Latest / Real Investor Radio Podcast / Ep. 95 | The One Big Beautiful Bill: What Real Estate Investors Need to Know
Transcript
- Craig Fuhr (00:12) Hey, welcome back to real investor radio. I'm Craig Fuhr with Jack Bevier today. Jack is not feeling his best. He's got a little got a little cold going. But you know, Jack Bevier is the Tom Brady of real estate. So he's powering through. There's no excuses here. No excuses. You show up and you play you put your suit on and you come in and play play hard. That's what we do here. Jack BeVier (00:28) Doesn't matter. No excuses. These are conditions on the field. You get up and you play. You know? It's all good. Craig Fuhr (00:37) Jack, it's been a long time since we had a chance to just sit down and wrap about a bunch of different topics that affect real estate investors and producer Kyle, no longer producer gab, producer Kyle was like, Hey, you guys should just sit down, turn on the mics and talk about several topics. So we've got quite a few today and I'll start out with Jack. was out last night and saw guy who I have not seen in 40 years graduated in 1985 with me in the class of 1980. He recognized me, I did not recognize him. Anyway, we sat down and we started talking about just life in general. And he mentioned that he was going to have a new grandchild coming up in early next year. And I don't know how we got onto the subject, but the one big beautiful bill came up. And that's a topic that I've been hoping to unlock with you. But so a lot of provisions in the bill and some kind of cool stuff that I think when sort of unreported and the topic that we got onto last night, and this doesn't necessarily affect real estate investors. We'll get into that in a second was the the Trump account. And have you heard about this, Jack? Jack BeVier (01:53) Yeah, tell me. Craig Fuhr (01:54) So the bill, the provision in the bill allows a couple who has a baby in, guess, starting in 26 to take a direct tax deduction on to seed the account for a thousand dollars. And that account, you know, you can you can add more to it. And so I just kind of like did a little little dive on like historic average return, a percent. stick $1,000 in it. if like, you you and then you throw $100 in that account until the kid is 25. That account is worth $98,000. Jack BeVier (02:34) bucks a month or a year? Craig Fuhr (02:36) 100 bucks a month. Start with a thousand and then 100 bucks a month until the kid is 25, it's 98 grand. Here's the only kind of crappy part about it. Jack BeVier (02:45) I'd probably pay for like a semester of college at that time. Craig Fuhr (02:49) Well, thanks for throwing all the ⁓ throwing the water on it. The only kind of crappy part is is that it's not like a Roth. When the money is withdrawn, it's ordinary income, not capital gains. So once again, the little guy gets crushed and the you know, the billionaire elites get to play their capital gains game, but we don't. But straight here, here's the cool part. Jack BeVier (02:50) Yeah from. Craig Fuhr (03:12) If if at the age of 60, that account would be worth 1.45 million if there was never a contribution made again. Jack BeVier (03:24) Yeah, wow. That's wild. Craig Fuhr (03:26) You know, obviously everyone knows the benefits of compound interest, but pretty cool that, you know, I wish it would get more play Jack in the news because I don't think that most parents realize how much they could set up their kids, you know, just by seeding, you know, a couple bucks into an account and then never touching it again and let the kid do his thing afterwards. You know, like he can save his own money in some other account, but pretty staggering that. $1,000 when they're born $100 a month until they're 25 1.45 million when they turn 60. Jack BeVier (04:01) Yeah. I mean, it surprises me the amount of people like we have a 401k matching program at work. like, so it's like you put in the first 3 % of your salary will match 3 % of your salary. Instant 100 % return on your money, right? Amazing. That easiest money they ever got. And then you put in another, you put in another 4 % of your salary and will match 2%. So 50 % return your money. Immediately, right? And then he goes into a 401k and then experiences that compounding. But immediately you get this humongous pop, right? We have like a 35 % adoption rate across the country, across the company, across the company. And like we've educated people about it. We talk about it. mean, and just, you know, most people are budget conscious and not thinking about that. And I don't know, just, you know, right here, you know, looking this far in front of their face in terms of financial planning. Craig Fuhr (04:42) What do you? Jack BeVier (04:59) it's wild to me. Craig Fuhr (05:00) I think I was gonna ask you what do you attribute that to and you nailed it. It's amazing to me, Jack, how many people I know that have all the trappings of middle class success, know, the two car, two nice cars in the driveway and the big house on the hill and you know, they take vacations and but like, if I really sit down with them, I'm like, how you really doing? And it's