February 18, 2021

Hot Trends: Biden’s 4 effects on Commercial Real Estate

Every presidential election has the potential to be a game-changer. Last January, Joe Biden became the 46th President of the United States, succeeding former President Donald Trump. This power change is filled with expectation: everybody’s wondering what will happen from now on. Real Estate IQ’s CEO Steve Liang answered that question regarding Commercial Real Estate.

We have a new President, and his policies are going to affect real estate. Changes will always be there, and they’re gonna create cracks. If we think about it, cracks represent changes. They start small, and over time they turn into bigger cracks. And though foundation cracks are very bad news for homeowners, for real estate investors who understand how to spot and fix them, they represent an opportunity to make a profit.

Steve Liang, Real Estate IQ’s CEO and National Speaker

With this piece of Chinese philosophy Steve Liang opened his Real Estate Hot Trends monthly webinar. The keyword here is “trends,” and he did not disappoint. Along with Jason Madden and Becky Kromminga, he addressed the new presidency’s four most important effects.

1- 1031 Exchange Program

A 1031 Exchange Program is a benefit that allows real estate investors to avoid paying taxes on the capital gain if they sell an investment property and reinvest those earnings within a certain period. That’s the situation until now, but the program may be eliminated for real estate investors with an income above $400,000, affecting many different investing models.

“As I see it, if the proposal gets passed, it’s going to potentially decrease the supply for these investors because they’ll choose to hold the property and not sell it,” observed Liang. “This can potentially lead to a decrease in supply since investors might choose to hold the property instead of selling it, and end up in less supply of inventory,” he added. Keep in mind that inventory is already low, as the REIQ’s CEO noted, with houses going out of the market in just a couple of hours.

2- Environmental regulations

“Nowadays, there are three keywords: sustainability, green energy, and clean energy,” assured Liang. And the real estate industry is not an exception: he also pointed out that “anything that helps with the environment is going to be a trend. In fact, there are several programs that incentivize these types of initiatives.”

Furthermore, Joe Biden’s party platform included a plan to tackle climate change and boost a clean energy revolution. He already pledged to reduce buildings’ carbon footprint by 50% by 2035, and there will be new national building energy performance standards. Of course, investors should offset the costs if they can take advantage of environmental programs.

Real estate events.

3- Additional spending

Among other things, Biden has promised additional spending of $5.4 trillion to stimulate the economy and push the retail demand –something that may have an impact on the real estate industry–. It could include extensive stimulus checks, additional PPP loans, additional increased unemployment insurance, and some student loan forgiveness, from Steve Liang’s perspective.

4- Opportunity Zones Program

The last trend addressed at the Hot Trends webinar was the Opportunity Zones Program. As you might know, it’s an economic development tool that supports investment and growth in distressed areas of the United States. In Becky Kromminga’s words, it’s like gentrification, where an old rundown neighborhood starts improving because of all the incentives involved. And all this investment and improvement encourages wealthier people and businesses to move in, conducting to an updated area.

The significant part here is that this program allows investors to channel capital gains and has substantial tax incentives. Even when there’s a proposition to implement stricter policies and high standards, it might be an appealing option for real estate investors and fix and flippers. According to Steve Liang, the gentrification area is that area where you can go in and make great value:

I see benefits for real estate investors to do that because it’s just kind of where the opportunity is.

Steve Liang, Real Estate IQ’s CEO and National Speaker

To conclude, and as Liang said, changes will happen no matter what; the important thing is to see them as opportunities, analyze the market and be prepared to use that information to your benefit.

Disclaimer: The blog articles are intended for educational and informational purposes only. Nothing in the content is designed to be legal or financial advice.

Real Estate glossary: contingent

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