2321: Trump's Big Beautiful Bill: Revolutionizing Real Estate Investing and Saving on Taxes

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Hey there.

I'm Russell Gray, Main Street Capitalist show and the founder of the Raising Capitalist Foundation. I'm here at the Jason Hartman Empowered Investor Live event. It's my first time being here, having a great time. I got a chance to see Sharon Lechter speak. I've never seen her speak. I've known her for years, never heard her speak. She was amazing. Of course, Tom Wheelwright was amazing. Jason had a lot of great things to say. What I really like about it is the big picture stuff, tax strategy, legal strategy, but they also get down in the weeds is how do you actually execute, how do you find properties, how do you manage properties, how do you automate, how do you keep yourself in the 21st century? So if you're serious about your real estate investing, your real estate portfolio, this is a great place to be. Lots of great resources, lots of great energy, a lot of great information, and hopefully I'll see you at the next one.

Welcome to the Creating wealth show with Jason Hartman. You're about to learn a new slant on investing, some exciting techniques and fresh new approaches to the world's most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine, self made multimillionaire who's actually been there and done it. He's a successful investor, lender, developer and entrepreneur who's owned properties in 11 states, had hundreds of tenants, and been involved in thousands of real estate transactions. This program will help you follow in Jason's footsteps, steps on the road to your Financial Independence Day. You really can do it. And now, here's your host, Jason Hartman with the complete solution for real estate investors.

The Big Beautiful Bill is making a lot of heads turn and there's a lot of celebration in the real estate industry, specifically about Big Beautiful Bill. And I brought on an expert to talk about that today. Let's welcome Travis King. He is the founder and CEO of Realm. They are a real estate investor collective. They're based in Nashville, formerly in the Socialist Republic of California. Travis, welcome. How are you? Thanks.

I'm doing great. Jason, how are you?

I am allowed to make fun of California because I spent most of my life there. So.

Okay, that's. That's two of us.

So I have permission? Yeah. Yeah. Hey. So a lot of talk about the bill. The national association of Realtors, the largest trade lobbying organization on planet Earth, is celebrating. They say there's going to be a lot of really good news here for the real estate industry, real estate investors specifically. And you're a big real estate investor. You work with family offices and invest all over the country like we do. What are your thoughts on the big beautiful bill, by the way? I gotta just say love him or hate him, you gotta say Trump is an incredible marketer. He could have called the bill anything. But it's the big beautiful bill, so. And you know what, his opponents have to refer to it that way.

It is true. He is, he's a genius at marketing, regardless of what you think. And I'm a big fan of alliteration myself.

Yeah, absolutely.

Yeah. So it's definitely, I think it is a boon for, for real estate investors, for sure. I think when you start looking at a lot of those components, there's things that are really instrumental for anybody investing in real estate. And in our case, most of our investors tend to be very large family offices with, you know, upwards of $100 million to invest in real estate. But, but there's a lot of things in there that get really important, such as understanding what's happening with 100% depreciation and being able to have access to accelerated depreciation, being able to have the opportunity zones now grandfathered in permanently. There's some things in there that I think are going to make a big difference for real estate investors long term. So in general, yeah, I think we're all cheering on that aspect of the bill. It's. There's also an emphasis on big. It is a big bill. There's a lot in there. But I think in general, the sense for most real estate investors that it's going to be very beneficial to the real estate industry.

So let's drill down on some of the provisions and what they mean for real estate as a whole and then specifically real estate investors. Because, you know, there is a difference, right. There's the housing market that's for just traditional owner occupants. Right. In the real estate industry and all of the huge number of people that just benefit from, from housing activity, housing sales, whether it be, you know, furniture sales, interior designers, escrow, title lenders. I mean, it's just such a ginormous industry. It's incredible. So we want to look at both of those angles. So take it away.

Yeah, I think when you look at it really from an investment point of view is where I think that this is what's going to start to drive the market. And I think that's been one of the challenges in Recent years is that there's really been a lack of liquidity from the investment side. The institutions by and large have been notably absent from the market. And when you get a huge drop in activity and we saw transaction volumes plummeted upwards of 50% in a lot of cases when you lose that kind of volume, it becomes very hard to transact.

