Earlier this year, on The WealthAbility® Show, Tom had Keith Weinhold on the podcast, and they discussed real estate market conditions, adapting to economic changes, and utilizing strategic investment practices to withstand potential downturns and thrive.
If you haven’t listened to the podcast or watched the YouTube video, it contains some valuable information, including the tax benefits for real estate investors. Make sure to check out episode 159 of The Wealthability® Show.
Here is a quick breakdown of the discussion and how it can benefit you:
Overview/Recap of the Real Estate Market in 2023:
Mortgage Rate Trends: In 2023, mortgage rates peaked at over 8% in October, driven by economic factors and market responses.
Supply vs. Demand: The market was characterized by a unique 'supply crash' rather than a price crash, maintaining high property values despite increased mortgage rates.
Rental Market Dynamics: There is a sustained high demand in the rental market, especially for single-family homes, driven largely by demographic shifts such as millennials entering prime home-forming ages.
Investment Strategies Ahead:
New Constructions: Current trends suggest a pivot towards investing in new construction properties. Builders are offering incentives like mortgage rate buy-downs and free property management, making new constructions more attractive.
Navigating Cap Rates and Interest Rates: The market faces the challenge of cap rates being lower than interest rates. However, there is an anticipation that interest rates may decrease by approximately 1% by the end of 2024, adjusting the investment landscape favorably.
Inflation and Its Impact on Investments:
The Inflation Triple Crown: Real estate investors can benefit from inflation in three ways:
- Asset Price Appreciation: Properties appreciate in value, enhancing equity.
- Debt Debasement: As inflation rises, the real value of debt decreases, making loans cheaper over time.
- Cash Flow Enhancement: Increases in rent outpace mortgage payments, improving profitability.
Tax Benefits:
Tom wrote about the many tax incentives for real estate in chapter four of “The Win-Win Wealth Strategy: 7 Investments the Government Will Pay You to Make.” Significant advantages arise from mechanisms like bonus depreciation and 1031 exchanges, which not only defer taxes but can also enhance the capital available for reinvestment.
Real estate investing can be important in your overall tax strategy and wealth-building dream.
Always consult with your financial advisor to tailor these strategies to your personal financial situation.
Want to learn more about how you can make way more money and pay way less in tax? Book a call with the team at TFW Advisors® today!