Can Commercial Property Development Afford Ron Paul?
By LC on Jan 9, 2008 in Commercial Real Estate, Featured Articles, Financing
As such, Fair Tax advocates such as Ron Paul would not do our industry many favors over the mid term. Over 50% of all income producing properties purchased in the US are wrapped in an IRS 1031 Deferred Exchange agreement, wherein the purchaser elects to defer the payment of capital gain income taxes until the property, or its successor, is sold.
One may argue that the buyers of such property would have more after-tax capital in the event of a substitution of a national consumption tax for the current income tax, and thus more liquidity to purchase income producing properties. There is no argument there, however if there were not tax advantages for many income producing properties, and especially smaller properties like our strip malls, one could arguably postulate that those investors would demand a higher return rate (Cap Rate) than the 7% or so we are seeing today.
The worst possible scenario would be raising taxes and eliminating capital gains. Currently a 1031 exchange is predicated on a holding period equal to the capital gain qualification period. With higher taxes and virtually no tax incentives, cap rates could easily become double digit once again as we experienced in the late 70s and early 80s. With a chasm-like positive leverage gap created between the cap rate and the current mortgage loan constants, one of the two would have to normalize over time. I’d bet on the mortgage bankers, and you really don’t want to be on the wrong side of that bet.
The most significant Congressional act of my career was Tax Reform Act 1986. Prior to that reform, there were so many loopholes and incentives for purchasing investor real estate that there were actually promoters guaranteeing negative cash flow to unsophisticated investors. TRA 1986 jettisoned most of these tax advantages and shortly thereafter real estate was once again valued on…..cash flow! And that is as it should be.
Ron Paul is not a contender, but we’re still on the sidelines as buyers until we get a little clarity of what the new administration and the Congress might bring us in 2009.
On Jan 9, 2008, Paul C. Hanson said:
You get your information about RP’s positions from where?? I’ve heard him say on numerous occasions that he wants to “abolish the income tax and the IRS completely, and replace it with?? (at this point he ends with a slightly raised voice indicating a question)And the audience shouts back: “NOTHING!!!” And then he acknowledges by saying: “That’s right… NOTHING!!” My question is therefore, how would his audience know the answer?? Answer: because he’s said it over and over since the beginning of the campaign.
It is Mike Huckabee who touts the fair tax, not Ron Paul. I only heard of one instance where he said anything good about it at all and that was basically that “nearly anything would be better than the current system.” Ron doesn’t think the income tax needs to be replaced with any other tax, including the fair tax.
So, I’m sorry to inform you that you seem to have wasted a huge amount of time slamming the best candidate for freedom and liberty that has ever ran for office in the last 40 years. Just go watch 2 or 3 Ron Paul videos on youtube and that should be all the longer it will take for you to see him say he want’s to do away with the income tax and replace it with NOTHING. Not a fair tax, not a flat tax, he wants to replace it with absolutely NOTHING. 5 minutes worth of research would have saved you a lot of time and and also saved you from the scathing response I’ve penned here that leaves you with a half dozen or so eggs on your face.
Sincerely,
Paul C. Hanson
On Jan 9, 2008, LC said:
Hey Paul, I like a man with an opinion!
This quote from Ron Paul directly:
Many conservatives have touted the Fair Tax proposal as an issue in the upcoming election. A pure consumption tax like the Fair Tax would be better than the current system only if we truly did away with the income tax by repealing the 16th amendment. Otherwise, we could end up with both the income tax and a national sales tax. A consumption tax also provides more transparency and less complexity.
~LC