Right.

Pricing gets a little sluggish. No one's quite sure where to go. The rapid rise in interest rates really cause people to take pause after a big run up over a long period of time. Time. I think if you look at what's going forward today, that's going to help bring people back to the marketplace. I'll give you an example. Opportunity zones. You know, we've done several of those ourselves and I think it's an actually a really great way to. Number one, I think it's a good tool to bring capital to areas that need to have capital brought to them and where there's areas that I think works well with the public private partnership. But those are examples where, you know, tax benefits of getting people to invest is a really smart way of getting real estate investors to come back to the table. And I think that's what's happening with opportunity zones. And I think it's also what's happening with what I refer to briefly on the accelerated depreciation. Being able to get a huge part of your purchase price in the form of some depreciation benefits that can offset some of that income goes a long way for real estate investors as well. So I think those are two huge legs of this stool that really go a long way to bringing capital back into this. And ultimately that's what it's about. I think once you get capital flowing into the system and you've got, you know, it would help to get a little bit of a break on some interest rates at some point as well. But that's a, that's a very compelling mix of things that are starting to happen that will, I think, portend well for the industry as a whole.

Yeah, no question about it. And interest rates. Give us your thoughts there.

If I had a crystal ball, I'd probably be doing something else. I think we're not going to have a return to rates where we had before. I do think that, you know, there's going to be some alleviation on rates. I hope maybe that's just the eternal optimist in me. But at the same time, you've also got, there's a counter balance that's happening there with just the inflationary pressures that we have as well. So there's always, I think, a tug and pull going on there with interest rates. I think some people probably get a little overly optimistic as to what's going to happen with rates and a return to what became the normal for a lot of people for a long time. Right. We had a decade or more where people really got used to rates being close to zero. I don't, I don't think we're going to get a return to that.

What do you mean a decade or more? It was really just the COVID era. And when I say rates, I'm talking about mortgage rates, not the fed funds rate or fair enough.

Yeah, I guess when I say rates I'm referring more to the fed funds rate and looking that as, as kind of a policy tool. I think if you look at it from, you know, obviously one of the things that's becoming a real factor from, you know, single families, single family residences is that, you know, rates where they are now, a lot of people have got great rates and they're kind of stuck in that 30 year mortgage where it makes it very difficult for people to move, move. And I think that's in a large part really limiting a lot of lock, in effect a lot of the available supply that's out there. So demand. The good part from, from a single family point of view is that you have a natural limit now that's coming in on the amount of supply. You're really relying a lot more on the home builders and new homes coming into play. I think existing home sales supplies hugely curtailed and as a result, I think that's helping keep prices propped up. Just because demand is still quite strong, but you just don't have the supply you had.

Yeah, you know, when rates went up and we had that really fast interest rate hike, I was saying that I was bullish on the real estate market and everybody, all those doomers were saying I was wrong, but I was right. The reason they were wrong is because they only looked at new entrants entering the market and how housing affordability was incredibly bad for them. It was really poor and that made sense. But that wasn't the entire market. What they didn't look at is the supply side. And the 140 million people that already owned homes, 40% had no mortgage, 25%, give or take, had a mortgage at or below 3%, 65% had a mortgage at or below 4%. They were extremely comfortable. They didn't want to give up those mortgages. And then later the media gave that a name after I kept saying it over and over. They called it the lock. In effect, I always say the one ingredient you absolutely must have for a housing crisis is you must have tens of millions of people who are distressed and cannot afford their homes that become millions of people who sell their homes. Right. Stressed homeowners that become distressed home sellers that will cause a crash. Okay? No question about it. But we have the complete opposite of that. We have people that are comfortable. I agree. Yeah, yeah. And so all we have to do is see rates get into the fives for 30 year fixed rate mortgages. And that opens up an incredible. I mean, if rates just come down half a point, 2.8 million new people can qualify for the median price home. And, you know, not all of them will buy or enter the market. Of course, maybe a third of them do would be my guess. So, you know, 900,000 new buyers in a market where we only have 800,000 homes for sale. It's just math, okay? It's just supply and demand and that's only a half a point reduction. If we get into the 5.5 range, that's over 7 million new people who can qualify. So it just changes everything and it loosens up supply of people who own because they're more comfortable selling now because, you know, the new mortgage may not be as cheap as the mortgage they have, but it'll be good enough. Right. The delta won't be so bad. So that's interesting. You talked about the bonus depreciation and people can really benefit from cost segregation. We've done a couple of master classes on that. We've done shows on it and we have an affiliate who's done a great job for our clients. I just want to give that out if I can. Jasonhartman.com cost seg that's S E G Jason hertman.com cost segment and you can get a discount by just typing Jason is the promo code on that. And that's just such an incredible opportunity. I mean, people can just do away with taxes. It's incredible. The opportunity with cost. Any comments on that? We agree.

