We must clarify that Novarise is not pro Biden or pro Trump. This is just information and a financial education tool to analyze the different scenarios that could benefit or harm our investments.
The goal with these types of articles is simply to see what is available in the market, what kind of laws and adjustments are being announced.
We will analyze from a macroeconomic point of view how political decisions under the new administration of Joe Biden in the United States could affect investments in real estate.
Politics influences real estate and investments
Politics has a lot of influence on the decisions we make within the real estate world. It is important that we keep that on our radar, to be aware of everything that is happening and thus adjust little by little.
Within the subject of politics and the economy, we will touch on the subject of Joe Biden and his election as President of the United States, now the country has a Senate that is, in general, a Democrat, and we will also talk about the Federal Reserve.
As investors we must be aware of the stimulus that this new administration offers to entrepreneurs. You have to be on the lookout for any type of loans available for small businesses. Why is it important? Because the economy goes at a local level as well as at a macroeconomic level, but locally, if there is no employment in businesses or in a particular area, that means that people do not have work and therefore they will not have money to be able to pay the rent and thus the domino effect is created.
Real estate investors are considered small businesses, as long as they manage their real estate portfolios as if it is a business, for example, an LLC, file taxes under the company and everything else.
Why is that important? This type of aid, when the federal government begins to offer it to each of the states, contributes to all investors, without exception, because part of that state can give local loans directly to businesses, as well as they can start giving loans for some kind of people or businesses who meet certain criteria.
The federal government can approve x amounts of money, but the distribution of those funds will always depend on the state and local government. It is very important to take that type of information into account.
Rental assistance program
President Biden recently approved an assistance to help those families who have lost their jobs, who have not yet had the opportunity to get a job and are on that edge where they do not know exactly what to do, because they need to pay the rent, and if they do not pay the rent may fall in an eviction. That is what the government is now trying to prevent from happening, because if a wave of all these families ends up evicted, there is a potential risk that the virus will spread further.
With this information we can take advantage of those economic stimulus that the Government is offering as tenants, as homeowners, as owners and investors, whether in real estate or in any type of business. This type of aid will drive us to achieve what we are looking to do.
“Eviction Moratorium”
You should always take into account the decrees and news about real estate that may impact investments.
In the case of real estate investments, you don’t buy with your emotions, but simply all those decisions are based on numbers. What happens in this case? When real estate investors invest in a property, they acquire a mortgage and that mortgage is paid thanks to the income they are receiving through that rent.
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Maybe you are already reaching the point that those savings are running out, you are running out of money, without capital, to pay the bank to whom you owe the mortgage and there is an opportunity or a very great chance that these types of investors could fall into foreclosure, and that’s when the massive real estate crash begins.
On one side of the country, houses are rising in price due to homeowners, on the other, prices are falling.
Therefore, it is important to constantly monitor what is happening in the market to see what the Government announces.
The Federal Reserve will keep the interest
This decision made by the Federal Reserve for this pandemic year will bring real estate investors both benefits and disadvantages. Among the benefits is that for those who are looking to buy, they can obviously dive right into the market and keep buying properties because the interest rate is relatively low, but in the long run that can lead to inflation.
Investments in the USA
The fall of the Dow Jones can affect investments because it generates volatility in the markets. We are also observing that as a result of the rise in house prices, as well as the falls, there is a boom in other states, generally in the southern states (Florida, Arizona and Texas), where properties are rising rapidly by the simple fact that everyone is moving their money from previously booming states, New York or California to these states.
People who have money in those states are, once again, migrating, distributing all that money in assets that are in the north because it has been proven, which is where all that movement is, where most of the people are looking to leave. to take advantage of the economic boom are the southern states.
Consequences of this internal migration for investments
If you are one of the people who have assets or have real estate, in California and in cities like New York, and you see that things are not very good, what you will do is try to sell all your assets or get more cash refinancing “, A refinancing to have money, and to be able to park your money in states like Florida, Arizona, Texas.
