Every administration has an impact on real estate lending, whether it’s intentional or not. From new policies that impact housing to regulations for mortgages, the decisions made during a presidential term almost always affect real estate investors in some way. The long-term impact of the Biden administration remains to be seen, but in the meantime, it’s a good idea to pay attention to the factors that could influence real estate investing activities in the near term.
Biden Administration Policies That May Impact Real Estate Lending
As the Biden administration continues to ramp up and introduce new policies, smart real estate investors are keeping an eye on the potential impacts. Here are some of the ways the new administration could play a role in the real estate investing landscape.
The Biden administration started with record-low mortgage rates because of the low interest rates sparked by the pandemic. Rates are expected to stay relatively low as the economy recovers, which is one reason the real estate market is so active right now. However, the Federal Reserve has signaled early rate increases starting next year, so this could change in the near future. The administration doesn’t control the Federal Reserve, so minimal changes are expected on this front.
As we emerge from the pandemic and stimulus money becomes more available for discretionary spending rather than necessities, certain industries are expected to bounce back. This could influence real estate investing in sectors such as retail and hospitality. Although these industries are currently suffering, forward-looking real estate investors might consider these types of properties.
With promises by the administration to invest in healthcare and health insurance, real estate investors should expect more activity in this area. Clinics, medical offices, and other related businesses will need space to operate, and the savvy investors that are ready to rent to them will have an edge with the first wave.
Biden’s promises to invest in infrastructure could also have an impact on the commercial real estate market. Industrial properties, warehouses, and office space may be in greater demand as businesses seek leases for these types of spaces.
Incentives for first-time homebuyers
Biden has proposed a $15,000 tax credit to make it possible for more first-time homebuyers to secure property. For real estate investors, this could mean more flipping opportunities as more homebuyers enter the market.
The pandemic had a major impact on residential rent collections, especially for landlords of residents with jobs in the service and hospitality industries. Federal rental assistance could help those landlords return to pre-pandemic income levels, opening the door for additional investment into rental properties.
Federal assistance with mortgages could have the opposite effect for real estate investors who are counting on an increase in foreclosures. Although investors can expect to see a wave of pandemic-related foreclosures, Biden’s $10 billion mortgage assistance bill would stem the tide.
As a major contributor to global carbon emissions, buildings have the potential to make a meaningful impact on climate change. Biden’s goal to reduce the carbon footprint of buildings 50 percent by 2035 could have an impact on commercial real estate investing. On the one hand, the additional costs of meeting sustainable building codes could deter investors. On the other hand, tax credits could offset these costs, so the actual impact of these types of regulations remains to be seen.
Capital gains tax rates
For some investors, a potential increase in the capital gains tax rate could be a signal to sell before it goes up. For others, this will mean more available properties to scoop up and add to a real estate portfolio. The primary factor will be annual income because an increase will only impact those making more than $1 million per year, but property values also play a role in the decision to sell or not.
1031 exchange policy
Biden has proposed putting a cap on the amount of capital gains on investment property sales that can be deferred by reinvesting in real estate. For some investors, this could impact whether to sell a property and whether that money is reinvested in the real estate market.
Real Estate Lending for Savvy Investors
If you spot a hot real estate opportunity, you know you need to act fast. Unfortunately, you can’t always do this with a conventional lender, even if you have a strong relationship. Conventional lenders have limitations about the types of properties they can fund, and the closing process takes a long time. If somebody else comes along with a cash offer, your opportunity could be gone.
These are some of the reasons working with a hard money lender such as Socotra Capital makes sense for savvy real estate investors. With the ability to close in a matter of days, you can bring the best deal to the table.
To learn more about your real estate lending options, read The Borrower's Guide: Fix-and-Flip Hard-Money Loans.