Yeah, we do cost savings on every single property. Again, we've, we've owned now, you know, several billion dollars of real estate. And I can't think of a single deal that we haven't done cost savings on. It's, it's a really strong way to be able to offset some of that tax liability. Look, if you look at real estate, one of the things that makes real estate, I think one of those last vestiges of a really interesting investment profile is the fact that you've got these tax advantages still. And I think that's what the big beautiful did. The big beautiful bill did a great job of really taking some of that risk away. If people were wondering what happens with 1031 exchanges, what happens with accelerated depreciation? And again, I think the more that we can preserve some of those, that tends to make real estate continue to be a fantastic asset class in which to invest.

No, no question about it. I always say, Travis, it's the most tax favored asset class in America and taxes are the largest expense most people have. So, you know, if you want to wipe out your tax liability and become a real estate investor, that is the best thing to do. You know, it's interesting. The first time I ever did a cost seg study was on an apartment complex I owned here in Scottsdale. It was $22,000. Okay, 22,000 bucks. And I'm sure, you know, for the big properties you guys own, you've probably spent way more than that. But now there are these companies out there that are making it affordable for single family homes. You know, it's about 600 bucks. And you can do your, your single family homes each cross seg study. And that stands for cost segregation, by the way, for those who don't know. So just go check out Jason hartman.com cost seg and take advantage of that. Every client we've heard from that has done that has loved it. They just loved it when they did their taxes. It's just incredible.

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More on the big beautiful build. I mean, do you think it will stimulate the real estate market, which is rather muted the last three years?

Yeah, I think it goes a long way to doing that. Again, having access to capital in the market becomes probably the most important thing. The lack of liquidity in the marketplace in the last couple years. It's great for folks like us because it gives, it presents a buying opportunity. But I think it by and large, when you've got the institutions which represent a huge portion of the capital that's out there, when they pull back from the market and rates are up at the same time, it starts creating some dislocation. And I think that's. That dislocation creates uncertainty. And that's really what's been living in the market is a lot of people are just not sure what to expect. And I think if you add that the compounded effect of saying, you know, what happens with AI, what's going to go on with, you know, are there going to be job losses? Is it going to accelerate GDP growth? We don't know. So I think when you start looking at that and saying, well, real estate, the beautiful part of it is it's very tangible. And like you said, the one thing that we're sure of is death and taxes. If you can make sure that you can help off some of that tax offset, tax liability, I think there's a huge benefit there for real estate investors and that brings them back to the table. So again, I think that starts for folks like us that are in the family office world. We're private capital coming in. There's less group think. I think that happens. We're less sensitive to interest rates more. We typically don't buy with a lot of leverage. We're looking to find opportunities that gives us the ability to buy at a really attractive basis. And I think that's what you're seeing. Just like you're in a lot of fronts when you get situations where there's properties that are trading in some cases at huge discounts to replacement cost. That's going to give you a huge benefit to be able to make great acquisitions. And we're big believers that you make your money up front. And you're seeing that on the single family side, too, as costs continue to go up and up again. The one thing that we're seeing is cost escalations are real and they go up and they don't tend to come back down. So I think that the more you can buy things that are at a discount to replacement cost, and then you can combine that with taking accelerated depreciation up front and being able to utilize tools like 1031 exchanges. Those all, I think, pretend to create a pretty powerful package for people to invest in real estate.