In today’s context many people are becoming investors overnight and all of these people are owning one or two investment properties in any of those southern states. What happens is that eventually there is going to be such a supply of houses available for rent, that it is going to get to the point that there are not going to be enough tenants to rent all those properties available.
There is no problem for those who managed to buy that house in cash, because you no longer have a mortgage to worry about, but if you bought a property in any of those states with a mortgage loan, eventually, over time, if the supply of houses exceeds the available number of tenants who are willing to rent in that area, that is to say that, or they will see many houses sitting there in the market, empty, without being able to rent, or that eventually, competition begins to see who offers the lowest rent.
For example: “Generally, the market rent would be about $ 1,400. A landlord comes along and says, “You know what? I’m going to offer it for $ 1,350”, the other person comes in and says,” You know what? I want mine to rent quickly and I’m going to offer it for $ 1,300 ”, and then someone else comes and offers it for $ 1,250, that’s how the war begins.
If rents go down, how do I pay the mortgage on the property?
It will reach a point that the price of the rents will drop so much that it will not cover that mortgage expense that the owner has to do.
Yes, mortgages for $1,500 and, suddenly, you are leaving the rent of that property at $ 1,350, that means that your cash flow is in negative. That means, you have to put $150 out of your pocket every month to be able to meet that mortgage.
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What happens if you lose your job?
Now you have to take $150 of your savings to fulfill that mortgage responsibility with the bank and beg you to find a job soon, and not to get the virus, or anything like that, because if not, we are entering a dilemma whether you will have to ask for a “forbearance” for that mortgage or ask for a loan that the Biden program is offering, verify that you have a business, that you are running it as if it were a legitimate legal business and with all the tax returns.
Under this scenario, a herd of “foreclosure” can be anticipated, a wave of foreclosure lawsuits due to the impossibility of complying with the mortgage payment.
There are many properties available for rent that could not be sold, and those same properties can become future houses, which are entering “foreclosure”, for the simple fact that they could no longer be rented, now there are going to be many houses available in the market for sale, for those people who are willing or who have the capital to buy.
That is one of the aspects that makes a very big difference with 2008 where the fall in house prices happened due to the “homeowners”, those people who were buying with their emotions. Now it is the opposite, it is mostly in the commercial sphere, because there is a lot of migration. That is one of the few factors that can be anticipated.
Currently there is a lot of demand, all those properties around Texas have risen in value due to the migration of work, due to the migration of demand of the same people, who as they are changing jobs, seek these states to settle. The weather also plays a role, Austin, Texas has a relatively pleasant climate compared to cities like New York, for example, where the cold is very extreme.
While house prices are falling in California or New York, in states like Florida, Arizona or Texas, there is a “boom”, a rise in the investment market.
The new green world benefits investments
The “Green” Movement on Joe Biden’s agenda will increase demand for silver, as an investment metal, as a side effect of the measure.
Biden wants everything to be “green”, he wants everything to be electric, he wants us to have solar panels. This means that there will be a lot of demand for certain types of metals, among these is the demand for silver as an investment metal and as a metal for commercial use as well. Thus, silver plays a very important role in Biden’s economic plan for the United States.
In that scenario, silver begins to increase in price, which makes it a highly desired asset for those who are looking to invest their money in an alternative way, if the money is not enough to get involved, for example, in real estate. ..
What the fall in interest implies
One of the consequences that the fall in interest can generate is for people who are looking to buy, these people can take advantage of what it is to have a mortgage with a relatively cheap price, because the rates are very low, but in the long run that can translate into higher prices and high inflation.
What can you do as an investor to protect your assets? The best recommendation that we can give you in Novarise is not to leave the money in the bank because that way you lose money.
Interest rates are pathetic. They are very low and with the inflation that is about to come, with the rise in the cost of living, with the rise in prices, the money that we are leaving in the bank is rather losing value, because inflation may be rising a three, four, five or 6%, while the interests remain well below that.
The money that you would be earning in the bank at 0.03% interest, will not help you protect all that capital for which you have worked so hard, against inflation.
The recommendation is to take that money and invest it in real estate in areas where it is still possible, in areas where properties are not at extremely high prices. Investments can save you in the future.
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