like, yeah, we're just, you know, I make 250 grand a year and I live paycheck to paycheck and blah, blah. And I'm like, how's that? How's your retirement? And they all look at me like I've got three heads, like, yeah, we're not really thinking about that right now. And it's, you know, it's shame, but because frankly, this story just highlights, you know, how powerful it is with very little money, $100 a month, $100 a month. That's like, you know, that's like two lunches. Yeah, that's so Jack BeVier (05:48) Dinner, one dinner out. Craig Fuhr (05:52) interesting part of the bill, let's get on to the part where it really affects real estate investors. And I know you have to be ecstatic about the following. The bill extends the 100 % bonus depreciation jack. And real estate investors are among the most direct beneficiaries of that component of the bill. Jack BeVier (06:13) Yeah. So bonus depreciation. for those who are not familiar with the concept, like if you add a, a property and I'm talking about residential real estate for the moment, but it applies to commercial real estate. Of course. you can do a cost segregation study, cause most people depreciate their house, the real estate on a straight line basis, right? Just to take a percentage of their improvements. Their, their accountant takes a percentage of the improvements. every year as a deduction and everyone's like this depreciation is great. Craig Fuhr (06:41) And is that by the way, is that is that like 20 years so like, I put in a new furnace and that I get to depreciate that over what amount of time Jack BeVier (06:49) Yeah, it's a 27 and a half years is the default. That's like the most conservative, but the reason for a cost segregation study, which is literally a consultant segregating the nature of the improvements in the property into their sub components because the IRS recognizes that everything you put into a house does not last 27 and a half years. There are different components to a house and The IRS has three categories for residential real estate, five-year property, 15-year property, and 27 and a half year property. So if you go through the exercise of drawing the distinction between the five, 15, and 27 and a half year property, you can depreciate the five-year property on a five-year basis, and the 15-year property on a 15-year basis, and the rest on a 27 and a half year basis. And that ends up, from a present value of money perspective, that actually ends up making is a pretty big deal. And so it's worthwhile to do a cost segregation study in and of itself. Now, I'm going to get to bonus in a second, but I'm just laying the framework for those who aren't familiar with the depreciation. Craig Fuhr (07:50) So can I just, so what you just described with the five, the 15 and the 27 is sort of prior to what we're discussing here. That's just sort of always been the way people depreciate. Got it. Jack BeVier (07:58) Yeah, that's just. Yeah. Yeah, that's always been the way that you can depreciate. But a cost seg study costs a couple thousand dollars to three thousand dollars. And so your accountant will tell you when you go to them with this idea, your accountant will tell you, well, you need a cost segregation study and it costs about three thousand dollars. And like that doesn't make economic sense for you. You you're not going to make enough in tax savings. You're going to spend it all on this study. Now, companies like KBKG have a product that you can go online and fill out your study yourself for like three, 400 bucks. And you can hand that to your CPA. And if your CPA is comfortable with it, they may be able to use that as your cost segregation study. Now, that is not the IRS safe harbor for... a cost seg study. The safe harbor is that a consultant physically came out to the property and looked at everything that was actually there in the house and then created this report. If you go self-create it, that's not the safe harbor because you could lie ⁓ about what's in there. It ends up being a business decision from your CPA's perspective. Are they willing to sign the tax return when we did Craig Fuhr (08:56) second party. Sure. Jack BeVier (09:16) a cost seg study using a $400 online KBKG product. I do it. Like we do it. That's what we do. Our accountant has gotten comfortable enough with us that we're not lying. And so we do a cost seg study on every new rental property that's put into service. with that in hand and in and of itself, I think it's worth doing. Right. And then in the last Trump tax bill, they introduced this idea of bonus depreciation where all of the five and 15 year property, well, the actually the law is all property that has a depreciable life of 20 years or less is now eligible for bonus depreciation of a hundred percent in the first year, which means that you can, you don't have to do it on a straight line basis over that five year period or that 15 year period. You can take it all in year one. When we do a residential house, depending on the residential house, it's somewhere between 15 % of the improvements and 25 % of the improvements fall into the five and 15 year