PICKING WINNERS AND LOSERS

It’s official, we have a new president in the United States. I want to take a high-level look at where the economy might be headed for the next four years. There is always opportunity, if you know where to look.

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First, let’s examine the current state of the economy. Our total economic growth has been steady and upward, except for the “Great Recession” dip we can see in 2008 and 2009. America remains an incredible engine of wealth creation.

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From a historical perspective, our employment situation also looks good. The current 4-5% unemployment rate is close to as low as it ever goes. This may be somewhat exaggerated by lower-than-usual workforce participation rates, but it’s pretty clear that America is hard at work- especially in our coastal states- making us the wealthiest nation on earth.

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Our wealth is partially reflected in stock markets at all-time highs. But there is reason to anticipate that stock prices are in a position to fall, simply because they’re so high right now. There’s nothing unusual about this — just a normal up-and-down cycle in markets — but I’d be cautious about investing my money in the stock market at today’s prices.

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Meanwhile, real estate looks better than ever. This is aided by the low interest rate environment I discussed in my last post. But there’s something even bigger going on now, and we should not underestimate its impact.

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The new president is a real estate developer. Let’s think about what this means. Coming from a business background, he has definitely experienced regulatory frustrations during his career. I expect his personal experience will motivate him to ease many of these regulatory burdens. Furthermore, so much of the real estate business is shaped by tax policy. Tax rates, development incentives, how the IRS treats various kinds of income, and more, have big effects on the economics of real estate. The president will see these questions from the perspective of business, and that means investment opportunities.

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So what, specifically, does he want to do? He gave us some specific guidance in his inaugural address, and for real estate investors like me, those promises sound golden. In particular, I was excited to hear this:

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“We will build new roads, and highways, and bridges, and airports, and tunnels, and railways all across our wonderful nation.”

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A massive infrastructure stimulus is the most specific promise made during his inaugural address, and boy do we need it. Most of the key infrastructure across the United States is now many decades old, and this a key area where we have fallen behind the rest of the developed world. The American Society of Civil Engineers gives our national infrastructure a D+ grade, and seeing that report card is a real “WTF” moment. The fact that the president emphasized this at his inauguration, among all possible policy initiatives, makes me think the next 4 years will be some of the best times for real estate investing that I have ever seen.

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I plan to take a closer look at specific strategies for cashing in on this opportunity in upcoming posts. But without getting into details, it’s easy to see how his vow to focus his administration on infrastructure projects is great for real estate investors. Quality and high-capacity infrastructure like roads and bridges make nearby properties more valuable because easier access to properties means more customers. It’s really that simple, although the details of specific investments do matter.

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To deliver on his promises before the next election, he will need to ramp up federal infrastructure spending tremendously. So, we will see more dollars flowing into an economic sector that benefits real estate values in a big way. And even better, infrastructure spending helps the entire economy, so it has potential to be a win-win. Add to that the likelihood that regulations and taxation of real estate projects will decrease, and it looks like we’re in store for a bonanza. Now comes the fun part: let’s go find some great deals!

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Call me at 847-317-0077, email me at breinberg@alliancecgc.com, or tweet me at @benreinberg or @alliancecgc if you can submit us a property to acquire and/or would like to invest with us. For further information on investing with Alliance, please click here.

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My Best,

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