Here are some thoughts for real estate investors in the wake of Donald Trump’s “stunning upset” in the U.S. Presidential election…
The 2016 election has obviously been very polarizing. We’re just a couple of real estate guys trying to figure out how policies, economics and the mood of the market create challenges and opportunities for real estate investors.
So now that we know the election results, we thought it would be a good time to focus forward.
About half the US population is angry or depressed. The other half is hopeful they’ve found the guy who’ll “drain the swamp” and “make American great again.” Time will tell.
We’re old enough to remember people feeling the same way in several past elections. Jubilation and angst. Hope and fear. Pride and disappointment. Lots of tension.
But the world kept spinning. The sun still came up. Trees kept growing. People kept living… eating, drinking, sleeping, vacationing, shopping; going to school, the doctor, the movies… and paying their rent. 🙂
Over the decades real estate investors have found ways to profit… in spite of wars, social unrest, political scandals, 20% interest rates, stock market crashes, recessions, and on and on and on.
Personally, the 2008 financial crisis was WAY worse for our business and personal lives than any single election. Millions were lost. Companies failed. Properties were lost.
But life went on. Great lessons were learned. Powerful friendships were forged. Profitable investments were made.
As President Obama said in his post-election speech, “…we learn from our mistakes, we do some reflection, we lick our wounds, we brush ourselves off, we get back in the arena, we go at it. We try even harder the next time.”
In 2017, President Trump will be facing huge challenges. Just like President Obama did in 2009 and President Reagan did in 1981.
Will Trump succeed?
Not if the goal is to please all the people all the time. Just like with Obama and every other administration before, there will be winners and losers. It’s just a matter of WHO wins and loses, and how big a slice of the population they represent.
To paraphrase Abraham Lincoln, “The best way to help the losers is not to become one of them.”
So it isn’t what President Trump does or doesn’t do that has the most impact on our lives. It’s what WE do in response to whatever’s happening around us that determines our future.
Here are some of the things for real estate investors to think about moving forward…
Uncertainty could stifle short term traditional job creation.
Donald Trump has vowed to “repeal and replace Obamacare.” Whether you think that’s good or bad, no one has any idea what it actually looks like.
Small businesses, who account for the vast majority of job creation in the U.S., will be facing an uncertain landscape… yet again. Just as they did when Obamacare was introduced and rolled out.
One principle we’ve learned is that a confused mind won’t act.
So unless and until this issue is decided quickly, businesses will hesitate. We won’t be surprised if conventional job growth remains tepid in the short term.
With that said, people still need to eat. And whether a Trump administration and Republican Congress shrink social programs or they collapse under their own faulty model, people are going to need to find ways to make a living… with or without conventional job creation.
So we think the “virtual” economy will continue to grow. That means, as landlords, we may need to become more flexible in how we document “employment” when qualifying tenants.
Speaking of tenants…
Communities of undocumented residents may lose residents.
If the government begins to move toward deporting undocumented residents… or those residents believe they will… some residents may decide to leave first.
This happened in Arizona in the mid-2000’s. And landlords who had a large population of undocumented residents experienced a large and rapid decline in occupancy.
So take a look at the tenant mix in your portfolio and consider how immigration policy might affect you.
Stability could become the “hot” investment criteria.
Long before Donald Trump showed up on the political scene, much less won the Presidency, we’ve been advocates of investing in things that are real and essential.
That’s because as volatile as our political environment is, the very fragile financial eco-system is arguably much more potentially volatile… and will likely impact your investments and opportunities much more directly than politics.
Think about the paper asset market’s (stocks, bonds, currency) reaction as Trump’s victory became more apparent. At one point, Dow futures were down around 900 points. The news networks were incessantly reporting on the extreme volatility in “the markets”.
Of course, by the next day, the Dow was UP over 200 points.
But do you remember seeing all the reports on how far real estate prices and rents were falling on election night.
No? That’s because there weren’t any. Real estate isn’t part of “the markets” all the gamblers play in… and the media obsesses over. Far too boring.
So while paper asset investors were being nauseated on the roller coaster of election night results… real estate investors were munching popcorn and collecting rents on the merry-go-round of real assets.
That’s because cash flows on real estate are among the most stable investments you can make.
So even though the world is uncertain, you can bring some stability into YOUR life with properly structured income producing real estate in the right markets.
And if you’re so inclined, it’s a great time to create a business providing those kinds of investments to worried investors.
Interest rates could rise… whether the Fed wants them to or not.
We’re NOT saying it’s going to happen. There are lots of reasons for it not to. We’re just saying the odds are probably higher now because we’re guessing the Fed isn’t a fan of Donald Trump.
Both Trump and Summit at Sea™ faculty member Peter Schiff suggested that the Fed held interest rates down to help the Democrats. The idea being a rise in rates would crash the stock markets.
We don’t know if that’s true or not, but now that Trump has won, is it possible the Fed would hike rates in December just to spite him?
We’d hate to think so, but as we’ve all just observed, politics is a VERY NASTY business.
Even if the Fed doesn’t raise rates directly, it’s possible the markets will raise them anyway.
Major U.S. bond holders like China, Japan and Saudi Arabia have been selling bonds, which puts downward pressure on prices and upwards pressure on yields (rates).
We’ll have more to say on interest rates in the near future. But for now, we continue to think real estate portfolios are probably better off structured with long-term fixed debt and adequate cash flows to survive decreases in net operating income.
Of all the aspects of a Trump administration, the one we find MOST fascinating is the dance between President Trump and the Federal Reserve.
Pass the popcorn please.
Until next time… good investing!
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