categories. ⁓ So back of the envelope. Craig Fuhr (10:20) Sure. Can you put can you can you Yeah, can you put like a price on that? Like give it five and 15 % like what would that equal on average in a single family house in terms of improvements? Jack BeVier (10:31) Yeah, so like right like 150 bucks a foot, you know figure like 150 200 bucks a foot is your average replacement cost times 20 % and times the square footage of the house, right? So, you know 1500 square foot house times, you know 175 I can't do this Let's do it real quick 1500 1500 square foot house times $175 a foot is $262,000 of improvements Craig Fuhr (10:53) Yeah, let's. Jack BeVier (11:00) And let's say 20 % of the improvements in that house are five and 15 year property. It's a $52,500 year one tax deduction, depreciation tax deduction. So you get a 50,000 dollars a house. This is real back of the envelope here, right? And we are, this is not tax advice and blah, blah, caveats, caveats, call your attorneys and lawyers. But you get a $50,000 deduction for. Craig Fuhr (11:17) course. Jack BeVier (11:26) placing a rental property into service. So if you've got other taxable income and you are an active real estate professional, which allows that that status is important. ⁓ Craig Fuhr (11:35) Yes, 250 plus hours a year as a real estate professional, correct or something along. Jack BeVier (11:40) Right. And that status is important so that you can deduct your passive losses against your active gains. Passive losses here being depreciation, your active gains being your flipping profits or your real estate agent commissions or whatever else you do. But if you got that real estate. Craig Fuhr (11:56) operator. Jack BeVier (11:58) real estate professional, real estate professional status, you can offset the passive losses on the active income and to the tune of 50 grand per rental property. Now, it's not like you get extra depreciation. It just means you're depreciating less later, right? Because you don't get to depreciate once you've taken that 52,000 of depreciation, you've taken it. So the rest, the remaining 210,000 of improvements are depreciated over 27 and a half years. So you get less depreciation in the further out years, but most real estate professionals have a very high return on equity. Their equity is very valuable to them. And so the idea of getting a $50,000 deduction when you have a marginal tax rate above 40 % or in the 40 % range, the present value of this deduction is meaningful in terms of not having to pay Uncle Sam. Craig Fuhr (12:55) Even for like what blows my mind is that most people I would think would be like, yeah, that's for like the big guys. That's for like the guys that are doing like large multifamily. Well, it is for them too. But what you're saying is that no, it's every bit as beneficial for the guy who just bought his first single family rental property. Yeah, yeah. And a lot of those guys and a lot of those guys, Jack, have regular full time jobs. I'm a guy I make 150 grand a year at my job. I went out and bought a rental property. Jack BeVier (13:14) Yeah, absolutely. Yeah, absolutely. Craig Fuhr (13:25) and I can somehow figure out how to prove that I spend 250 plus hours to become a real estate professional, I get to take that right off against my, you know, the income that I make in my job. Huge, huge. Jack BeVier (13:38) Yeah, yeah, yeah, that's that real estate professional status becomes really important and you have to you know Go chat GPT it and there's a bunch of different caveats ways to get there And and in in an audit scenario, that is the first thing that they asked right there Like I see that you're deducting passive losses against active income You say that you and you check this box for real estate professional. Let's talk about that and that's where you get immediate scrutiny Craig Fuhr (14:02) Yeah, right. Jack BeVier (14:04) because it's an easy one to exploit, ⁓ Craig Fuhr (14:06) well, chat GPT told me that you better keep really good books on the time that you spend towards real estate. That's what it told me. ⁓ One thing I as we were talking there, I know we've talked about this before. The you know, the the great returns of real estate depreciation being one of them. Help me if I'm wrong here. Is there at some point does the does the Jack BeVier (14:14) Yeah, right, yeah. Craig Fuhr (14:28) does the chicken come home to roost and you have to pay on that deduction that depreciation deduction that you took at some point like how does that work? So am I right there or am I on to something different? Jack BeVier (14:41) Yeah. So if you go and sell the property, the depreciation has to be recaptured at any point. You you sell the property, the depreciation that you've taken has to be recaptured. This is another little complicated one, but like, so the depreciation has to be recaptured. So, you know, you, had a depreciable basis of $250,000, right? And you only, we're only talking improvements here, right? You have to separate the land value of the property from the real estate, from the improvements value of the property. And you're depreciating only