There’s a refugee crisis going on in the United States. And few people know about it…
Between 2015 and 2016, more than a half-million of these economic migrants fled to states like Florida, Nevada, and Texas.
They’re fleeing tyrannical governments. They’re searching for better job prospects and higher living standards.
But these refugees aren’t from Mexico or Central America.
They’re wealthy expats from California and New York. And they’re trying to escape high state income taxes.
According to IRS migration data, from 2015 to 2016, 275,000 tax filers left California for other states. The top three destinations were Texas, Washington, and Nevada—states with no state income tax.
New York had 226,806 taxpayers leave. Not surprisingly, Florida was the top destination.
Today, we’re seeing hundreds of businesses and thousands of wealthy people flee high-income tax states to low-income tax states.
And this is creating an opportunity in a sector we don’t normally cover in the Daily: real estate.
If you want to take advantage of this mass exodus, you should set aside some of your money to real estate. Here’s why…
Last Wednesday, investment advisory firm, AllianceBernstein (AB for short) announced it’s moving its headquarters from New York City to Nashville.
The reason is simple. Tennessee doesn’t have a state income tax… but New York does.
AB is hardly the only company leaving high-tax jurisdictions.
In 2016, billionaire hedge fund manager David Tepper moved his headquarters from New Jersey to Florida.
(Barry Sternlicht and Paul Tudor Jones also moved their hedge funds to Florida from Connecticut in 2016.)
According to one report, Tepper has earned more than $6 billion over the past three years. Given that the top tax rate in New Jersey is 8.97%, his tax bill for the state over that time frame could have been more than $500 million.
Florida has no state income tax. You do the math…
And Florida isn’t the only destination for tax refugees. Texas is another—growing at the expense of California.
Since 2014, more than 20 companies have left Silicon Valley for “Silicon Hills” in Austin, Texas. Just last year, Toyota moved its U.S. headquarters from Southern California to Plano, Texas (near Dallas).
Companies are making these moves to cut costs. But I’m not telling you this just because a few companies will be marginally more profitable.
You see, these companies are bringing jobs. And all those new workers will need homes and apartments.
But here’s the thing…
The exodus of businesses and people from high-income tax states to low-income tax states will only get bigger in the years ahead. And this is giving us an opportunity to buy real estate ahead of the crowd.
Follow the People to Profit
President Trump’s new tax law caps the amount that residents in high-tax states can educt from federal taxes at $10,000 in state and local taxes. In previous years, residents could deduct an unlimited amount of state and local taxes.
The tax change will cause more wealthy businesspeople to flee high-tax states… and the jobs they create will follow them.
According to Forbes, nine of the top 10 fastest-growing cities in 2018 are in states with no state income tax. (The 10 cities are: Boise, Idaho; Seattle; Dallas; Orlando; Fort Worth, Texas; Las Vegas; Nashville; Austin, Texas; Cape Coral, Florida; and Tacoma, Washington. Note that Boise is the only city on the list in a state with an income tax.)
And property values are rising faster in these areas…
According to the National Association of Realtors, the average U.S. home price has risen 5.8% since March 2017.
But certain high-growth pockets are rising even more. Florida real estate is up 7.3% on average over that span. Austin is up 10.8%… and Nashville is up 12.1%.
Today, the opportunity to make money in real estate comes from picking quality properties in these fast-growing cities. You can buy land or homes… but that limits your profits.
Income-producing properties are a better option because you can rent them for money. It can be a single-family home, duplex, apartment building, or office building. It doesn’t matter as long as the property produces enough rent to cover your expenses.
Not only will the properties most likely be worth more in 5–10 years… you’ll get paid rental income while you hold them.
It’s a rare opportunity to know with such certainty where people are heading. Real estate investors should take advantage.
Nick Rokke, CFA
Analyst, The Palm Beach Daily