Yeah. And when people look at tax benefits on real estate, it's really hard to calculate, but it's a huge benefit. And that is over the course of years, a 1031 exchange. Right. You know, when I, when I sell a property, I don't pay any tax. I just transfer that to the next property. If I owned a business, a stock cryptocurrency. Well, crypto is kind of a little weird on that. But mostly I'm going to pay capital gains tax and I'm going to reinvest dollars post tax. That's right. So I have a lot less to reinvest and a lot less to grow into the next deal. So, yeah, real estate is just so, so incredibly favored investment. Real estate. Yeah.

You could argue our firm basically exists to. To find, you know, compelling ways to continue to do that over and over. Right. Find ways to make investments and then take advantage of some of those opportunities to. To use exchanges and things like that allow you to continue invest without having to take a huge chunk of your profits along the way. And real estate, fortunately, is one of those few areas that still remains that allows you to be able to do that.

Yeah, no, absolutely, absolutely. So you talked about replacement cost. And coming out of the Great Recession or kind of late into it, I created a new term and I called it regression to replacement cost. Because you could buy properties below the cost of construction at that time. But that's a moving target because when you look at cost, just general inflation costs, and then you layer on tariffs and higher labor costs and the shortage of labor, especially construction labor. I mean, you know, the average construction workers like 50 years old now, I mean, these guys are retiring. They can't sling a hammer all their life.

There's a demographic challenge there.

Right.

That's exacerbating that problem. For sure.

Huge, huge problem. And unless we have robots building these houses in the future, which, you know, we eventually will, of course, but not real soon, not in the near term. The labor costs are going way up and everything points to inflated costs in construction. What are your thoughts on that?

Yeah, I would agree. And I would say we look at that factor a lot because what happens is it almost becomes math is that at some point, if you buy something below replacement cost, like we just bought a building, for example, in Silicon Valley, we paid a fraction of replacement costs, probably 25, 30%.

Of what kind of building?

Industrial office building. You know, beautiful building.

You're brave. If you're entering the office market right now.

Well, you know, that's a whole different argument. We're looking for sort of, for certain trends where they're, you know, not all office is the same. Right. And again, we spend a lot of time trying to find the nuance. Right. Because a lot of times the baby gets thrown out with the bathwater. But the point of that is that when you look at replacement cost on some of these items, you get to the point where you would have to assume in order for you not to trade and be able to sell that property that you bought at a fraction of replacement cost, no new construction is going to take place until that you've got that normalization that you're talking about.

Right, I agree.

So we look at that and say, hey, if I'm a, if I'm buying for a 1/4 or half of replacement costs, that's incredible.

And you can do that.

I can make a great return selling for 75% of replacement cost. And guess what? The world in which I'm not going to make a return on that is a situation where there is no new development at all.

Yeah, right.

That means, no, nothing's being built in construction. And if that's the case, we've got bigger problems. So again, I'm glad you point that out because I think that gets lost on a lot of people. And again, that's one of those things. Replacement costs goes nothing but up all the time. So I think you're, you're smart to look at it that way.

Yeah, yeah. And then, you know, people that are looking at the residential market and probably every market, you know, the human mind is weird. It just tends to focus on capital appreciation way too much and not enough on rents and income. And when it comes to housing, especially just single family housing, it's such a simple equation to me. Right. The only two things that really derail this Equation are population decline, like massive population decline from a pandemic or something like that. Okay. You know, or massive increase in supply, like that's it. You know, it's just a really simple equation. And since supply is very inelastic and it's very hard to create new supply, very expensive, and the population is increasing, albeit slightly, you know, compared to before, you're either going to see upward pressure on rents or prices or both. You know, they just can't do anything else. Okay. Everybody has to have a place to live. You know, an office is optional. Right. But a place to live is not optional. Okay. So, you know, what are your thoughts about rents?

