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If Obama Wins, Think Twice About REITs

Cautious ObamaOr, how one reporter predicts the future of some stocks

If majority of the electoral votes pulls the lever for Sen. Barack Obama, don’t keep your hopes up on investing in real estate securities at least according to the predictions of an Associated Press reporter. Stephen Gandel picked stocks that are most likely to benefit from Obama’s possible triumph following the bullish runs of oil stocks in Bush’s tenure. After all, political influence runs in the blood of our industries.

So what made the grade for Gandel’s picks?
• Healthcare stocks – particularly that of hospitals that will cater more to the uninsured.
• Infrastructure securities – since Obama aims to provide jobs through public works
• Alternative energy investments – because more research funding will be expended for it.
Three types of stocks with no mention of real estate securities don’t come as a surprise anymore.

The real estate slump and tighter bank credit applications are clear indications why your portfolio needs to beware the Real Estate Investment Trusts. These entities invest in real estate and other property assets. Like other publicly traded companies, firms have to distribute their taxable income to shareholders in the form of dividends. The National Association of Real Estate Investment Trusts claims that REITs can increase the returns in an investor’s portfolio brought about by the advantages that it contributes to diversification. They also attest that the returns are generally higher than bonds.

In a way, Gandel describes what a portfolio manager would tell to you over the phone. There will be gains in healthcare, infrastructure and alternative energy. Likewise, we expect nothing of the same kind in real estate. For one, the $700 billion bail out plan hasn’t been ironed out by the government yet. Obama proposes a stronger oversight to control against fund misappropriation and an assurance that the taxpayers’ money will be recovered after Freddie Mac and Fannie Mae recuperate. It should be the start of overhauling the industry and the economy but it can never push back values prior to the crisis early on.

Obama’s tax plan includes raising the capital gains tax. In addition, some speculate that the tax plan will require carried interests (which are now taxed as capital gains) to be taxed as ordinary income. This single move will greatly affect commercial real estate development and investments moving forward, as investors will not have the same financial securities in developing properties and real estate as they have in the past.

As stated in GlobeSt.com‘s recent article, Karla K. Dennis, CEO of Cohesive, a Tax Advisor Firm in Cypress, CA says that “Tax planning will become more than a key factor in deciding how to maneuver your commercial real estate.”

For now, few are taking the risks of adding REIT’s to their portfolio. Investors are more cautious and only returns with fewer calculated risks will get them back on the bandwagon this time.

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