Eliminate Prop 13 tax breaks for Real Estate Investors (San Francisco, Sacramento: renter, insurance)

[Galaxie Girl]

Originally Posted by GoldenZephyr

Second, you are also incorrect regarding your assertion of arbitrarily raising rates and thinking you can demand whatever you want to keep your margin the same with no market consequence.

You can not just "decide" to pass on costs because you feel like it to make the same profit. You can charge what the market will bear and what is competitive, not some arbitrary number and just raise it because you decide you need more money. If that was true, why not just raise rental rates 30% across the board tomorrow, why not 50%, 100%, after all, why wait on the legislature. Maybe the "costs" of you doing business triple for whatever reason; just demand more rent, its just that easy according to you.

I did not mean to imply that all landlords would immediately raise rents by X% if taxes went up. However, over time, rents would have to adjust to compensate for the increased costs. Sure, other aspects of the market would also adjust, like property values decreasing, but to think that rents will not adjust due to increased costs is naive. It would be like adding some weight to one side of a balanced scale - it will adjust until it reaches a new equilibrium.

[GoldenZephyr]

Originally Posted by Galaxie Girl

I did not mean to imply that all landlords would immediately raise rents by X% if taxes went up. However, over time, rents would have to adjust to compensate for the increased costs. Sure, other aspects of the market would also adjust, like property values decreasing, but to think that rents will not adjust due to increased costs is naive. It would be like adding some weight to one side of a balanced scale - it will adjust until it reaches a new equilibrium.

Fair enough, I tend to agree that rents may rise over time, however, if property prices fall (and they likely would if prop 13 was modified) then it would allow NEW landlords to enter the market and have lower cap rates, which would lead to lower rent prices or at least moderate any increases. It would also allow more families and individuals to afford property (since they would still be covered under Prop13) and would likely reduce rental demand somewhat.

See, to me, subsidizing landlords profit margins with tax breaks actually costs us all more in the long run. It keeps inventory off the street, it helps crowd out families and individuals, which leads to higher prices and a large amount of underassesed property.

I do think that there should be split tax rolls. Prop 13 should go only to owner occupied residences, not commercial, not second homes, rental properties, etc. It's simple, its clean, and it levels the playing field just a bit for families and individuals who actually want to live in the property that is being purchased.

[Electrician4you]

Originally Posted by GoldenZephyr

Fair enough, I tend to agree that rents may rise over time, however, if property prices fall (and they likely would if prop 13 was modified) then it would allow NEW landlords to enter the market and have lower cap rates, which would lead to lower rent prices or at least moderate any increases. It would also allow more families and individuals to afford property (since they would still be covered under Prop13) and would likely reduce rental demand somewhat.

See, to me, subsidizing landlords profit margins with tax breaks actually costs us all more in the long run. It keeps inventory off the street, it helps crowd out families and individuals, which leads to higher prices and a large amount of underassesed property.

I do think that there should be split tax rolls. Prop 13 should go only to owner occupied residences, not commercial, not second homes, rental properties, etc. It's simple, its clean, and it levels the playing field just a bit for families and individuals who actually want to live in the property that is being purchased.

The reason what you explained will never happen is because people LIKE to have a house that is " worth" a lot of money. Even if its just a number. For some reason people like to know their house is value. Makes no difference that perceived value us locked in a house and there is really only two ways to unlock it.

If people wanted those lower priced houses they had a GREAT 2-3 years to do it. 08-11 prices were stupid low. And NOBODY WAS BUYING. I bought three houses with a buddy in Vegas for stupid low prices in 09. I couldn't buy the materials for that price. These houses were selling for 230k in 2002-2003. 5 years old and great shape. I wish I had enough money to buy the whole cul-de-sac. We sat on them and later sold them for a very nice profit. Anyone who wasn't financially stupid could of gone and gotten those houses just like we did. I even told my mom to buy a house for retirement. She said no. She wishes she bought back then. She's living in crappy apartment.
Low house prices does not mean people are gonna buy them. And even if you had low prices as we did, the competition for the houses would raise the sale price. Just like it did in late 11 early 12.

[things and stuff]

I agree with the OP.

Tax breaks should be for homeowners on their primary residence only. Adding the tax for investment properties would lower demand and thus prices for homeowners and make the state more attractive for.. people.

[Ultrarunner]

The entire goal of the FED intervention/policy is to bolster prices...

Everyone down the line said falling home prices are devastating to the economy and steps must be taken to shore up prices so less people find themselves underwater with negative equity.

Low prices meant people walking away and unable to refinance or sell to buy.

The odd thing is I mentioned to everyone I knew that had thought about buying to get busy in 2011 and 2012... not a single person did. Lots of inventory and rock bottom interest rates and only investors for the large part showed any confidence...

Some that did not buy took the opportunity to refi and consolidate loans...

I doubt I will ever see 2.75 15 year fixed with no points again in my lifetime!

[Ultrarunner]

Originally Posted by things and stuff

I agree with the OP.

