As we’re winding down 2018, it’s time to rub our crystal balls and peer into the new year … and we see ….
For most high-earners, taxes are their biggest expense. And almost everyone who has to pay taxes would prefer not to … or at least pay less.
So while there are MANY trends and developments real estate investors should pay attention to in the new year …
… the biggest story may well end up being how market participants respond to their growing understanding of the revised tax code.
Thanks to tax strategy advocates like Tom Wheelwright, many people ALREADY investing in real estate are cashing in on the amazing tax benefits the new law gives to real estate investors.
But as investors of all stripes close the books on 2018 and start looking for tax breaks in the new year, we’re guessing many will discover real estate for the very first time.
Meanwhile, it’s quite possible stock investors will trade in their “buy the dip” strategy for “drop the falling knife” … and look for other, less volatile places to invest the proceeds.
While YOU may not be interested in the stock market, its recent tribulations are noteworthy because it may portend a shift of capital from Wall Street stocks to Main Street real estate.
And if you’re a syndicator talking with prospective investors, you should really have more than just a cursory understanding of what puts downward pressure on stocks.
After all, some of the jittery money still stuck in stocks just might be inclined to move your way … if you’re able to explain the case for real estate.
Besides tariffs and rising interest rates, there are two factors putting pressure on stocks but aren’t discussed much on mainstream financial news.
First, as interest rates rise, it’s less profitable for corporations to borrow heavily to buy back their own stocks.
Besides, many have already gorged themselves on cheap money while taking corporate debt to record levels. This alone is causing some concern.
And if rates resume their climb, debt service will begin to take a toll on corporate earnings as interest expenses rise.
There’s a second factor sucking the wind out of the corporate buyback sail …
The big tax break offered to corporations enticing them to bring their offshore money back to America has already worked most of its magic.
And a lot of the money ended up in stock buybacks.
But with the dual air pumps of cheap debt and repatriated offshore funds both losing pressure, stock buybacks are slowing … letting air out of the stock bubble.
Remember, asset values (prices) are largely based on “air pressure”. There always needs to be more money coming in to keep prices elevated.
On the other hand, income producing assets … like rental properties … derive their value from income. And because those incomes are relatively steady, so are the prices.
That’s why jilted stock investors often migrate into real estate.
Sure, they like flirting with the hot stocks when the punch bowl is full. But when the bowl runs dry, many investors choose to go home to old faithful … real estate.
And when you add in the new tax breaks, old faithful got a face lift … and is even MORE attractive.
But it gets better …
The world is really starting to buzz about Opportunity Zones.
O-zones promise huge tax breaks … and much of it is likely to provide long-term benefit to real estate in those designated areas.
Of course, like anything new, it takes time for folks to figure it out, to get in position, and make their moves.
That’s the advantage of being small. You can study fast and out-hustle the big money to get into position.
Then when big money finally shows up, you get to ride a wave.
So when we look at the upcoming year, we think the impact of the tax laws will continue to magnify a movement of money into real estate.
And even if the overall economy slows, it’s our guess real estate will continue to attract its unfair share of investor interest.
Now we’re starting to understand why Tom Wheelwright and Robert Kiyosaki get so excited about taxes, real estate, and infinite returns.
Until next time … good investing!
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