Since November’s re-election of President Barack Obama, talk of the “fiscal cliff” has filled news headlines around the country. Both parties are faced with the dilemma of dealing with massive budget cuts and shortfalls as the Budget Control Act of 2011 is set to expire at the end of 2012. Because this law affects taxes, funding, and financial management in many areas of the economy, real estate investments in markets across the US can expect to be affected, either directly or indirectly, by the outcome,
The recently coined term “fiscal cliff” is an apt description of the looming budget crisis, With changes to the financial landscape on many levels, both local and national, programs and services, as well as a variety of industries, face major shortfalls. According to a recent article in Realty Biz News, the looming fiscal cliff may raise problems for income property investors following Jason Hartman’s advice to diversify holdings in a variety of local markets
Although the budget crisis itself may not have an impact directly on the status of investment properties, both residential and commercial, it’s likely to affect conditions in individual local areas in major ways, and that, in turn, can affect how income property is bought, sold, and maintained.
The major industry facing massive cuts aimed at reducing government outlay is the military. The closing of bases, cutting of personnel, and restrictions on purchasing designed to cut costs at bases around the country has a direct impact on the housing industry and, in particular, rental properties of the kind owned by independent investors. In areas hard-hit by budget cuts, the demand for rental housing could significantly decrease, leaving investment properties vacant for long periods of time and slowing local development in neighborhoods dedicated to serving a military installation.
Other domestic areas affected by the cliff are student loans, social services block grants, vocational rehabilitation, and similar types of social programs. Although these programs, administered on both the national and local levels, also have little direct relationship to housing issues, budget reductions in these areas can also contribute to changing the rental property market in some areas.
Funds allotted for disaster planning and relief are also expected to take a hit – a possibility that does have specific implications for housing. Owners whose properties are damaged in natural disasters may not be able to receive disaster relief.
The budget bus is poised on the edge of the fiscal cliff unless negotiations head off the end of the Budget Control Act. Income property investors who have diversified their portfolio of properties into different markets should educate themselves about how the provisions of the Act are likely to affect rental properties in a given area. Indirectly or directly, the fiscal cliff looms ahead, ready to affect homeowners and income property investors alike.
The Jason Hartman Team