the improvements. But you go and sell that property and you've depreciated that $262,000 down to 150 by the time you sell. You have to pay taxes on the difference between 262 and 150 as capital gains. You have to pay taxes on the, it's called appreciation recapture. And that's mostly, mostly at the capital gains rate. There is a portion of it, however, of depreciation recapture, which will be taxed at ordinary income rates if you do this bonus depreciation, because the default is it's depreciation recapture at capital gains if you used a 27 and a half year straight line. But to the extent that you accelerated your depreciation and you did the five and the 15 year, the portion above that straight line that was five and 15 year that you used to offset ordinary income right back when you did it. And so it gets recaptured at ordinary rates. So you actually it's a little it's a it's a little complicated. You have to actually bust out the Excel spreadsheet and say like all right how much is yeah how much of that hundred and twelve thousand dollars that I need to recapture how much of that was on a straight line basis versus how much of that was the five and the 15 year. Craig Fuhr (16:22) present value of Jack BeVier (16:32) And the straight line basis is recaptured to capital gains rates and the excess is recaptured to ordinary rates. You have to do all that. You have to do all that. But it's still worth it, right? Even just time value of money, it's still worth it to go through this exercise. But yeah, there's a couple pitfalls there that you got to watch out for so that you're not surprised. Craig Fuhr (16:42) Yeah. course. Should a cost seg report really cost a couple of grand? mean, or do we just not have enough guys? Is it just not a big enough market of guys to call like as you know, a competitive market to like dry the price down? Jack BeVier (17:00) Yeah, I mean, they gotta physically go out there. Yeah, it's funny. You end up getting multiple bids. They all come out right around the same price. They probably all know exactly, you pretty much what the market is. I mean, there's some, there's a component of it of just like the, have to send a, you know, expensive white collar person out physically to the property to fill out this 50 page report. And it's like super detailed. It's like how many linear feet of baseboard in this room, how many square feet of paint in this room? Like it's, it's really, really detailed. Craig Fuhr (17:34) mod on. Jack BeVier (17:37) Um, and then you're also paying a little bit for like, they're, know, insurance, right? Because if it gets challenged by the IRS, they get hauled in and you know, there's like a professional standards thing that they have to defend themselves on. So you're paying a little for their insurance too. Um, I did one on like an apartment building and it was like 10 grand. So like, it was like a, it was like a 28 unit building and it was like 10 grand for that. If you go into a house, it's like two, three grand, or you go to KBKG and do 400 bucks online. which is what we get. Craig Fuhr (18:09) Yeah, the last part of the bill that I thought that was a couple more. The bill makes opportunity zones permanent. Jack BeVier (18:18) wait, just a real quick on that last bonus appreciation. So in the last Trump tax bill, was a hundred bonus depreciation, a hundred percent bonus depreciation. And then it scaled down in the next year. You could take 80 % of the five and 15 year property. And then the year for that, was 60 % of the five and the 15 year property. And I think we're in a 60 % year right now, or last year was a 60 % year. And now with the, the one big, beautiful bill act, it is a hundred percent bonus depreciation. Craig Fuhr (18:38) Mm-hmm. Jack BeVier (18:46) And that has been made permanent through 2029. So for the next five years, we'll be able to do 100 % bonus appreciation on five and 15 year. I do the back of the envelope math of like, or the back of the envelope math for me is that the net present value, like for me, the net present value of my typical deal in terms of the tax savings ends up being 12, 15 grand is what this. Means in terms of net present value of tax savings per rental property placed into service So it's not game-changing, but it's nice, you know You get a little 12 15 000 net present value bump every time you add a rental property to in service versus this not existing You know, it's it's it's worth mentioning, you know Yeah Craig Fuhr (19:32) beats a blank. Good caveat to throw in there at the end. Still look at him just doing the tip in not feeling great. Just literally I throw it up there he frickin alley oops it right in. I mentioned it makes opportunity zones permanent Jack. So I've only ever known Jack and I'm sure you know many more guys that are using OZs. I've only ever known a couple. the the the few that I've talked to are like, you know, I get what the benefit is, and I'm excited about it. But man, it's a red tape, you know, nightmare. And I got a buddy in New Mexico who he does rental home, I'm sorry, mobile home parks. And he bought a piece of land in an OZ. New Mexico is not