Two weeks ago, I urged investors to focus on fundamentals over election drama.
While that advice stands, Donald Trump's return to the White House warrants a look at how the investing landscape might shift for passive real estate investors.
Supply-Side Solutions
On the campaign trail, Trump was very vocal about decreasing regulation and cutting red tape to make it easier to boost the country’s housing supply.
His previous White House Council on Eliminating Regulatory Barriers to Affordable Housing, launched in late 2019 but sidelined by COVID, could make a comeback.
But the biggest potential game-changer? Opening up federal lands for development. In a recent conversation with veteran real estate investor Ken McElroy, this dominated our discussion. The excitement around these potential opportunities was palpable.
For passive investors, this supply-side push presents both opportunities and challenges.
More housing supply typically means downward pressure on prices – good news for would-be homebuyers currently sidelined by high prices. But for rental real estate investors, increased homeownership usually signals slower rent growth.
The timing matters here. Even if these policies are implemented tomorrow, we're looking at 2-3 years before seeing any meaningful market impact.
Construction Costs and Labor
While regulatory relief might streamline development, two other Trump policies could push construction costs higher:
Tariffs: Though mainly targeting China (which supplies relatively few construction materials), these could have broader inflationary effects on building costs.
Immigration Policy: Construction already faces severe labor shortages. Stricter immigration enforcement and deportations could further squeeze the labor pool and drive up wages. While this benefits American workers, it adds pressure to development costs.
This tension between easier development and higher costs creates interesting opportunities. Projects that can lock in construction costs early or find innovative ways to manage labor expenses could see outsized returns.
Tax Policy Prospects
Having a real estate investor in the White House could mean good news on the tax front.
The possible (likely?) extension of real estate-friendly provisions from the 2017 tax bill could preserve crucial benefits for passive investors. The potential return of 100% bonus depreciation would be particularly significant.
The Opportunity Zone program, which has gained much traction in recent years, might also see an extension. I've personally seen more Opportunity Zone deals in the past year than in the previous three combined – a trend that could accelerate with continued support from the administration.
What This Means For Your Portfolio
As an investor, it’s important to think strategically about positioning your portfolio for any potential changes and resulting opportunities.
Remember, we're capitalists first and foremost. While we can debate the merits of various policies (whether from the left or the right), our primary job is to understand the rules in place and optimize within them.
Having a real estate developer back in the White House likely means net positive changes for our industry, but success will still mostly depend on careful market selection and fundamentals.
My biggest suggestion right now? Keep some dry powder ready.
Policy shifts often create temporary market dislocations that can present attractive but short-lived investment opportunities. So stay liquid, stay informed, and be ready to move when opportunities present themselves.
The real winners won't be those who predict policy changes perfectly, but those who are positioned to act decisively when the right opportunities emerge.