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Then so be it..you can only charge for rent what people will pay, but unless your commercial property is worth more than 3 million, or you hire more than 50 people your won't be impacted by it.
Many (if not most) commercial properties have contractual leases where the property taxes are literally passed through to the tenant directly called triple-net or NNN leases. The tenant pays for the property tax directly and they are the ones that benefit from prop 13. Some of the leases do have clauses that will protect the tenant if prop 13 is repealed, others do not. It really just depends on what was negotiated at the time.
Now, you can say that the landlord can only charge what the market will bear. That's true. But I can assure you that the landlords will be pushing for their tenants to pay their contractually obligated property tax bills. If the tenant refuses, so be it. They will be going bankrupt getting evicted and most of the leases are personally guaranteed by the tenant so it's not just the business that's getting screwed. It's those actual owners that are on the hook and will be having to declare bankruptcy if the hit is too big.
So doing this would be exceptionally disruptive to the commercial market and thousands of small independent business would absolutely go under and be replaced with national retailers who are willing to absorb the increased costs. Just be aware what you're asking for and who it will affect.
Uh huh, and the people they replaced to downsize...where did they go? Moving somewhere closer to work is probably going to increase their cost since the workplaces would be closer to the city... so no, it has much less to do with Prop 13. Keep trying. If you throw enough stuff against the wall, maybe something will stick.
Uhh buddy I know dozens of empty nester boomers who are living in 1-3 million dollar homes after their kids went out to college whose property tax basis are <$500K. Most of them aren't moving because they would have to sell and then buy a replacement smaller property at the new basis.
All that space is is sitting empty. If it were occupied that would effectively be the same as creating supply. Use your brain please.
Uhh buddy I know dozens of empty nester boomers who are living in 1-3 million dollar homes after their kids went out to college whose property tax basis are <$500K. Most of them aren't moving because they would have to sell and then buy a replacement smaller property at the new basis.
All that space is is sitting empty. If it were occupied that would effectively be the same as creating supply. Use your brain please.
Please use yours and stop selectively editing. Moving closer to work is in all likelihood going to increase their costs as most jobs are located closer to a city center and homes will be significantly more expensive (hard to believe you would call others ignorant). That has little to do with Prop 13 as that would be a drop in the bucket compared to the increased housing costs
There are plenty of reasons empty nesters don't move. To list a few...1) They like their neighborhood and their neighbors that they've had for decades, 2) The supply of smaller homes are limited and not to their liking, 3) The home they live in despite the fact that their children have moved out isn't exactly large (i.e. our 4 bedroom home is a whopping 1070 sf). I hardly think my wife and I are going to move to something smaller despite the fact that it would sell for over $1 million (the sale price of the home has little to do with it), and 4) Simply emotional attachment.
Like I said, keep throwing things against the wall and maybe something will stick. In the meantime, use your brain please. As the other poster stated, you thinking this is creating some type of huge supply is laughable. And the only place the major metropolitan areas of CA can build at this point is up. There just isn't the room to create real supply.
Last edited by JJonesIII; 10-16-2019 at 12:23 PM..
Please use yours and stop selectively editing. Moving closer to work is in all likelihood going to increase their costs as most jobs are located closer to a city center. That has little to do with Prop 13 as that would be a drop in the bucket compared to the increased housing costs
There are plenty of reasons empty nesters don't move. To list a few...1) They like their neighborhood and their neighbors that they've had for decades, 2) The supply of smaller homes are limited and not to their liking, 3) The home they live in despite the fact that their children have moved out isn't exactly large (i.e. our 4 bedroom home is a whopping 1070 sf). I hardly think my wife and I are going to move to something smaller despite the fact that it would sell for over $1 million (the sale price of the home has little to do with it), and 4) Simply emotional attachment.
Like I said, keep throwing thing against the wall and maybe something will stick. In the meantime, use your brain please. As the other poster stating, you thinking this is creating some type of huge supply is laughable.
Plus if they demolished a home like yours and built up, the prices would still be extremely high to buy a unit and the HOA would increase the monthly costs beyond just the mortgage. It would help no one, that can't afford to buy now, as even the build ups being done are very high in price. No builder is going to build for less than they can make and the demand is so high now, even with a little slowing, they would have no reason to build cheaper units.
