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

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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

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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]

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