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RESIDENTIAL REAL ESTATE SUCCESS DRIVERS!
Landlords & Investors Want Predictability … Plus, a Bonus
(Second in a Series of 2 Articles)
As promised in the First Article in this series, this piece will follow on with an eye to residential rental market Predictability and the likely payoff of a significant long-term Bonus.
Predictability – OBBB Act Tax Provisions
Residential real estate owners and investors can take comfort in predictability of tax consequences as delivered in the One Big Beautiful Bill Act. Three items stand out that positively affect tax savings and drives increased cash flow.
- 100% Bonus Depreciation made permanent.
- The 20% deduction for pass-through income is permanently extended at 29.6% rather than re-set to 37% at the end of this year.
- The SALT cap has increased from $10,000 to $40,000.
Disclaimer: The above discussion of OBBBA provisions is my understanding … subject to advice and counsel by my tax and financial advisors and not to be construed as advice to others.
Predictability – Renters, Rents
As we related in the Previous Article in this series, there are four noteworthy facts that support predictability of a significant population that continue to seek residential real estate rentals.
- Mortgage rates hover around 7% and home prices remain high … making home ownership a distant dream for first-time buyers. Additionally, a study reports that the difference in monthly costs between renting and buying is at the widest point since 2000.
- Seniors represent an expanding tenant market.
- About 2 in 3 Virginia households live in rental real estate properties … a statistic that has remained stabilized since 1984.
- Three developments support the fact that just such a renter population is increasingly able to accept rent increases … Wage Inflation, Real Blue Collar Wage Growth, Low Unemployment.
Now here’s an unexpected development predicted to drive a greatly expanded pool of renters for a generation or more … AI (Artificial Intelligence) employment in the trades!
Jensen Huang, CEO Nvidia Corp. and a prominent AI leader, predicts a sustained boom in skilled trades. Why? Electricians, plumbers and carpenters needed to build AI infrastructure. In a recent interview, Huang declared that the build-out of AI data centers will require constant expansion, "doubling and doubling and doubling every single year." Click here to read more.
His point of view is increasingly accepted by other senior AI executives who warn of major shortages of skilled trades professionals. Data centers will not be wired, cooled, or commissioned without electricians, pipefitters, HVAC technicians, welders, and laborers. According to the CSIS, by 2030 the United States will require roughly 140,000 incremental skilled trades positions over and above current capacity.
This contrasts with the fears of many white-collar workers that their jobs are in danger of being replaced by AI. That isn’t the case today, but long-term job security may be better realized in skilled trades employment.
Notably, Virginia hosts the largest data center market in the world and is home to more than 35% (~150) of all known hyperscale data centers worldwide. Plus, there are many additions planned.
Virginia Data Centers – Existing & Proposed
As further evidence of anticipated new Virginia based careers driven by AI, last July Governor Glenn Youngkin unveiled a new “Virginia Has Jobs” AI Career Launch Pad. Virginia Works – the Commonwealth’s new agency for workforce development and advancement – will disburse Career Certificate scholarships to support Virginians in gaining free access to high demand career and artificial intelligence training.
Clearly, as employment in the trades accelerates … so does the pool of renters.
Predictability – Appreciation
There are several “moving parts” that feed this element of predictability. That said, as illustrated below, it’s likely that rental property valuations will continue in an upward trajectory.
Source: U.S. Census Bureau, Zillow, Redfin
Predictability Delivers the Bonus … more renters, more comp/higher rents, tax incentives, enhanced net cash flow, property valuation increases = Bonus
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