like, you know, your favorite place to develop in, obviously. But man, he's like, yeah, it's it's it's just been a little bit of a nightmare. getting a thing off the ground? What do you what's your take on the making the OZs permanent and sort of? Is it really is it really something like have you ever invested in OZ jack? Jack BeVier (20:34) Yeah, I'm excited about it. We have two OZ projects going. Yeah. So for us, it's been like buy a shell, buy a multifamily shell or buy a little office building and gut it that happens to be in an opportunity zone. because then, you know, in terms of like the percentage of improvements that you have to do is a very high percentage. You know, you can't buy a stabilized rental property. You have to buy like a shell and then renovate it. Craig Fuhr (20:42) Is that the multi-units? that's cool. Jack BeVier (21:03) For us, it's been a nice alternative to of the minutia of having to do a 1031 exchange when we sell rental properties. So we'll sell a rental property. Say we sell like 10, 15 rental properties a year. It's kind of like culling the portfolio as we go, which has become our practice. The past five or six years, we'll sell like 10, 15 a year. And then there's capital gains on that. whether or not we made money on that deal, which, you know, because enough time has passed, we generally have, but we've also bonus depreciated all this stuff, right? So our taxable basis at this point is much less than what we sell the property for. And so we have that depreciation recapture issue. And so the cap gains portion of that depreciation capture recapture, we don't want to pay. don't want to pay. And so right now, and so you can 10 31 is what, you know, the most popular strategy for deferring that game. 10 31ing a house at a time is a pain in the butt administratively. It's also costing money. Craig Fuhr (22:05) Yeah. Okay, can I stop you there? So so you take 15 rentals, you sell those 15 rentals, whether it is in one fell swoop or 15 separate properties. Jack BeVier (22:15) Never. It's always good at a time, right? Like that's the pain is that it's always it's always staggered out. But the 1031 rules are per transaction. So I've got to monitor clocks on every single sale and try to line up new properties to coincide with that. Craig Fuhr (22:30) And do they have to be single family properties? Or can you like trade up to like a Malte at that point? 1031 into Malte. Jack BeVier (22:36) Now, yeah, like Kind Exchange, but it's not asset class, but like Kind does not corner you within a specific asset class. So you can trade a Rezzy for an industrial or a net lease for an apartment building. Craig Fuhr (22:49) Real estate to real estate is what you're saying? I didn't know that. Okay, so keep going. So so getting back to why you know, 1031s can be a bit of a nightmare, especially if you're selling multiple properties, you got to watch the clock and make sure that like you've identified and, and so now the opportunity zone opportunity. Jack BeVier (22:51) Yeah. Yeah. Yeah. So that like monitoring the clock on 15 different deals and lining up new properties on 15 different deals for me is like logistical nightmare. I don't enjoy doing it. It kind of takes the joy out of it, you know, to, save, you know, to save five grand or whatever. I'm like, you know, I don't like doing it. so we just didn't, know, frankly, I just didn't. We, so we'd sell rental properties and we pay the cap gains tax, you know, until opportunity zones came along. And then I started. keeping my eye out for projects in those areas. And so at this point we have like, always have the idea is always have an OZ project going because we can sell properties throughout the year, know, properties throughout the year have cap gains. then, you know, so between December 1, 2024, I'm sorry, January 1, 2024 and December 31st, 2024, before I file my tax returns, which is the file and personal personal tax returns, which is the following October of 2025, right? Cause you can go on extension for six months. So as long as by October of the following tax year, I find a place to invest my cap gains from the previous year into an OZ project. I get to defer those cap gains and I can lump them all together. Right. My accountant just tells me, Hey, we had Craig Fuhr (24:10) Yeah. Jack BeVier (24:30) $463,000 of cap gains last year that we have to reinvest and I just need to send a wire into the opportunity fund entity by October 15th of the following year. And now that project has to be an OZ project. has to be in the right census tract. has to qualify. There's like a 90-10 rule. You can't stick a bunch of cash in there. It has to be mostly real estate improvements. There's a whole bunch. There are a number of... of conditions that you have to keep an eye out for to make sure that your OZ project remains in compliance. But if you have that going, then we can always just contribute equity to that entity and defer the cap gains for a while. ⁓ Craig Fuhr (25:15) Yeah, it's almost like qualified income, right? Like I can't just take like, you know, hey, I went out and I made, you know, my job paid me 