2018 Commercial Real Estate Changes: What You Need to Know
The beginning of 2018 brought with it a booming stock market and high consumer confidence. These factors are excellent indicators of a strong economy, which makes business owners happy. Those in commercial real estate do have to consider other factors that are in play this year, including tax reform, new technology and customer concerns. Jamie A. Zambrana, Managing Partner and Head of Investment Sales for RARECRE.com notes, “The commercial real estate industry has been a laggard in terms of innovation and the adoption of technology, though that is finally starting to change over the last couple of years.” These developments mean you may face some challenges in the coming year, but you will have new tools and possible tax breaks to smooth your path and generate more profits.
The tax reform bill that passed in December of 2017 was better for commercial real estate buyers and brokers than it was for those interested in residential real estate. Provisions favorable to commercial real estate thought to be in danger ended up being retained. For instance, Like-Kind Exchange rules still apply to real estate, but they were repealed for personal property.
In the new bill, capital gains treatment requires a three-year holding period in order to qualify, a relief to those in the industry who had to fight to preserve the provision. Qualified private activity bonds retain their same deductibility, and the low-income housing tax credit remains the same. Experts warn that the lower corporate tax rate will lessen the value of these credits and possibly affect the development of low-income housing development.
Finally, the rehabilitation credit was altered and now no longer offers a 10% credit for pre-1936 buildings.
Real estate brokers and brokerages may benefit from the lowering of the corporate tax rate to 21 percent. Individuals who earn in the top tax bracket will now pay a top rate of 37 percent instead of 39.6 percent. If you are a sales leader, your after-tax income should be even higher this year.
Most small businesses, including many real estate firms, are actually pass-through
Real estate agents and company owners will find positives and negatives in this tax bill, which will apply to 2018 income. The overall effect will not be apparent for at least a year, but you have reasons to be hopeful.
In December of 2016, the Federal Reserve raised the benchmark lending rate from 1.25% to 1.5% and forecast three 2018 rate hikes, matching the number of hikes in 2017. However, experts feel that the slow growth of inflation may prevent the fed from making these additional hikes. Your clients can feel relatively secure that the commercial real estate market will “remain stable” this year, allowing them to proceed with planned investments.
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Perhaps the biggest challenge will be for the large U.S. and foreign banks doing business at home and abroad. International companies anticipate that U.S. tax reform may cost them billions of dollars in write-downs. The base erosion and anti-abuse tax (BEAT), enacted to encourage U.S. companies to keep their money in the United States may negatively impact companies who shift money between branches in different countries.
Real estate agents have been embracing technology in recent years, and 2018 should see you using more advanced programs. Forbes is touting programs like Compass Collections as an effective collaborative tool for agents and clients. The program has a search tool that allows clients to find properties that meet their criteria, and it also allows the buyer and the agent to discuss the properties online and work better together. Linda Day Harrison, founder of the TheBrokerList.com, says, “But the big game changer is the concept of online marketing vs. the old days of shoe leather and cold calling. Although the pros still say that it is the only way to do business, the automation and ability to reach so much more without leaving your desk is the new way for the younger brokers and of course is being taught now to the older brokers.”
Another trend is to use chatbots for initial customer contacts. Customers engage with chatbots when they search for a variety of services online, including legal help, retail answers, and even insurance quotes. In real estate, the chatbot would provide basic answers to customers’ inquiries and then guide the customer to a specific agent.
Mobile applications will become more important in real estate in 2018. Real estate agents can spend a huge part of their day just reading and organizing information. If you are offsite, managing this onslaught becomes even more difficult. According to Inman, workflow apps such as Slack and Trello help you organize material, work with clients and stay in contact with the office no matter where you are.
Real estate in 2018 will not be boring. A number of factors, both positive and challenging, will affect your commercial real estate business. The market is ever-changing and seldom safely predictable. Tax reform measures will put early pressure on you to make adjustments in how you sell and how you manage your own income. For many agents and owners, these tax changes may lead to increased profits.
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