Since passage of the Trump tax bill, we have written at length about the effect we believe this was likely to have from a demographic standpoint. To quote again from Arthur Laffer and Stephen Moore’s WSJ article of 4/24/2018 So Long, California, Sayonara, New York, “In the years to come, millions of people, thousands of businesses and tens of billions of dollars of net income will flee high-tax blue states for low tax red states. This migration has been happening for years. But the Trump tax bills cap on the deduction for state and local taxes, or SALT will accelerate the pace. The losers will be most of the Northeast, along with California, the winner are likely to be states like Arizona, Nevada, Tennessee, Texas, Utah and Florida.”
Fast forward nearly two years and this was prescient. The steady stream has turned into a flood with the aforementioned high-tax state exodus accelerating. Even such luminaries as President Trump, Carl Icahn and Paul Tudor Jones are ditching the high tax, high cost Northeast for Florida the sunshine state.
However, if you think this trend is just a billionaire’s tax dodge, think again. Many blue-collar folks are making the same move for much the same reason. Per my research there are more, better paying jobs being created in the Southern U.S. due to its business friendly, right to work climate than its northern neighbors.
To quote Daniel Henninger and the WSJ (01/15/2020), “One of the great, well-documented social dynamics of our time is the migration of black Americans out of the politically blue urban centers in the north – New York, Philadelphia, Chicago, even Los Angeles for greater economic opportunity across the southern U.S. Days ago, the Journal reported on the array of benefits manufacturers are offering to get needed workers to relocate to take half-million unfilled factory jobs.”
This should be of particular interest to income property owners. The last time a demographic shift of this proportion took place in the United States was the late nineteenth and early twentieth century when African Americans left the rural South in mass for better paying factory jobs in the industrialized North. Now, after nearly a century this process appears to be reversing itself. In my opinion manufacturing in much of the Northeast has played itself out due to an onerous regulatory climate, unionization and high taxes.
So far, the new factory mecca of the Southeast and Southwest has avoided this. In so doing, it offers workers competitive wages, a lower cost of living and the opportunity to keep more of what they make.
What this, in my opinion, suggests is that this movement of people, business and money to the Sunbelt has legs. It took 100 years for government to wear out the welcome mat up North. Perhaps the migration back will prove similarly enduring.
If this is the case, the DST ownership format may have the potential to prove a real boon to income property owners. Qualified investors may use it to diversify into markets they have little personal familiarity with but which they know are experiencing significant growth. With DSTs you are no longer limited geographically or experientially.
This material and views are prepared solely by the author and does not necessarily represent the views of the its affiliates. Statements concerning financial market trends are based on current market trend, which will fluctuate. Projections are inherently limited and should not be relied upon as an indicator of future results. Historical figures and performance are not indicative of future results. This is for informational purposes only and does not constitute an offer to buy or sell any investment.
DST 1031 properties are only available to accredited investors (typically have a $1 million net worth excluding primary residence or $200,000 income individually/$300,000 jointly of the last three years) and accredited entities only. There are risks associated with investing in Delaware Statutory Trust (DST) and real estate investment properties including, but not limited to, loss of entire principal, declining market value, tenant vacancies and illiquidity. Diversification does not guarantee profits or guarantee protection against losses. Potential cash flows/returns/appreciation are not guaranteed and could be lower than anticipated.
Because investors situations and objectives vary this information is not intended to indicate suitability for any particular investor. This information is not meant to be interpreted as tax or legal advice.