Many (if not most) commercial properties have contractual leases where the property taxes are literally passed through to the tenant directly called triple-net or NNN leases. The tenant pays for the property tax directly and they are the ones that benefit from prop 13. Some of the leases do have clauses that will protect the tenant if prop 13 is repealed, others do not. It really just depends on what was negotiated at the time.
Now, you can say that the landlord can only charge what the market will bear. That's true. But I can assure you that the landlords will be pushing for their tenants to pay their contractually obligated property tax bills. If the tenant refuses, so be it. They will be going bankrupt getting evicted and most of the leases are personally guaranteed by the tenant so it's not just the business that's getting screwed. It's those actual owners that are on the hook and will be having to declare bankruptcy if the hit is too big.
So doing this would be exceptionally disruptive to the commercial market and thousands of small independent business would absolutely go under and be replaced with national retailers who are willing to absorb the increased costs. Just be aware what you're asking for and who it will affect.
Then how do commercial property owners in Nevada avoid bankruptcy, they have a split roll property tax and seem to be doing ok? Small businesses (under 50 employees) are exempt under the proposal as are businesses valued at less than 2 million dollars.
Then how do commercial property owners in Nevada avoid bankruptcy, they have a split roll property tax and seem to be doing ok?
That's an excellent question. OK so below is a comparison of a hypothetical industrial building with rents and NNN charges that would be reasonable for a class "B" industrial building in the San Gabriel Valley. So let's say you are a tenant and looking for space to rent for your small business and need 25,000 SF of warehouse space and are looking at small 50,000 SF buildings that have been subdivided between two tenants.
Base Rent would be approximately $8.1/SF/Yr and because the property owner has owned the building for many many years total NNN charges are $1.45/SF/Yr for an "all in" tenant estimated rate of $9.59/SF/Yr. Sounds good. You go next door and there is the identical building except this landlord just bought it last year so his property taxes are at "market" and so NNN charges in this situation would be $2.94/SF. If he charged Base Rent of $8.1/SF and then added another $2.94/SF in NNN that would bring the total "all in" tenant estimated rent to $11.04/SF/Yr which is 15% higher than the other guy next door. As a tenant you would tell him to either A) pound sand you're going to move in next door or B) lower his base rent so that the "all in" rent is equal to the other guy.
Now that's how the negotiation goes when the small tenant is looking for space. He ends up signing up with Owner 1 with the prop 13 protected building and pays $9.59/SF/Yr for rent for several years until one day the State decides to end prop 13 protection and up all of the commercial properties from the original tax basis (+2%) to the new market value. The property owner does not own a building worth less than $3M. It doesn't matter that the tenant is is a business valued less than $3M and employs less than 50 employees. The property owner is and his tax bill just quadrupled. Per the terms of the lease the tenant now has to pay "all in" rent of approximately 15% more. Now, maybe he can absorb that and his profit margin just goes down. Maybe he was on the edge and that's game over. I don't know.
So back to your situation in NV (or any other state that matter that doesn't have prop 13 protection). It's fine. You are the tenant you say you are willing to pay $9.59/SF per month all in per month. The landlord agrees and that's that. When property taxes increase you're on the hook. But even if they do quadruple that would probably be over the course of 20-30 years. Annual jumps of more than 10% are exceptionally unlikely. So sudden shocks to the system like the sudden repeal of prop 13 would create aren't going to put you out of business. I hope this makes sense...
Quote:
Originally Posted by 2sleepy
Small businesses (under 50 employees) are exempt under the proposal as are businesses valued at less than 2 million dollars.
Sure if the small business owns its own property it's fine. But what if the small business rents from a big business which is way way more likely (since small business usually don't want to sink huge $ into buying a property right off the bat when the small business is getting started).
So the issue is not whether property taxes should be high or the property owners protected. The issue is how to roll it out with completely rocking the boat and blowing up the market.
Additionally, I actually do with we would adopt a system like that have in Texas with high property taxes and low income taxes. Think about it. Who pays the most income taxes? The people that actually live and work in the state. Who pays the most property taxes? Owners of property, but they don't actually have to live in the state. So all those foreign national investors or commercial property companies that are domiciled out of state are the ones getting tax breaks and yet we are pounding all Californians on the income tax side of things.
