I’ll get it out of the way now: I find both major political parties reprehensible and hypocritical. I’ve voted for each roughly equally over my life.

Now, let’s get back to real estate investing.

Taxes and Population Change

Population drives demand for real estate, and a shrinking population poses a major problem for real estate investors. Identifying population shifts, therefore, matters to real estate investors—a lot. 

There’s been a narrative over the last few years that more Americans have started voting with their feet and leaving higher-tax states in favor of lower-tax states. Is it true? 

I started by pulling raw data from the Census Bureau. I then mapped population change for all 50 states:

Investment analyst Ben Reynolds of SureDividend.com pointed out to BiggerPockets a few much-discussed examples: “Texas and Florida are two of the fastest-growing states by population. Not coincidentally, they offer a compelling mix of no state income tax and less cold climates compared to most other states.”

That raises the question of comparing population change to state taxes. Fortunately, that data is also readily available. 

Tax Burden by State

Every year, WalletHub ranks every state by its total tax burden, which includes state income taxes, property taxes, and sales and excise taxes. 

Surprising no one, New York took the top spot with the highest tax burden (12.02% of income for the average resident). New York also lost nearly 102,000 residents last year. 

That’s just one state, of course. Let’s look at states with a population loss last year: 

• California
• Hawaii
• Illinois
• Louisiana
• New York
• Oregon
• Pennsylvania
• West Virginia

How did they rank on tax burden?

The average tax burden ranking for these states is 14. In fact, only one of these states was ranked above the median of 25, and then just barely: Louisiana has a tax rank of 27. 

So yes, there is a clear correlation between tax burden and population change. And yes, I also hear all you skeptics out there objecting that “correlation does not indicate causation.” Go ahead and cling to that if it helps reinforce your existing worldview that taxes play no role in people’s decisions about where to live. 

I’m not saying taxes are the only or even the most important factor in where Americans move. Surveys about moving trends list many stated reasons for moving. But taxes appear to play a role in the calculations—especially for wealthier Americans. 

“Higher-net worth individuals are most likely to move to states with low or no income tax,” said Alexandra Alvarado of the American Apartment Owners Association in a conversation with BiggerPockets. “It may not be the primary reason they are making the move in the first place, but it does influence which states they are moving to. Also, companies that are moving their headquarters to lower tax states also influence migration patterns, as their employees tend to move with them.”

And that says nothing of the state and local taxes you pay directly as a property investor—taxes that eat into your returns on investment. While you can’t avoid federal taxes, you can pick and choose the states and cities where you invest—and their respective tax policies.  

Anti-Landlord Regulation

People love to hate landlords. I’ve never understood this: The same activists who cry out in righteous fury that there’s not enough affordable rental housing are the very ones who rail against “greedy” landlords—the people who supply rental housing. 

In some cities and states, these activists have enacted regulations that heavily favor renters over landlords. Back when I used to buy properties directly, I operated in Baltimore, one of the most tenant-friendly jurisdictions in the country. It once took me 11 months to get a nonpaying “professional tenant” out of my rental property. 

In our group real estate investing club at SparkRental, we focus first and foremost on managing risk. Every month when we get together to vet a new investment, we look at risks like debt, construction, property management, and regulation. 

Regulatory risk matters. If it takes two months to remove a nonpaying tenant in one market and 10 months in another, it adds risk and cost to invest in the tenant-friendly market. 

Look no further than the pandemic-era eviction moratoriums. Tenant-friendly markets extended moratoriums long after the federal moratorium expired, making lease contracts one-way enforceable for years. Many renters lived for free for several years, letting their landlord pay the mortgage and maintain their home while they milked every moment of free rent. 

And now that the precedent has been set, these jurisdictions can play the same card again the next time a “crisis” arrives. 

Therefore, anti-landlord regulation adds risk to your investment. Hard stop. 

Do I Shun These Cities and States?

I’m no political crusader. I’ve invested in markets with high taxes and tenant-friendly regulations. But I’m more cautious when I do so because it adds expense and risk.

In particular, I try to avoid multifamily investments in areas with anti-landlord regulations. That doesn’t mean I avoid all real estate investments there, however. 

