Editor’s Note: Dennis Fassett is a former corporate finance executive turned real estate investing “Cash Flow Mercenary.” Dennis specializes in single-family and multi-family cash flow properties and thoroughly enjoys assisting his fellow investors with their own strategies, including how to buy your first apartment building.
As an ongoing contributor to Mogul’s “Market News Updates,” Mr. Fassett provides us with his own unique, lively, and thought-provoking commentary on the timely industry news and events of today that are impacting our industry. And be sure to check out his other super-helpful Market News Updates. For now, enjoy...
From Dennis Fassett, Cash Flow Mercenary...
The question that should be on every real estate investor’s mind right now should be:
What impact is Trump going to have on real estate?
I was reading a bunch of stuff on this recently, and found a piece in the Wall Street Journal that, while not specifically addressing that question, addressed several factors that directly impact it.
In a nutshell, the Journal’s panel of forecasters says that his policies as stated could boost economic growth and bring higher interest rates and inflation. Their thinking is that his proposals to reduce taxes and invest in infrastructure will amount to a substantial fiscal stimulus.
That would be good for real estate because it would mean more jobs... and that means more spendable income across the board.
One of the forecasters, of course hedging his bet as economists usually do, said that Trump’s proposals could “knock the U.S. economy out of its low-altitude, low-growth orbit.” But in his next breath wondered if “it would put the economy in a higher growth orbit, or knock it down into the atmosphere and a fiery re-entry?”
Overall though, the survey revealed that on average, economists marked up their growth forecasts. The economy could expand 2.2% in 2017 and 2.3% in 2018, as a fiscal stimulus kicks into gear. Compared with the anemic growth over the past 8 years – that means that the growth rate will close to double.
Again, a very good thing for real estate.
The panel also forecasts an increase in inflation, up to 2.2% next year and 2.4% in 2018. This would be the first time inflation went above 2% since the “great recession.”
Mild inflation like this is also good for real estate, because it will provide an additional boost to property values over and above the demand we’re seeing. Inflation also helps put upward pressure on paychecks as well.
The Downside
The downside to Trump’s policies could be the timing of their implementation.
The economists worry that the policies he could enact the most quickly, such as restricting trade or immigration, could do harm to the economy. It’s not clear, however, what he’s going to actually implement, or when. What’s also unknown is the impact his trade proposals will have.
Will leveling the global playing field in terms of trade be a bad thing?
Who knows. Economists have differing opinions on this.
The Upside
On the other hand, the potential upside of Trump’s proposals, is, well, ‘yuge.’
Most of the panel believes tax cuts, especially if not accompanied by spending reductions, would produce a short-term boost to economic growth. And that his proposals to increase infrastructure spending, if successful, could lead to a large boost in construction employment, with spillover effects for other industries.
In addition, the economic impact of eliminating or significantly altering the burdensome Affordable Care Act could be massively positive. But the economists quickly pointed out that in their opinion, it depends on what the nation’s healthcare system looks like afterward.
The survey panel believes that the biggest risk of all to the economy is the potential for a global trade war. It was cited as the biggest risk to the economy by 43% of economists. A move from the U.S. to impose tariffs on foreign nations could lead to a spiral of rising trade barriers, higher import prices and shrinking markets for U.S. exporters.
But the U.S. hasn’t aggressively targeted fair trade in 100 years. A lot has changed since then. So it will be interesting to see how it plays out, and if the doom-and-gloom scenario really materializes.
Personally, I seriously doubt that it will.
So what’s the book on Trump’s economic proposals?
It looks positive to me. And if you watch the smart money like I do, the boost his pre-presidency is already having on the stock market makes it look like economic growth is coming back. It’s about time.
Weigh In
Share your Trump thoughts about the economy below.
Dennis Fassett
earned a BS in Economics and followed that up with an MBA in finance. After working and corporate finance and banking for several years, he started buying single family houses, and quickly built a very nice portfolio of cash flowing rentals. When the credit markets started to dry up and he couldn’t get any additional single family mortgages he shifted his focus to apartment buildings. He now has over $3 million in rental real estate. He manages most of it his self and still has a day job. Dennis has even created his own Private Equity fund to buy apartment buildings.