We had our annual State of the Union conference call last night and were joined by veteran real estate investors Dyches Boddiford, David Tilney, and Owen Irvine. Each of these investors have many years of experience in a variety of economic and political climates.
Each person on the call was asked to share their predictions and advice for real estate investing in 2017. The questions each of them answered were:
- Where are the biggest opportunities for real estate investors in 2017?
- What should real estate investors be cautious of in 2017?
- How will the Trump presidency affect real estate markets?
You can listen to the call in it’s entirety here:
We put together these notes based on what each speaker said:
- Expect a shake up in tax and housing regulations.
- Qualifying for an FHA loan may become more difficult due to new requirements.
- It will be harder to sell because more people are renting, home ownership is at very low levels.
- Recession predicted after 8 years of a weak recovery.
- Be very conservative with purchases. Prices right now are frothy. Most rental properties available for sale don’t make financial sense.
Dyches referenced an economist named John Mauldin who says that, since 1910, every time a new president was elected after a president has been in office for 2 years, a recession has occurred within 12 months of the election.
Be prepared to buy because there will be opportunities
- Start developing relationships with private lenders
- Some people will be forced to sell at low prices due to life events
What are the indicators of a recession?
- # of defaults going up month over month
- Unemployment going up
Monitor your local newspapers for this information because real estate is local. Some area of the country may face recession but not others.
Politics & Taxes
The new administration plus Republicans in the house and senate likely feel like they have a mandate from the public to make major changes to the tax code for businesses & individuals. Trump campaigned on dropping business tax to 15%. Ninety percent of businesses in the US have 20 or fewer employees. Lowering tax rates will make owning a small business more viable.
Dodd-Frank could be repealed or modified. There are lobbyists actively working to at least push the exemption from 3 transactions to 25 transactions per year.
Create two plans for your real estate business
What will you do if recession hits and prices fall? What will you do if prices remain high?
Create a 5 year plan. Determine where you need to be in 4 years to hit your 5 year plan. Where do you need to be in 4 years, 3 years, 2 years, 1 year, and 6 months from now?
What kind of marketing will you do? How many houses will you look at? How many offers will you make? Hold yourself accountable for sticking to your plan. Revisit your plan every 1 – 3 months based on your performance and the economy.
Explore master leasing
Master leasing involves leasing from a landlord and subleasing to an occupant tenant to capture the spread between the rents. This is an under-utilized technique that works in both healthy and unhealthy markets.
- Remember that real estate is local. National news about the economy may not reflect what is happening in your market.
- Increased interest rates are likely to slow down sales.
- Expect less government intrusion & control plus reduced taxes.
David doesn’t predict a recession in his local market, Colorado Springs, because employers are moving into the area, existing employers are adding new employees, there are more flights out of the local airport and more people are flying.
He’s not as optimistic about progressive parts of the country. For example, in Seattle it’s illegal to rent to the most qualified applicant. You must rent to the first qualified applicant who walks in the door. Total move-in fees can not exceed the first month’s rent and landlords aren’t allowed to charge pet rent.
Owners will likely exchange out of these area because of too much government control or they will raise their qualifying criteria so that only the best of the best applicants will be able to qualify and no pets will be allowed. The supply of rental housing will decrease.
Landlords in Washington, Oregon, and California are likely to have problems. They need to pay constant attention to all proposed laws and fight against ones that harm their business. Find where other governments have found the proposed laws to be unconstitutional. Fight government inspection fees.
Even if federal regulations get more relaxed under President Trump you have to watch out for state and local governments passing laws that negatively impact your business.
There is no longer a stigma associated with renting and there are more renters now than ever before. There were 9 million more renters when comparing 2005 to 2015. Holding rentals is a good position to be in but it’s difficult to find affordable rental properties in many parts of the country. If you can’t find properties to buy then focus on master leasing.
- Fix & flip is risky because who knows when prices are going to drop or when interest rates will go up. If you are in this business focus on quick turn only. Do not get stuck in a long rehab.
- Wholesalers should try selling to landlords in addition to fix & flippers. Negotiating seller-financing with the owner will make the property even more valuable.
- People who are just starting out should focus on income. Master leasing is a great way to do that.
- Experienced investors should focus on paying off their properties so they are safe.
Owen is a real estate investor and economist who taught at Michigan State University.
- Recession is unlikely in 2017.
- The economy is about as healthy as it can be.
- Unemployment is at a good level and isn’t improving because employers are having a hard time finding employees, not because there are no jobs
Owen believes real estate is overpriced in most parts of the country right now. Opportunities exist in the rust belt. This is the most depressed part of the country and Trump’s goal of bringing manufacturing back to the US will positively impact this region if achieved.
If you are using bank financing try to lock in interest rates now because they probably won’t be this low again in your lifetime. If you own multiple properties, refinancing one up to 80% and use the money to pay of the others. Hedge your bets. If you lose a house, lose the one with 20% equity, not the one with 100% equity.
That about wraps up our notes for this call! If you enjoyed this call you can find replays of all of our coaching calls using this link. Do you have questions or comments about this call? Please share them on the forum.