150 grand, I'm going to throw that into my OZ. This is I sold real estate. I got capital gains, I can throw that into my OZ fund. Wow. Jack BeVier (25:32) Yeah, yeah, exactly. And so that's become our practice. you and you do it as an equity contribution. You make sure that you still pass the 90 10 rule and that the, you the, you know, the, the project itself qualifies as an OZ project. So for us, it's been like stuff on the west side of downtown Baltimore. We're buying multifamily buildings in the west side of downtown Baltimore than you gutted. And that's just the place that we stick our capital gains. Now I can bring in other equity as well, right? you know, if that cap gains isn't enough. then I can bring in other equity. Craig Fuhr (26:03) Can I stop you there? So let's say you had a significant windfall. It wasn't 400 grand. It was like, you know, two and a half million. Can you overfund that account? Can you just go at like, hey, I'm just gonna avoid it and I'm just gonna park my money in my OZ fund even though this project doesn't even need nearly that much. Jack BeVier (26:22) Only up to the limiter that there's a 90-10 rule where at the end of the year, you can't have more than 10 % of the balance sheet in cash. So it has to be at least 90 % improvements. if you put two and a half million, now you can put two and a half million in, pay off all the debt on that property and just own it, you know, own it free and clear as long as the assets are, as long as there's enough assets, right? As long as you've done enough improvements to that real estate. Craig Fuhr (26:43) ⁓ Jack BeVier (26:51) to pass that 90 10 rule to spend the cash, right? If you spend that cash on real estate, yes, that's fine. But if it's sitting in there in cash, then no. Like, so that's the that's really ends up being the gating issue. Craig Fuhr (27:02) Got it. Got it. Got it. So in a nutshell, excited about the OB BB and extending the OZs. Jack BeVier (27:13) Yeah, yeah. Happy about that. It kind of like, we're going to continue to use that strategy to defer cap gains. And, and it's also nice. Like you get the project to completion stabilized, you refinance and pull the cash back out. Cap gains still stayed in there, right? Like that's not a taxable, you know, the refi is still not a taxable event. So we can get access to our cash post refi and still not be on the hook yet for, for the cap gains. Craig Fuhr (27:24) and you still get right. of all the benefits that we've already discussed, the one big benefit of developing an opportunity zone is the 10-year tax credit. Is that what it is? Or is there some sort Jack BeVier (27:47) Well, it's the 10 year deferral. So if you hold the property for 10 years, the cap gains is extinguished. Your basis is stepped up. Craig Fuhr (27:53) Got it. That's awesome. The last thing that I found interesting for real estate investors on the one big beautiful bill was that it preserves the 20 % QBI deduction, which was set to expire in 2026. So real estate businesses structured as LLCs, S corps or sole proprietors still qualify, you can deduct up to 20 % of net rental income. from your taxable income. So let's say your rental income was 50 grand, the QBI deduction would be 10 grand and your taxable income becomes 40 grand. Again, I would think that you still would have to qualify as a real estate professional to take that deduction jack. Don't know. Jack BeVier (28:39) don't know about that specifically. Yeah, the thing I'm, well, the QBI matters because it closes the gap between C-Corp election and staying as an LLC, sole proprietorship or partnership or S-Corp. The C-Corp election allows you to have a lower tax rate, right? 20 %ish C-Corp rate, but you get, Craig Fuhr (28:42) Speak with your accountant. Jack BeVier (29:07) but you get double taxation on that when you take distributions. But the QBI, you're getting taxed at whatever your personal rates are because those are passed through entities up to the individual. But the QBI deduction is 20 % off the top. it cuts that, when you do the math, it really closes the gap between those two and makes remaining as an LLC-S Corp partnership more competitive. with the alternative of a C Corp election. So, and I like remaining as an LLC just because of the flexibility of distributions versus, you know, taking money out of a C Corp is taxable, whereas taking money out of an LLC from your capital account is not taxable. And so I like that, I like that, that flexibility. So I think we're going to remain LLCs this year in no small part because this QBI election got extended and made permanent. Craig Fuhr (30:00) That's pretty cool. I said that that was the last bullet point. I was lying. There was one more jack. The one big beautiful bill repeals most green energy mandates. So there would have been mandates for EV chargers, solar panels, heat pumps, green building upgrades. Had that not have passed. Now, the caveat there is that states can still pass those mandates on to landlords. And I assume that that's exactly what they'll do. And you'll wind up eating 100 % of the cost of those upgrades, those mandated upgrades