An Ignoble Experiment: Will a Presidential Change Affect Real Estate Investors?

Dear Investor,

As we quickly approach the holiday season and the end of 2024, we are beginning to set our eyes onto 2025 and the factors that will influence the real estate market and investor's bottom line. With the election now in the rear-view mirror, it appears that regardless of the winner – the collective markets are pleased that the election cycle has ended, as we can all go back to business.

With that said, we all acknowledge that the policies under the coming Trump presidency may greatly affect the Multifamily real estate market. The impact will come from both what President Trump plans for the next four years, but also the Biden / Harris plans will not come to fruition. Let's take a look at a few areas that may be impacted in the coming year.

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Changes to the tax code -

Under Harris, the proposed tax policy included adjusting and increasing the corporate tax rate and potentially eliminating real estate's most popular 1031 exchange. Harris supported extending the 2017 tax cuts for households earning under $400,000 but also preferred for the cuts to expire for wealthy families or high earners.

With the new Trump administration, it seems likely that the President will also look to extend and preserve the 2017 Tax Cut and Jobs Act – however more in a way which will boost the real estate market.

Through initially expiring December 31, 2026 – it is probable that the new administration extends the Bonus Depreciation and accelerated depreciation rules, which allow investors to depreciate 100% of an asset in year one. Also scheduled to be phased out in the coming years are portions of the IRS Opportunity Zones regulations, which provided tax deferrals for investors looking to defer capital gains from investments outside of real estate.

By allowing investors to defer taxes on both real estate and capital gains profits, these updates may encourage reinvestment, which can stimulate and spur multifamily development throughout the country.

Reduction of Federal Regulations -

A Trump administration has historically leaned toward less federal oversight. This could mean a rollback of regulations supported by the previous administration and could spell significant changes in real estate, particularly in areas like climate, housing affordability, and regulatory reform. However, second to the tax revisions, Trump's attempt to reduce regulations and federal oversite seems like it will focus on cutting costs and speeding up approval / permitting processes. Should these efforts also trickle down to city and state agencies, this may also incentivize new development and price growth at the local level.

Immigration and Trade -

On the flip side – Trump's proposed immigration or trade policies may have an adverse effect on development by increasing construction or renovation costs, and by also shrinking the labor pool. Should portions of these policies come to pass, the effect of tariffs placed on foreign and particularly Chinese imports may be felt in the price for building materials. How these affect the supply chain for material orders also remains to be seen.

The Fed and Interest Rates –

Finally, the path of Fed interest rates will also dictate the success of real estate in the coming year. While the Fed has finally begun its interest rate cut cycle, it will take some time for these cuts to work their way through the system.

As employment and inflation data presents itself in the coming months, we will probably see more rate cuts in 2025. That said – the impact will not be instant, as with the current reduction in Fed rates, mortgage rates on homes have not gone down in the short term, but instead long-term interest rates increased over the last 4 weeks. Long term rates are affected by several different market and economic factors including credit markets and pricing in of anticipated events to come, investor expectations, market demand and government borrowing.

As all of these different market variables unfold and influence the markets, we will need to pivot as needed and look to manage trends and investment opportunities as they emerge.

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