That's an excellent question. OK so below is a comparison of a hypothetical industrial building with rents and NNN charges that would be reasonable for a class "B" industrial building in the San Gabriel Valley. So let's say you are a tenant and looking for space to rent for your small business and need 25,000 SF of warehouse space and are looking at small 50,000 SF buildings that have been subdivided between two tenants.
Base Rent would be approximately $8.1/SF/Yr and because the property owner has owned the building for many many years total NNN charges are $1.45/SF/Yr for an "all in" tenant estimated rate of $9.59/SF/Yr. Sounds good. You go next door and there is the identical building except this landlord just bought it last year so his property taxes are at "market" and so NNN charges in this situation would be $2.94/SF. If he charged Base Rent of $8.1/SF and then added another $2.94/SF in NNN that would bring the total "all in" tenant estimated rent to $11.04/SF/Yr which is 15% higher than the other guy next door. As a tenant you would tell him to either A) pound sand you're going to move in next door or B) lower his base rent so that the "all in" rent is equal to the other guy.
Now that's how the negotiation goes when the small tenant is looking for space. He ends up signing up with Owner 1 with the prop 13 protected building and pays $9.59/SF/Yr for rent for several years until one day the State decides to end prop 13 protection and up all of the commercial properties from the original tax basis (+2%) to the new market value. The property owner does not own a building worth less than $3M. It doesn't matter that the tenant is is a business valued less than $3M and employs less than 50 employees. The property owner is and his tax bill just quadrupled. Per the terms of the lease the tenant now has to pay "all in" rent of approximately 15% more. Now, maybe he can absorb that and his profit margin just goes down. Maybe he was on the edge and that's game over. I don't know.
So back to your situation in NV (or any other state that matter that doesn't have prop 13 protection). It's fine. You are the tenant you say you are willing to pay $9.59/SF per month all in per month. The landlord agrees and that's that. When property taxes increase you're on the hook. But even if they do quadruple that would probably be over the course of 20-30 years. Annual jumps of more than 10% are exceptionally unlikely. So sudden shocks to the system like the sudden repeal of prop 13 would create aren't going to put you out of business. I hope this makes sense...
Sure if the small business owns its own property it's fine. But what if the small business rents from a big business which is way way more likely (since small business usually don't want to sink huge $ into buying a property right off the bat when the small business is getting started).
If the tenant can't make a profit with the higher property tax, then they could look for something else, and if the increased rent is not acceptable and the property sits empty, then the property owner will have to reduce the rent accordingly. That's sort of how life works. No one asked the residential tenants in Sacramento if they could afford 50% rent increases but that didn't stop landlords from raising their rent, did it?
If the tenant can't make a profit with the higher property tax, then they could look for something else, and if the increased rent is not acceptable and the property sits empty, then the property owner will have to reduce the rent accordingly. That's sort of how life works. No one asked the residential tenants in Sacramento if they could afford 50% rent increases but that didn't stop landlords from raising their rent, did it?
Yea they'll look for something else out of state. Which is how life's working or not working a lot in Ca.
Hardly any business's move here from out of state and if this passes even less will bUt your retired so no worries right? You'll still get that pension check
If the tenant can't make a profit with the higher property tax, then they could look for something else, and if the increased rent is not acceptable and the property sits empty, then the property owner will have to reduce the rent accordingly. That's sort of how life works. No one asked the residential tenants in Sacramento if they could afford 50% rent increases but that didn't stop landlords from raising their rent, did it?
Except these tenants have long term leases locked in. It's not pay up or walk away and go find somewhere else to rent (like the month-to-month apartment leases you're talking about). It's pay up (and keep paying for the rest of your lease term) or I am going to sue you for everything you own and put your business under.
And this isn't landlord's raising their rent. It's the county tax assessor raising their rent.
Yea they'll look for something else out of state. Which is how life's working or not working a lot in Ca.
Hardly any business's move here from out of state and if this passes even less will bUt your retired so no worries right? You'll still get that pension check
Or they will look for something in California. But my pension is not the subject of this thread so quit trolling
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