without a any sort of federal credit. So as a guy who owns a bunch of real estate in a pretty darn blue state, Jack, do you worry about those mandates coming at some point like At what point does the does Marilyn come in and say, Hey, guess what all those houses you own, you got to retrofit those things with electric, you know, everything and, you know, do you worry about that at all? Jack BeVier (30:59) The resi side less so. I think the commercial landlords are a bit more stressed out about this idea. ⁓ Understandably so, just because it's, they're easier targets for, know, solar panels on the roof, EV chargers everywhere. ⁓ So it's not something that I lose a whole lot of sleep about, but I know the commercial guys certainly do. Craig Fuhr (31:04) Yeah. Right. Yeah. Well, that was what we won't spend a whole lot of time. Go ahead. Jack BeVier (31:19) I got, I got, I got some more tax stuff because taxes, you know what taxes were like, I didn't know anything about taxes. I hated taxes. It was my least favorite subject until you start paying them and then it becomes really interesting. and, now I nerd out on tax stuff. There was a, so I got one more thing. Actually, this isn't even a tax thing, but, the one big, beautiful bill act. This is something that I've just seen on Facebook a bunch and I made this mistake personally. So like I, Craig Fuhr (31:31) Yeah. Jack BeVier (31:47) Because in the house version of the One Big Beautiful Bill Act, the Housing Choice Voucher Program, commonly known as Section 8 vouchers, the tenant vouchers, the proposal was a 40 % reduction to funding, moving the program to the states and the federal funding taking the form of block grants to the states, but 40 % less. Craig Fuhr (31:57) Yes. Yes. Jack BeVier (32:13) Basically, you know gateway to eliminating HUD entirely for the federal government and and so and so we go to local administration of that and the states would have to figure out if they wanted to make up the difference between the lack of federal funding that this drop in federal funding there was also a recommendation that There's also a recommendation that the the vouchers Be changed from a permanent which they're currently a permanent Craig Fuhr (32:27) Right. Jack BeVier (32:36) benefit to the recipients, right? It's like a lifetime benefit as long as you continue to make less than 80 % of their immediate income, you remain eligible for your voucher and actually put in place for all able-bodied people a wind down where you're only eligible for that benefit for I think the most aggressive proposal was two years. I think what was in the house bill was two years. Don't quote me on that. It was either two or five, but a wind down of- exactly. Would materially change Craig Fuhr (33:00) no less significant. Jack BeVier (33:04) the nature of the program, the nature of the business for folks who provide housing for Housing Choice Fouchard holders. then, so anyway, so I thought that that reduction stayed in the bill, but then the Senate version got rid of that, got rid of that reduction. But getting rid of that reduction never made the news. Like everyone wasn't like, hey, here's this news, guess what? This thing's gone. And so, And if you go to, and I'm now guilty of this, because I'm now guilty of this, I went to chat GPT and I said, Hey, in the one big, beautiful bill act, what happened to the housing choice voucher program funding? And it said it was reduced by 40%. And I said, you know, I was like freaking out. was like, God damn, this is going to be, this is going to be a shakeup. And there are still folks today who think that, uh, that the final version of the bill had a 40 % reduction to that. Maybe probably if you're like me because Chachipi told me so, Chachipi told me so. But then if you go back to Chachipi and you say in the final version, the final executed version of the One Big Beautiful Bill Act, what happened to the Housing Choice Voucher Program? It says nothing, nothing happened. So it got eliminated, that reduction got eliminated in the Senate version. And there is no meaningful impact to the Housing Choice Voucher Program budget in this bill. So there's a lot of landlords that were freaking out about it. There's a lot of landlords that were still freaking out about it even as of a couple days ago. I just saw some folks posted on Facebook. So I wanted to put that out there as a little public service announcement for everybody. If you were worried about that issue like I was, it got taken out of the Senate version. So we're fine this year. Craig Fuhr (34:46) there would have been a massive shake up and outcry had that a past I, you know, I can't the thing when you say 40 % Yeah, it's significant. I can't imagine how much waste and fraud is in that. and and then frankly, what what what would have been even scarier is, hey, we're just going to send all that money to the states and make sure that they you know, they'll figure out how to manage it. Like, no, that would have been an absolute nightmare. Jack BeVier (35:14) Yeah, yeah. mean, the admin budget, I should know this number. The admin budget is something