finding houses to flip and micro flipping will be as lucrative as ever. 

Mortgage Rates Are Likely To Stay At Record Lows

While the president doesn’t set mortgage rates, other factors associated with Biden’s presidency could impact the housing market, which could affect mortgage rates. The demand for homes is already increasing, and if Biden’s first time home buyer program passes, demand will likely escalate further. Though historically demand has driven mortgage rates up in the past, it isn’t likely that the federal government would allow it, due to an economy that is still in recovery. Therefore, the likelihood of Biden’s presidency increasing mortgage rates is slim.

COVID-19 Relief Plans Might Include Rent and Mortgage Forgiveness

A part of Biden’s COVID-19 relief plan includes rent and mortgage forgiveness for those struggling financially as a result of the pandemic. Though this could be a major benefit to unemployed renters and homeowners, it would severely disrupt the businesses of rental property owners. 

Forgiving mortgage payments do not take real estate investors off the hook, as they are still responsible for home maintenance, utilities, and property taxes – all of which rents pay for. A situation like this is bad enough if you own one rental property, but for many full-time real estate investors with robust portfolios, it becomes dire. 

Fortunately, there’s hope – many believe this proposal is too far-left to ever pass Congress. However, real estate investor’s in the rental space should keep this part of Biden’s agenda on their radar.

A Major Real Estate Tax Loophole Is In Danger

Ever hear of the Like-Kind or 1031 Exchange? If you haven’t been using it when making property transactions for your portfolio, you have been missing out on a huge tax break. The 1031 Exchange allows real estate investors to defer paying taxes on the profit made by selling a property as long as the profits cover the purchase of a similar property. 

Real estate investors have long depended on this technique to avoid paying capital gains when swapping out different properties within their portfolios. The Biden administration would like to change that. Collecting taxes on these property transactions will allow him to raise money to spend on pandemic relief and other initiatives. 

Taxes May Increase For The Biggest Players In REI

In many ways, Biden’s tax proposals could affect everyone’s income, but real estate investors, in particular, could suffer.

According to a recent Forbes Real Estate Council article, this is Biden’s tax plan broken down, as it affects real estate investors:

• Biden would like to see the tax rate increase for the highest-earning bracket back to where it was pre-2017: 39.6%. He would also have the top tax bracket lowered from $518,000 to $400,000.
• Biden will attempt to limit itemized deductions for anyone earning more than $400,000 per year.
• If you are operating your real estate investment business as an S Corp, watch out for this: the tax breaks associated with S Corp owners paying themselves out on a W-2 could be eliminated for any business earning over $400,000.
• Currently, capital gains are taxed at a rate of 20%, which Biden would have increased to the standard tax rate of 39.6% for gross income over 1 million.

The Takeaway:

Many of Biden’s plans regarding COVID-19 relief and taxes could be too liberal to pass in Washington, but real estate investors should be on alert for any of these changes in policy that could affect the real estate industry.

While any tax policies that are passed will negatively impact the entire real estate industry to varying extents, Biden’s other plans will be more of a mixed bag. If he can tame the virus enough to bring some return to normalcy, that would be a relief across the board. However, some of his COVID-19 relief plans could be harmful to rental property owners, such as an eviction moratorium extension and rent forgiveness. 

The good news belongs to traditional home flippers and micro flippers, as the Biden administration will do everything in its power to encourage homeownership. If Biden is successful, we should see a continuation and perhaps increase in housing demand in the coming years. Essentially, there has never been a better time to look for a house to flip. 

Need access to state of the art real estate investment software to find and fund your next flip? Check out Connected Investor’s PiN software, here.