Biden Just DESTROYED Real Estate (Worse than I Thought)

okay everyone this is literally worse than expected and we gotta go through some more details because there's even more crap like this is literally tax the rich and kill the middle classes opportunities to build wealth it's pretty freaking bad just before i get into this though this video is sponsored by deal machines so that way if you want to make sure that you get deals under market value and you get them off market with real estate go to medkevin.com deals sign up start sending some mailers directly to the sellers before they go to sell tell them you want to buy before they sell on the market so that way you could try to get a below market value price go to met kevin.com deals to check out how deal machine automates this for you all right problemo number one if long-term capital gains taxes go away for people making over a million dollars 99 of people watching this video are like that's okay i don't care about that they actually do now we've talked about this regarding stocks but this video is about real estate so what happens when a long-term real estate investor does not get the benefit of basically having lower taxes on a long-term real estate investment well if they're making over a million dollars and they look at their real estate portfolio and they're like do i want to sell anything oh wait a minute i have to pay ordinary income taxes on my gains on my real estate and i have to pay state taxes on top of that what i'm i took the risk on real estate and i'm going to pay 50 to 60 of the government if i sell screw that i just won't sell i believe problem number one is that when you tell people making over a million dollars that you do not get a benefit for long-term holding real estate it's just gonna turn into fine i'll just hold it longer real estate is not something unless you're flipping that you're gonna go in and buy and sell really quickly anyway and in that case you're slightly speculating and flipping at the same time by doing repairs to properties but flips are taxed at ordinary income tax rates anyway so there's no long-term benefit on a you know flip within a year anyway you don't get long-term tax tax breaks there the big problem though again is larger real estate owners with larger real estate portfolios are going to be disincentivized to sell their real estate if they're going to get slapped with ordinary income taxes they might wait or postpone when they sell property to when their income goes down substantially under a million dollars maybe when they retire or whatever leading a lot of real estate to stay in people's portfolios longer which means otherwise people who might say you know what let's sell some real estate let's diversify and get into stocks or whatever are now potentially going to have less of a reason to sell and more of a reason to just say you know what why would i sell i'll just hotel that hurts housing inventory for everyone it's bad for everyone who wants to buy a house it's good when investors have low tax implications for selling because it gives them options it lets them say hey you know what let's liquidate some assets here let's either pay some long-term capital gains taxes or we'll exchange into something else and we transact and there's less of this need to long-term like hold forever because you're not constantly getting taxed every time you trade big problem especially since uh you know real estate is a slower moving animal so you know you don't want to wait 10 years and then all of a sudden give up 60 of your gains on your real estate investments you may as well if you're still making good money 10 years down the road as these millionaire investors probably will be you may as well just keep the real estate rather than take a 60 haircut on all the gains that you've just been trying to accumulate over time you're better off doing what i recommend in the real estate investing course linked down below over and over again we talk about this when the numbers make sense we talk about how to make sense of this how to negotiate loans how to do all of this talk about all this when the numbers make sense it's better to just do a cash out refinance guess what you still own the property now you have access to the cash without paying taxes so in other words removing the long-term capital gains benefit the benefit of lower taxes for wealthier individuals means those wealthier individuals who also own real estate are less likely to sell their real estate which means less housing on the market less housing on the market means higher prices for the person trying to get started today this is a big big problem now problem one wouldn't ordinarily be so bad because in real estate we've always had this beautiful thing called the 1031 tax deferred exchange now this it's very important to remember only applies to investment real estate i posted a brief video introducing this this morning but i want to go into more detail in this video so the 1031 exchange does not apply to your primary residence let's get this very very very clear here when you own real estate that you live in you get a completely different set of tax benefits for example if you own a house that you bought for a hundred thousand dollars and let's say ten years later the thing is worth five hundred thousand dollars and you go to sell that property that you're living in and you're married you get up to the first 500 000 in gains tax free when you sell this is called the home owner's exemption up to 500 000 in capital gains free if you're married up to 250 000 free if you're single and you can even use that rule if you sell up to about three years after you've moved out of the property so you could literally live in a property move out of it rent it for two and a half years and then sell it and still take advantage of these benefits because the rule is you get to exclude 250 to 500k of capital gains on a house that you lived in for two of the last five years if any of that was confusing just go back and re-listen to that the point is this is not so heavily focused on primary real estate that you're living in yet don't worry primary real estate is about to get smacked as well it's all about to