The COVID-19 recession and the increase in work-from-home (WFH) pose significant risks for commercial real estate and, thus, local property tax revenues. In key central city industry groups, workers who do not go into the office pay a substantial share of wages.
The results show that even Austin, which withstood the COVID-19 recession well, would experience significant property tax revenue losses because of its high reliance on commercial property taxes.
Increased Demand
One of the most efficient methods to amass riches is to purchase real estate. Over time, the value of the property increases, increasing the investor’s equity and generating more income. Additionally, Steven Taylor Los Angeles real estate investors pay less tax on their capital gains while selling their properties.
Another advantage of real estate investments is that they tend to increase in value during inflation. Inflation can raise the cost of construction materials, fuel, and other goods, resulting in higher land and real estate prices.
Inflation can also affect rental prices and demand for homes. But the effects of inflation are often offset by other positive factors, such as lower interest rates, which make it more affordable for people to buy or rent a home.
Another advantage of real estate investments is that they can help alleviate financial burdens on banks. By purchasing non-performing mortgages, residential investors can free up capital for financial institutions to restructure loans and offer better mortgages at lower rates.
A Strong Economy
Investors in real estate have a great chance to take advantage of the burgeoning global economies. Although the returns may not be as high as those from stocks, real estate still offers a stable source of passive income and provides substantial diversification.
Residential and commercial real estate prices are closely tied to the country’s GDP growth. The growth of an economy benefits commercial real estate because many major corporations need office space to operate efficiently and attract talent.
However, the growth of the real estate market is also impacted by inflationary pressures. Higher materials and labor costs will drive construction costs, affecting real estate prices.
While inflation adversely affects the real estate market, it can also be beneficial. Rising inflation reduces the demand for housing, lowering mortgage rates. It can also increase rental income, which helps offset maintenance and utilities costs.
Higher Rents
Real estate investors who decide to invest in rental properties can benefit from rising rental prices, just like Steven Taylor Real Estate. This is because there is often a considerably larger demand than supply for rental properties. In addition, rents are usually linked to the inflation rate, so when prices rise, so do the rents.
Large investment companies that buy single-family homes have come under fire for driving up home prices and gentrifying neighborhoods, making it harder for working and middle-class Americans to get onto the housing ladder. Consequently, some politicians are pushing to tax these companies.
Inflation can also benefit property investors by making mortgage rates cheaper, allowing them to purchase more units with their existing funds. It can boost their profits and increase the value of their investments. However, investors must raise their rents regularly to keep up with inflationary pressures. If they don’t, they could lose money over time.
Increased Tax Revenue
The IRS offers many tax breaks to real estate investors, allowing them to lower their taxable income. As an investor, you can benefit from various tax deductions such as property depreciation, mortgage interest, property taxes, insurance, and repair costs. Additionally, rental income is exempt from self-employment taxes. Moreover, you can use the 1031 exchange that permits you to defer capital gains taxes on property sales by reinvesting the profits in a comparable property. These are just a few reasons real estate investing remains a popular way to build wealth.
Real estate investors can expect continued growth in demand for rental properties and increased property values. However, rising costs for materials such as steel and petroleum will impact investment income in the short term. Moreover, the Administration’s 2023 budget proposal includes proposals that could negatively impact investment in real estate, including raising net operating losses and repealing the like-kind exchange deduction. Fortunately, these proposals do not appear to have the support they need to become law.