Yeah, there. I'd add a third factor to that because I think you're correct. Right. We spend a lot of time, we look at everything in, in the, I think through the lens of supply and demand. And I think that, sure, in general supply tends to be somewhat limited and it, there's a, there's a huge delay in being able to bring new product on in a short period of time. Right. You know, construction takes a long time. I think there's certain areas where it takes even longer. We, we tend to favor markets where, and there's a, there's a balancing act here. We favor markets where you can have very strong pro business environments which tends to reduce some of the bureaucracy of building houses and all of the, you know, California's per example, or it takes a long time, Right. To be able to build. There is a benefit to that though, because if you look at Los Angeles as an example, you know, Los Angeles is exceedingly hard to build in because of all the bureaucracy. But at the same time that, that is a huge limit on supply. So as a result there can be a real benefit there in rent growth.

The problem with markets like la, which by the way, I grew up in la, any expensive market, the rent to value ratios are so out of whack. You know, that's why we like these linear markets like Nashville or especially Memphis, which has been a big market for us for many years. Because those rent to value ratios are so good. Yes. You're not going to have the price appreciation you will in la, because the supply isn't as constrained. But you can just buy the property for so much cheaper and still get a pretty decent ratio of rent compared to the price.

Yeah, no, I think looking at things from a yield point of view, if you're saying, hey, what can I get just on a yield basis, that's a different set, a different set of calculus and I think it's important to look at that because I also think that traditionally you would say, yeah, you're right, if you're buying in a market that's less dynamic, that has less dynamic capital flows, as an example. But you'd say you're usually giving up appreciation. Like you just said, I'm not so sure you're giving up as much appreciation anymore because I think what happens is some of these markets, like Los Angeles, you're now starting to run into real affordability ceilings. So I think there is going to be a limit even onto the appreciation that we've seen in the past in some of those markets. So for me, I think that's the third variable that I add. There is. I think that people do have the ability to some extent to be able to move a bit, although that's getting increasingly more difficult as well, which I think adds some stickiness to that supply and demand equation. But I think being able to find markets in which you've got the ability that there's attractive amounts of supply that are coming online, but you've got good job growth drivers and good quality of life, I think that business friendly, that's a business friendly. It makes a. It makes for a very strong place, I think, to invest in housing just because you're going to have a very good supply, demand balance and they don't have to be great, right? We've looked at some areas where it can be steady, Eddy, but as long as you've got a real steady, consistent supply, we love areas where you've got kind of a mix of government as well as a favorable business climate and you've got people creating job growth and universities. That's a great mix. And sometimes those aren't the sexiest markets, but they're very stable.

I agree. Yeah, we like those sort of second and third tier markets. Those are the best, in my opinion. And you know, what you just mentioned, you just alluded to it barely. But I wanted to point this out to the listeners and viewers when you talked about Los Angeles and how there's a real constraint on affordability. I mean, everybody knows there's many expensive markets, New York, Louisiana, San Francisco, et cetera. Right. Miami. But the difference is what economists can never really understand very well, and I always talk about it, is capitulation, right? People will ultimately just capitulate. They'll just finally get to reality and accept what they can afford. Right. At some point. But in a place like LA or any really expensive market, you can't capitulate anymore because you you can't buy anything, okay. Like you can't rent anything or you can't buy anything. Okay. Even if it's a slum. It's just completely unaffordable. So I think that's kind of what you were alluding to a moment ago when you said there's just a hard limit to affordability. In other markets you can afford something. Maybe you won't get the house your parents bought when they were the same age. Right. You know, when you're a first time buyer or a first time renter, you won't get a nice white house in a suburban neighborhood with a picket fence. Right. But you'll get a house, okay? And it'll be like good enough. And you can capitulate to that. But there's only so much capitulation that can take place. And I think that's true in these really expensive markets. For example, you might have seen this or read about it in San Francisco, people were renting bunks. They were like sleeping in a little like a. Think of a train compartment. I've slept on a train before. Right. In traveling. And you'd have this little compartment with a curtain, and that was your little bed, like smaller than a twin size bed. And they're renting these things in San Francisco. And that's the way people are living. That's the bottom last capitulation you can possibly. Right, right. Yeah, yeah.