get smacked it's this is this is so bad and it's so bad for people trying to build their wealth but anyway problem number two so remember how i said hey if investors don't if investors have a way not to pay taxes they're more likely to sell or if they can take the benefit of lower taxes they're more likely to sell the 1031 tax deferred exchange was the perfect solution for that it meant that people who have rented out real estate generally for at least two years are able to take that let's say it's a four-plex and sell it for a property that's equal or greater in value in general so that you're not paying taxes otherwise you'll be paying taxes so for example if you're like hey i'm gonna do a like kind exchange from a four unit apartment building to a 20 unit apartment building from five hundred thousand dollars to i don't know two million dollars or three million dollars whatever it is generally you're going up in value and you're exchanging into bigger real estate what you're doing is you're taking the capital gains from your first property and you're including those into the second property so that eventually when you finally cash out and actually take your money that's when you pay taxes but the problem is joe biden is getting rid of the 1031 exchange in part by limiting it just to 500 000 now you might be wondering okay well how does that affect a normal person well here's one example of how it affects a normal person let's say somebody's a retired person who bought a rental property when they were 40 years old and now they're 70 years old and they bought a house in san francisco for two hundred thousand dollars that's now worth a hundred or i'm sorry a million dollars so two hundred thousand dollars became a million dollars in san francisco that's a great gain let's say they've now fully depreciated it so they've got a million dollars ish in capital gains to pay taxes on if they now decide you know what i'm gonna sell and buy something else they'd have to pay taxes they could 1031 exchange half of it into a new property the other half they'd have to pay taxes on they could still use the leftover to help contribute towards their next purchase but they'd have to pay taxes on that portion which for many people is going to turn into the smaller term and smaller time investors many mom-and-pop real estate owners who have owned real estate for the last 30 years to go what the heck i don't want to realize those gains right now i don't want to pay taxes on that fine i'll just hotel longer doesn't matter to me we'll just hold it even longer that's bad because again less supply of real estate drives prices up but what is the more sinister problem well a more sinister problem is how it's going to affect llcs or potentially even corporations or or other entities or larger syndications who are buying real estate now there are certain real estate funds that just buy real estate they flip it they pay the taxes they distribute money to their investors and it doesn't matter they're like here you all pay the taxes doesn't matter hear your profits pay the taxes well that's not going to affect that kind of syndicate so much what it's going to affect is the kind of syndicate that says hey let's buy real estate let's buy a big building then let's exchange into another property and exchange into another one and postpone those long-term capital gains these larger more potentially institutionalized investors are going to be much more incentivized to say okay well rather than us buy a 20 million dollar building if we're going to have a 1031 exchange limit of say 500 000 on a property why don't we just or worse per tax return per year we don't know yet we don't have the bill yet bill won't probably be out for a few weeks but anyway if that's the case then these larger institutional buyers might be pushed into buying smaller deals because it would give them the opportunity to slice and dice out smaller deals and just go okay it's 20 22. let's sell a few single-family houses for a total of five hundred thousand dollars in gains and exchange them or if it's per property great it's a lot harder to get to five hundred thousand dollars in gains in in a single family or condo than it is on a big multi-family building you get somebody going hey do i want uh you know i don't know say 200 units worth 20 million dollars in one building well you're going to get 500 000 in gains really quickly you'll be less incentivized to do 1031 exchanges you'll be paying a whole lot more taxes or you divide it all up into single families it's more work but probably not for the syndicate anyway because they're just going to hire a property manager property management rates are relatively the same whether it's a single family or multi-family in fact sometimes you can get better deals on single-family than you can on multi because oftentimes there's less institutional competition for those single families but what happens when all of a sudden single-family homes who today across the average are 90 of the time bought by people who want to live in the home what happens when instead of 90 of people wanting to buy homes all of a sudden and live in them we get only 50 percent of home buyers wanting to buy homes to live in them well what that means is you've just injected a lot of demand into the single family and condo space for people to buy more single families and more condos jacking up the competition again for single families and condos making it even more unaffordable for the small-time buyer to get into real estate this is very very bad it's toxic syndications and institutions that want a 1031 exchange and want to postpone taxes look at blackrock for example these are companies that are going to continue to buy fixers they're going to continue to buy single families they're going to continue to buy what i like to call wedge deals and condos and they will in my opinion transition to buying more of these instead of large buildings because the tax incentives say fine then we'll just focus on smaller deals instead of big deals if you're going to get rid of the 1031 exchange biden you're better off getting rid of it completely because what you're doing is you're creating an imbalance you're