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Multifamily Syndication 101
September 9, 2024Election Cycles In Real Estate
Planning Your Investment Strategy During Election Cycles
The countdown to the next general election is well underway, and with it, a wave of uncertainty washes over industries, including real estate.
According to Inc, every year election cycle impacts different sectors of the national economy, not leaving real estate behind. There is a perception that higher property prices are linked with Democratic states, whereas Republican states are connected with lower rates. Furthermore, there is an impact on income and housing affordability, property tax, and building permits.
Understanding the Impact of General Elections on Real Estate
Market Sentiment
When the time for elections heats up, it makes the market volatile as the investors become unsure regarding the policy changes and whether the same rules will be applicable or not. The unpredictability compels the buyer and seller to re-think their investment decisions as their confidence fluctuates. This fluctuation further impacts the transaction as investors step back from investing any more capital and wait until the final results of the election.
Policy Changes
With the emergence of new governing bodies, new policies also make their way in. The changes affect zoning regulations, property taxes, housing subsidies, or the development of the infrastructure. In short, the policies can influence investment opportunities and property values. That provokes other investors to become more careful, keeping the new rules in mind while putting their funds into new properties.
Economic Outlook
The outcome of the elections can easily change the economic outlook. How? The new candidate’s decisions can impact interest rates, inflation, and overall economic growth which affects the real estate market too.
Investor Behavior
During election years, investors often adopt a “wait-and-see” approach. This cautious behavior leads to a slowdown in transactions as investors prefer to wait for the election results rather than making hasty decisions. Understanding this behavior is crucial for real estate professionals aiming to pass the election cycle effectively.
How To Do Pre-Election Planning?
Market Research and Analysis
What are the possibilities? Is it a favorable incumbent, or will it be all newcomers? How polarized are the candidates? Moderates or a mixed balance of power should equate to less volatility; however, extreme polarities will yield higher market volatility.
Risk Assessment
Identify potential risks that could arise from a new government and its policies. Picture this: a candidate proposes as part of their platform to implement strict rent control. Can you imagine how that could impact your future strategy if it went into play? We’re talking about transitioning business models! Less extreme examples could include changes in zoning regulations, tax laws, or housing subsidies. Create strategies to mitigate identified risks. This could involve diversifying investments, securing long-term financing, or adjusting investment timelines to reduce exposure to policy changes. Your biggest risk is typically related to your debt. Experts recommend that your loan maturity does not land the year of or following an election should any major policies change. If they do, consider the costs of refinancing in order to reduce your overall risk.
Financial Planning
Proper financial planning goes a long way. First, keep extra cash on hand to handle market fluctuations. Second, pay close attention to candidates’ policies on property taxes and regulations. Third, if you know that you need to sell, try and avoid doing so before the election year to avoid uncertain market values.
Communication Strategy
Create a plan to keep stakeholders and clients informed or ask your asset manager if you are a passive investor, about market conditions and potential impacts of the election. Encourage stakeholders to focus on the long-term perspective of real estate investments. Elections are temporary events, and highlighting the long-term stability and growth potential of real estate can help mitigate short-term concerns.
What To Do During Election Period Strategy?
Focus on Core Investments
Remember the fundamentals. Do not take this time to speculate if taking on unnecessary risk is not part of your core investment strategy. While others are busy sitting on the sidelines, this time can still result in strong investments. Some sellers still need to dispose of their assets, this is where you can step in. Additionally, for your in-flight investments, double down on securing long-term leases to avoid a spike in vacancies. This is not the optimal time to push rent increases for that same reason.
Monitor Market Trends
Keep a close watch on market trends and sentiment. Regularly track changes in the real estate market, including fluctuations in property values, transaction volumes, credit availability, interest rates, and investor behavior.
Network and Build Relationships
Attending industry events will increase your exposure to expert opinions. Engage with operators, investors, and other industry professionals to gain broad political perspectives. Understanding their positions on real estate issues can provide valuable context and help you navigate potential policy changes.
Presidential Influence on the Housing Market
Presidential candidates often emphasize their economic plans during election campaigns, but it’s important to recognize the limits of presidential influence:
- Limited Direct Impact: The U.S. president does not have the power to directly buy or sell large quantities of homes or set mortgage rates. For a president to significantly sway the housing market, they would need to enact policies that directly impact homeownership and financing on a broad scale— think national rent control which would be wildly unfavorable.
- Policy Implementation: Even when presidents propose policies, such as Joe Biden’s first-time homebuyer tax credit in 2020, the actual implementation of such measures can be delayed or uncertain. As of 2024, this specific policy had not yet been enacted, which shows the gap between campaign promises and real-world effects.
Despite political changes, the fundamentals of real estate—such as location, property condition, and market demand—remain critical. Continue to focus on these core factors when making investment decisions.
What Lies Ahead?
Election cycles significantly impact the real estate market. Real estate professionals can tackle these periods if they understand market trends, assess risks, and maintain effective communication. Proactive planning, adaptability, and a focus on long-term goals are essential for thriving during and after elections.
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