Tax breaks should be for homeowners on their primary residence only. Adding the tax for investment properties would lower demand and thus prices for homeowners and make the state more attractive for.. people.

Prop 13 is not a tax break since it applies to all taxable property...

It is not different than buying a car... tax is paid based on the purchase price... be it more or less than the last owner paid.

I know people that bought in my area paid about a third less than I did when the market was down the most and good for them.

[chuckmann]

Originally Posted by Ultrarunner

A couple of comments...

Many urban areas in California have rent control where rent is kept artificially low.

Property Tax increases (substantial) are one of the few expenses the owner can petition to pass through.

Also... Prop 13 was not about Grandma so to speak...

It was about corupt Assessors playing favorites, double digit tax increases AND in response to the State's grab of local public school monies...

It is one thing to pay higher taxes in support of local schools and another when the State via the Serrano Decision took money from the local community to allocate anywhere in the State.

Respectfully, I disagree.

the grab for local school monies happened AFTER the passage of 13.

Lest you have forgotten, 13 passed at a time when California had a several billion dollar surplus, which then Guv Gerry Brown spent to prop up local governments. One of the trades was the state's seizing of property tax revenues, and redistributing those revenues for schools and whatever else came to mind.

As for grandma, well, my mother and father met the criterion of "grandma" at the time. If it wasnt about old people being taxed out of their homes, then what the hell WAS it about?

Other than the state of Calif money grubbing efforts to tax us all out of existence?

[CA4Now]

Originally Posted by chuckmann

As for grandma, well, my mother and father met the criterion of "grandma" at the time. If it wasnt about old people being taxed out of their homes, then what the hell WAS it about?

You're right; it was about ANYONE who owned a home in CA then, not just those on a fixed income. My parents were in their 40s when it passed, and they and all their neighbors were appalled at how much their property taxes were increasing yearly. They could not predict the increases from year to year and it frightened everyone, not just "grandma." That was its big selling point--property tax predictability--and why so many homeowners voted for it.

[SOON2BNSURPRISE]

Originally Posted by Electrician4you

I don't know anyone who " likes" paying taxes. Yeah I've read a lot more on P 13. I had some pretty bad misinformation. Some from realtors other from websites. Way I see it investors are good and bad. You start soaking the investors too much and they are gonna dump and run. Cash out and invest in something else. Then what happens property values go down ( not exactly bad) but everyone who just went underwater is gonna scream bloody murder along with every other homeowner who is HELOC'ing his azz off not to mention all the people that are currently under water from the legacy loans. Getting rid of prop 13 is not what you want. What you want is the housing prices to start going down so it becomes affordable. Problem is everyone who bought "high" is now underwater. Its like riding a unicycle on a tight wire while juggling a few knifes over a volcano while someone is shaking the wire.

I would say that it is hard to determine the low point. How low should it go. I thought about this for a few years when we were thinking of buying a home. Our goal was to get a home for under $300,000. I had looked at historical trends in our area and based my price point on what the home I grew up in followed the market. I live 6 miles north of where I grew up. I always figured that the bottom of the market would be $150,000 for that specific neighborhood that I grew up in. Then I had to realize I was basing that all on 1999 - 2000 numbers, before the bubble started. At that time you could have bought a home in that neighborhood for around $150,000 or so. Accounting for inflation I figured a new low point would be above the $200,000 range. From there we watched home prices decline from a high of $550,000 down to $240,000 by 2010. At that point homes were very affordable for us. Then the thought occurred to us that we wanted to live in the north side of the city and maybe with the lower price point we could afford a nicer home in a nicer area.

We adjusted historical price points for our target neighborhood and began looking for something under the $300,000 threshold. We also found out about a first time buyers plan that would offer a 30 year fixed 3.875% interest rate. I still thought that we were buying too soon but we were in need of a larger place to live. we would either have to rent a larger place or buy one. We ended up buying a home that the owners lost. They had paid $580,000 for that home in 2005. By 2007 the home was valued in the $700,000 range and they took a second on it so they could buy a new home. By the end of 2007 the market was starting to falter and by 2010 they had lost the home. We picked it up for just over $300,000.

A year after we bought home values decreased a bit to under the $300,000 level. Now they have increased well above where we purchased our home at. Now this is a $400,000 + neighborhood, or that is what people are trying to get now. Most people that were in trouble have either moved on or have recovered somewhat.

[Ultrarunner]

Originally Posted by chuckmann

Respectfully, I disagree.

the grab for local school monies happened AFTER the passage of 13.

Lest you have forgotten, 13 passed at a time when California had a several billion dollar surplus, which then Guv Gerry Brown spent to prop up local governments. One of the trades was the state's seizing of property tax revenues, and redistributing those revenues for schools and whatever else came to mind.

As for grandma, well, my mother and father met the criterion of "grandma" at the time. If it wasnt about old people being taxed out of their homes, then what the hell WAS it about?

Other than the state of Calif money grubbing efforts to tax us all out of existence?

Here's a link with the background of Prop 13

California Proposition 13 (1978) - Wikipedia, the free encyclopedia

The Serrano Decision is a key element.