saying we will give you a tax incentive if you buy small deals but we'll punish you if you buy big deals that's how simple this is that's what's happening the real estate market gets skewed by taxation by government government screws the little guy again now some people are like but wait a minute you know you get better scale with bigger deals it doesn't matter if you change the formula and you say you get a tax break at small deals and you don't on big deals it changes valuations and demand until the market hits a new equilibrium it's basic economics and the basic bottom line is the little guy gets screwed again so how the first way the little guy got screwed is long-term capital gains going away for those making over a million dollars less incentive to sell your real estate you may as well just either sell before the rule goes into effect great maybe there'll be a little temporary boost in inventory but in the long run less turnover you're going to see less people wanting to pay those tax bills and you'll see that less turnover 1031 exchange getting limited to 500k more competition in the smaller space and it also hurts people who are retired and have held on the real to the real estate for 20 30 40 years and it hurts the little guy for their plans to be able to hold on to real estate for the long term they'll be more likely to want to sell and incur those selling fees once they get to that 500k in gains which again reduces their wealth because it forces them to make a transition when they didn't otherwise have to all right problem number three that comes up so here's the thing when you own real estate you have a benefit to hold but only for a certain period of time because at some point you do something known as fully depreciate your real estate that means the cost basis on your investment real estate has gone from whatever your cost basis was to zero it just meant every month you took tax deductions until it was fully depreciated ordinarily when you have a fully depreciated property yet sell it 1031 exchange it into a bigger property and then depreciate that new more expensive portion of that new building that you bought that's how you keep milking depreciation over and over and over again without being forced into paying taxes well unfortunately now with this 1031 exchange going away you're stuck in a situation where once properties are fully depreciated people are basically going to be forced or compelled to sell at the end of their depreciation curve pay bigger taxes but they'll be very likely to do that less often usual home ownership usually people keep homes for seven years my guess is people are going to hold real estate even longer to incur those tax events less frequently especially since you got selling costs to figure as well to me it's just another thing screws the little guy because this tax plan encourages people to hold real estate the other downside though which was used to be a benefit of holding real estate the benefit of real estate used to be uk 1031 exchange over and over and over and over again never pay taxes on your real estate and then if you got hit by a bus and you passed your real estate onto your heirs your heirs would get a stepped-up tax basis that basically means if you had a 10 million portfolio and uh you depreciated it to zero if you sold you would pay taxes uh you know let's say you sold the day before you die you'd pay taxes on that and maybe you'd give the government three million dollars in taxes just as a rough example if you died and then your family sold that real estate for 10 million dollars the very next day your basis would get stepped up from zero to 10 million which basically means your heirs would pay zero dollars in taxes which means you would be able to escape taxes literally forever in real estate that was one of the most beautiful things about real estate investing is the ability to literally never pay taxes on your real estate and this led people to guess what invest in real estate it led people to say hey we should keep investing in real estate we should fix up real estate we should buy and hold real estate and we should 1031 and build our wealth through real estate well now a big reason that people get into real estate that stepped up tax bases for building a uh building a family portfolio building family wealth a big reason goes away and this is not a big thing for massive estates this is not this is not something for people uh with 20 plus million dollar estates because they're going to pay the estate taxes anyway like that's where you'll get screwed on taxes anyway when you have a portfolio over 20 million dollars you'll be paying the estate tax but guess who doesn't pay the estate tax people with under 20 million dollar portfolios so all of a sudden a big benefit towards investing in real estate over the long run and having that stepped up tax basis to where you might never have to pay taxes on your real estate and be able to pass on to your family to your kids a million dollar a four million dollar five million dollar portfolio all of a sudden goes away that benefit goes away instead your heirs would just inherit a big freaking tax bill when they go to sell that property and the portfolio would be worth dramatically less especially if they're selling really expensive property and there's no long-term capital gains so again you're not screwing the mega wealthy the mega wealthy didn't really benefit from the stepped up tax bases that much anyway because of the estate taxes the estate taxes would tax any amount of wealth passed on to the heirs above you know whatever 21 million or whatever for a couple anyway or 10 million i think it's like 10.5 or whatever million dollars for a single person but it's any portfolio under those numbers under that 10 to 20 million any portfolio under that size which is like the very american dream you know build a portfolio get that one two million dollar real estate portfolio over time maybe build it to a 510 million dollar portfolio over your lifetime by starting small buying your first house buying a second one buying a rental buying a third rental then building a portfolio those are the people who get screwed not the ones with the mega portfolios