Especially in today's world where I, you.

Know, it's harder and harder for some.

People to move, but at the same time, technology is making it easier and easier for people to work from other places as well. So it used to be, you know, having grown up in, in, in Southern California and Los Angeles, you could see what happens is you just kept driving until you got to a place that you could afford. That's how it worked.

Right. You just went, Let me, let me give it that a name. We call that drive to qualify. Okay. You drive to. You qualify. Yeah. And you keep driving.

It was. At some point, at some point, you get to the point where it becomes there. There is a limit to that. At some point, you know, when you're at an hour plus commute, hour and a half commute each way. At some point you're like, okay, I now spent half of my day on the road. There is a point to use your.

I can live in Riverside. Yeah, yeah.

Where you're just like, you know what? It's not worth it anymore. And that's when people move and they find other spots to go. Whether they change jobs or there is a ceiling that happens there. So I think it still remains unclear exactly how that is going to pan out for very high, high income to ratio locations like Los Angeles. But in general, we're seeing, it's amazing. You know, there's spots, Nashville's gotten very expensive, especially in the south. But there are some spots, you know, you look at the, you know, Sumner county as an example here, just to the north of Nashville. You know, there's still places up there where you can get, you know, beautiful new homes for $400,000 brand new. You know, that's, that's becoming increasingly rare in a lot of these areas. So I agree wholeheartedly. At some point you got to keep those factors in mind when you're, when you're making these investment decisions.

Absolutely. Well, any more points about the big beautiful bill you want to make?

I think the fact is just that taxes matter. You mentioned that earlier. And again, at the end of the day, taxes is one of the huge parts. I think taxes and the fact that it's very tangible is what makes real estate attractive and yield like we talked about. But if you're looking at the income component, there's no point in looking at income if you're not, unless you're looking at after tax income. And obviously being, you know, a family office ourselves and dealing with other family offices, we spend a lot of time thinking about taxes because at the end of the day you're only going to be able to spend what you keep after paying Uncle Sam. So I think that that's going to continue to bring people to the table in a lot of these real estate markets. And I feel like the areas that continue to benefit from that creates more opportunities and we've seen opportunity zones work really, really well. So again, I think in general, nothing but good things from a real estate investor point of view in the bill.

Yeah. And so it would definitely be fair to say that you are bullish on real estate investing, right?

We are. And again, we're unique in our platform. I think we're one of the few firms out there that, you know, you mentioned the outset, we're operating as a real estate collective, meaning we're combining not only our capital, but our relationships and our access to information across the country. We focus exclusively on kind of lower middle market investment opportunities that are across property type and geography. So we have a unique lens to see these things with. Right. So I would say more than most, we're in a lot of different markets on a lot of different property types. And it's hard to think of any of those that are really going to be disadvantaged by what the bill has proposed.

Yeah, I agree. I couldn't agree more. And it's funny because you and I are both in kind of the same type of business. You know, we do it for smaller mom and pop investors with single family homes. You do it for family offices. So it's really quite interesting. Yeah.

Yeah. At the end of the day, though, those benefits are real for for every one of those groups.

Right.

Which is I think one of the things that's going to be continue to drive real estate investing. And we love to watch, you know, individuals get more involved in real estate because again, there's a reason why it's been tried and true for so long. So it's great to hear that you're helping people range access to that.

Absolutely. Travis, go ahead and give out your website.

Sure. Our address is realm www.realmlp as in limited partner.comrealmlp.com Excellent.

Travis King, thanks for joining us.

It was my pleasure. Have a great day.

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