My logic is summarized in these 3 points:
- Removal of SALT Deduction - Individual homeowners will be more incentivized to rent with a large increase in annual costs associated with home ownership.
- REITs Get Nothing - REITs already receive heavy tax incentives and do not benefit from a large corporate tax rate reduction. So investors will shuffle around and leave REITs at their currently unfavorable prices.
- Impact to Smaller Investors - Individual and smaller investors can declare their purchases as part of a business and get a lower tax rate, but they still have to pay extra property taxes to their States. In markets with already low capitalization rates, investors will see their profits drop far too low to be worth it at current prices.
The impact to REITs, in my opinion, is what will cause the rest of the country’s housing market to drop.
Removal of SALT deductions will really only (heavily) impact areas that have high housing prices and/or high property tax rates. For a house worth 500k and a property tax rate of 0.6% to 1%, buyers are looking at an added cost of up to $150,000 in 30 years of ownership. That is not insignificant and will reshape how the average homeowner views real estate going forward.
REITs on the other hand have been heavily maimed. These companies are effectively not taxed at all if they give away over 90% of their profits. So a reduction in the corporate tax rate just elevates the rest of the industry while leaving REITs in the dust. REITs buy up lots of property and I think we’ll be seeing a reduction in the REIT expansion and subsequent stagnation in profits. Perhaps even a decline in the long-term.
Submitted December 02, 2017 at 02:37PM by lulzcakes http://ift.tt/2zHfzU6