they're already getting taxed it's literally again the little guy gets screwed now that could actually lead some people to just say you know what i just don't want to get into real estate anymore and you might think oh that'd be good for inventory because that means less people are competing no don't kid yourself because the institutional buyers will come in and they'll fill that void instantaneously because they now have an incentive to fulfill that void they don't care about the stepped up tax basis anyway that part doesn't matter so the big guys are incentivized to fill any void if anything more than that been created more demand in the real estate market the smaller family who's looking at real estate as a way to build wealth under the estate tax limits just loses a big benefit towards owning real estate and guess what now potentially you disincentivize people from building wealth with real estate instead they go yolo options lose a bunch of money and guess what they get screwed by the suits again it's in this country i'm so sick and tired of it it's always the suits and wall street that wins in almost every scenario they've you tell them the rules and they will figure out the best way to win but it's the little person who wants to build wealth who gets screwed by no incentive to hold real estate long-term long-term capital gains are going away for those uh especially those medium-sized investors real estate investors that's going to lead to again more competition for real estate in the small deals while at the same time having less inventory available because there's a disincentive to sell real estate for those people making over a million dollars that hurts people making less than a million dollars the lack of the 1031 exchange for anything over 500k hurts people trying to build generational wealth which is sad it hurts people trying to do that it hurts people trying to buy and hold real estate it hurts that retired person who held onto their real estate for 30 years and took care of that property and took the gamble on that property that's the person it hurts doesn't help anyone and again the institutions will figure out how to play this game so perfectly that inventory will if you think inventory problems are bad now they'll be even worse when institutions are incentivized to get into smaller deal real estate and on top of that the stepped up tax base is going away doesn't hurt the mega rich they're getting screwed by the estate tax anyway it hurts the small family trying to build wealth folks there's literally no escape if all this crap goes through this is bad so in my opinion here are the likely outcomes once this stuff becomes law if it becomes law you're going to see a wave of people trying to take advantage of the 1031 exchange right before all this becomes actual law if it does you'd think this would be a good thing because that means more people are selling right but it's worse because when you're doing a 1031 exchange you also have to buy which means by the end of the year you're probably likely to see a big old buying frenzy meaning more competition concentrated into fewer months in the winter which is already time you have less inventory and real estate if these rules go into effect let's say january 1st this distorts the real estate market and it props up real estate competitive even more that's exactly why you want to go to medkevin.com deals to find deals before they hit the market and of course check out my programs linked down below on real estate investing and other forms of investing in building your wealth where i teach you all the secrets to building wealth in real estate and stocks and psychology of money use that 39 off coupon code linked down below now long term we're also less look short term real estate agents will benefit real estate agents will get potentially a bonanza and people wanting to quickly rush to do 1031 exchanges long term though remember now there's an incentive to buy and hotel because it makes no sense to sell more frequently because you'll just have to pay you'll have to have your your date with the tax the tax man more frequently which you can say oh well you'll do that more often over time and you spread out your taxes it's a disaster people don't like looking forward to big tax years i think this is going to incentivize people to not only hold their real estate longer especially the smaller real-time real estate investor meaning again less liquidity for the real estate market but it also means that people are probably going to skew towards a desire for newer construction real estate because if they're going to uphold their real estate for the long term they may as well start out with newer real estate rather than older real estate like if i was going to plan to hold real estate for 27.5 years i would rather buy that real estate uh as as a new construction build now than buy a 1950s place uh remodel it today hold it for 27.5 years and over time i'm just gonna have to do more and more work that roof's gonna come due that plumbing's gonna come due if i didn't already upgrade it that sewer's gonna come due if i didn't already upgrade it i'd rather start with brand new so you're gonna see more pressure on new construction real estate also okay then we've talked about people holding longer and we've talked about the middle class getting burned as corporate america comes in to take advantage of these 500 000 and under 1031 exchange rules folks in my opinion this is a complete disaster these are really bad things for real estate hopefully they don't go through because this is this is an extreme change for the real estate market uh i mean i don't even know what else to say other than check out the programs down below use that 39 off coupon code before biden swoops in and takes that away too anyway those are my more detailed thoughts on all of this nonsense that's going on thank you very much for watching we'll see you in the next video bye [Music] you

Channel: Meet Kevin

Views: 239,839

Keywords: investing, money, making money, real estate, biden, 1031, stepped up basis, 1030, 1031 exchange, tax deferred exchange

Id: W59Mcuh_LdI

Length: 23min 29sec (1409 seconds)

Published: Wed Apr 28 2021