Take Southern California. Our passive real estate investing club got together a few months back to vet a property with 11 short-term rental cabins on it. The cabins were in an unincorporated mountain town 90 minutes outside of LA, which relies on tourism to survive. We felt extremely confident that there was no risk of short-term rentals being outlawed, and the cabins don’t allow long-term stays. 

Yes, California has tenant-friendly laws. But they don’t affect that property, and we felt comfortable making that investment together. 

Likewise, we consider industrial, retail, and storage properties in areas with anti-landlord regulations. We even consider mobile home parks with tenant-owned homes in these markets. 

Final Thoughts

But if I’m going to invest in a multifamily property in a high-tax, anti-landlord jurisdiction, I expect the deal to make up for it elsewhere with lower risk than usual. 

You invest however you like with your money. But when you evaluate risk, ignore these factors at your money’s peril.

Source: G. Brian Davis – BiggerPockets article

The post Warning: These States and Cities Are Becoming Uninvestable Due to Politics appeared first on USPAIN Investments.

In the world of investments, one avenue stands out for its long-standing track record of creating wealth and financial security: real estate. Investing in real estate has proven to be a reliable and effective way to build wealth over time. From seasoned investors to newcomers, many are drawn to the tangible and enduring benefits that real estate offers. In this article, we will explore why investing in real estate is a good way to create wealth.

1. Tangible Asset

Real estate is a tangible asset, which means you can see, touch, and have direct control over it. Unlike stocks, bonds, or other financial instruments, real estate allows you to own a piece of physical property. This tangibility provides a sense of security for investors, as they have something concrete to fall back on.

2. Appreciation in Value

One of the primary ways real estate builds wealth is through the appreciation of property values over time. Historically, real estate properties tend to increase in value, often outpacing inflation. This means that as you hold onto your real estate investments, they can grow in worth, providing you with substantial gains when you decide to sell.

3. Rental Income

Investing in rental properties can generate a consistent stream of income. By leasing your property to tenants, you receive monthly rental payments, which can cover your expenses, including mortgage payments, property maintenance, and taxes. Any surplus income becomes a source of passive income, allowing you to reinvest or save for future investments.

4. Diversification

Diversifying your investment portfolio is essential for managing risk. Real estate offers a unique opportunity to diversify beyond traditional stocks and bonds. This diversification can help shield your wealth from market volatility, as real estate markets often behave independently of the stock market. When stocks are down, your real estate investments may still be performing well, providing a valuable hedge against economic uncertainty.

5. Tax Benefits

Investing in real estate comes with several tax advantages that can boost your overall wealth-building strategy. Mortgage interest, property taxes, and depreciation are just a few of the expenses that can be deducted from your taxable income. Additionally, long-term capital gains from real estate investments often enjoy favorable tax rates, providing a tax-efficient way to build wealth.

6. Leverage

Real estate allows you to leverage your investments, meaning you can control a more substantial asset with a relatively small amount of your own money. This leverage can magnify your returns. For example, if you buy a property with a 20% down payment, any appreciation in the property’s value accrues to the entire property’s worth, not just the initial 20% you invested.

7. Inflation Hedge

Real estate has historically proven to be an effective hedge against inflation. As the cost of living rises, so does the rental income generated by real estate investments. Additionally, property values often appreciate in response to inflation, preserving and potentially increasing your wealth.

8. Long-Term Stability

Real estate investments typically exhibit more stability compared to other investment options. While stocks can experience significant fluctuations in a short period, real estate values tend to be less volatile over the long term. This stability allows investors to hold onto their properties and accumulate wealth steadily over time.

Conclusion

Investing in real estate is a tried-and-true method for creating wealth. Its unique combination of tangibility, potential for appreciation, rental income, tax benefits, and diversification opportunities make it an attractive choice for investors looking to secure their financial future. While real estate investing requires careful research, planning, and management, the potential rewards in terms of wealth creation and financial security make it a compelling choice for investors of all levels of experience. So, whether you’re a seasoned investor or just starting, real estate should undoubtedly be a part of your wealth-building strategy.

The post Building Wealth through Real Estate: The Smart Investment Choice appeared first on USPAIN Investments.