Tax Cuts Should Supercharge Real Estate Returns in 2018

Analysts are pointing toward real estate investment trusts (REITs) as a lucrative investment for the year ahead — thanks in large part to the Trump tax cuts.

The new tax law that now classifies a REIT as a “pass through” investment.

This means that if your income is in the top tax bracket, your REIT dividends would fall 10 percentage points, to 29.6 percent from 39.6 percent.

Another reason to expect more from REITs this year is the potential for GDP growth of more than 3%.

While the Atlanta Fed is currently projecting 1.9%, tax-cut advocates think 3% is achievable once the cuts work their way into the economy at large.

As the impact of the tax change sinks in investors should realize the advantage and rush into REITs, leading to a significant upside in prices.

Even without the new tax plan REITs already have a strong advantage. They are not required to pay any corporate tax if they “pass through” 90 percent of their taxable income as dividend income to investors.

The second compelling reason why 2018, in all likelihood, is going to be the year of REITs is that valuations are cheap, say market experts.

Common thinking is that a rising interest rate will be bad for real estate, which explains the attractive price points at which REITs are currently available.

The reality, according to observers, is that in the long run increasing interest rates are beneficial because the general economy and market confidence rise as well.

Long run

A growing economy means growth in demand for commercial and residential rental space, as well as higher rents. All the indicators right now are pointing in a direction that correlates with a growing American economy.

A broad spectrum of investors are looking at create a solid income stream through carefully chosen rental property and REITs investments.

The popularity of REITs has grown as more people recognize the complexities of physical real estate ownership.

Instead, they can go the REIT route and own a variety of income-producing properties from apartments and offices to self-storage units.

Another advantage with REITs is that they are traded on the stock market. Instead of paying real estate commissions, investors only need to pay small online brokerage charges.