like 15 or 20 % of the number. The rest is just actual direct, you know, payments to, you know, rental payments. And my thought was that the, my thought was that, you know, the Maryland, I'm in Maryland, the Maryland Department of Housing and Community Development would put a little team together. Craig Fuhr (35:23) Mm-hmm. Jack BeVier (35:35) Take, you know, take the ad, well, put a little team together to oversee the housing choice voucher programs, which are currently run on the county level in Maryland. Right. So like, yes, Baltimore city has that, know, there's runs under the housing authority of Baltimore city at a municipality level. Right. And if you're in, if you're in Georgia, you know, it's even down to the city level in like some certain small cities have their own housing authorities that administer the housing choice voucher programs locally. Craig Fuhr (35:44) I didn't know that. Jack BeVier (36:03) And so the local administration probably wouldn't have changed much other than being affected by the overall budget changes. But the oversight and the policymaking would have been moved from the federal level to the state level. So you'd even have had, and this could happen next year, right? Like we have three more years of Trump. the view would have had even more kind of disparity. in terms of the housing choice voucher program on a state by state basis because Maryland certainly has a very different set of politics around this issue than Alabama does or Texas does, Georgia does. You would have even had more heterogeneity in the housing choice voucher program than you already do. It remains to be seen. think it's one of those things, you talk about like these ideas just keep coming back every year, right? Like once the idea gets introduced, it tends not to just disappear. I think this is one of those that may keep cropping up. ⁓ Craig Fuhr (36:55) Yeah, yeah. Yeah. And then give me, give me a 15 second take on, you know, I, I've never been a fan of like womb to tomb policy, you know, like you've got the voucher and as long as you're a good, you know, good tenant, you're going to the grave with that thing. And then your kids will probably wind up in the same sort of like it's, it's a known fact that if like, you know, you, you have a government subsidy, your kids will probably wind up having the same government subsidy. So two years, I think is probably a little tough. But at some point, when do we say, hey, maybe it's a 10 year voucher, it's a five year voucher, it's you know, this is really meant to get you back on your feet, and then you can go rent in a market rent situation. Like that, honestly, Jack, if anything, that's what I kind of like, that's what I will be worried would be coming from a policy standpoint, if I'm a section eight lamb. Jack BeVier (37:51) Yeah. ⁓ Yeah, I. Craig Fuhr (38:00) Even though I'm sorry, even though there appears to be no lack of people who, you know, need section eight, right? Like, yeah. Jack BeVier (38:09) Yes, I certainly understand that perspective. And also you can make the argument from that perspective that we'll help more people this way, right? Like there's a 25,000 person waiting list in Baltimore City. If it's a lifetime voucher, those people never get helped because they just stay on the waiting list because this lifetime benefit doesn't doesn't attrit, right? There's relatively low attrition off of this lifetime benefit. Craig Fuhr (38:27) they don't increase the budget. Jack BeVier (38:34) because it's a lifetime benefit. Who wants to lose $20,000 of after-tax income? That is a freaking golden ticket, right? So I understand that perspective. The alternative perspective from the advocates, the tenant advocates, are two things. One, that their view and HUD's current policy is that their kids end up being, their perspective is that the... If you stay in an inner city location, like if you stayed in an area and a location that has very high poverty rates, you have those outcomes. But when you, but when mom moves to the County or moves to a higher income area, you don't have those outcomes as much. And so the idea is that the concentration of poverty is the problem, not the lifetime nature of the voucher. And if we made it an end and the lifetime nature of the voucher. provides stability. And so if we can provide stability in an area of opportunity, then we'll have better outcomes. And so that's what their current policy is, is to deconcentrate poverty. They overtly don't want vouchers to locate in low income census tracts with that perspective in mind, that stability in areas of high opportunity lead to breaking that generational cycle. So that's a social experiment that is playing out right now everywhere. Craig Fuhr (39:52) and a lot of NIMBYism going on. Jack BeVier (39:55) Yes, exactly. Yes, and then Nibiaism is fighting back. Yeah, exactly. Craig Fuhr (39:58) Anything else that struck you on the bill? Jack BeVier (40:03) No, those are the highlights. Yeah, I think those are the highlights. Craig Fuhr (40:07) All right. Well, that was the one the wrap up from real investor radio on the one big beautiful bill.