California real state...the investors are back. (Los Angeles, San Francisco: 2013, foreclosures)

[user_id]

Originally Posted by NoMoreSnowForMe

Prop 13 only benefits people who hold onto their property long-term. So, saying it has something to do with real estate speculators, doesn't make sense to me. Prop 13 just keeps the tax base at the purchase price, with minimal increases in following years.

Low property taxes encourage speculation because it reduces the carrying costs of the underlying asset.

Not all speculation is short-term though, prop 13 allows one's property taxes to decline in real terms over the years. So you have a situation where long-term property owners have significantly lower property taxes than new owners. This is a subsidy to older owners at the expense of newer owners.

This is another reason why California is so bad for young families, people that purchased 10+ years ago have relatively low property taxes which helps offset the high California income taxes. But today, with very high real estate costs, Californians end up paying a good amount in property taxes so there is no offsetting factors. California taxes are brutal for young families....unless of course they are low income.

[zdg]

Originally Posted by CA4Now

What? Since when does "California" decide residential real estate prices?

It was sarcasm. Of course California doesn't decide real estate prices.

[tickyul]

I have seen prices in SOME areas of Ca DOUBLE in the last 18 months. This is a bubble....it will pop AGAIN.

[zdg]

Originally Posted by user_id

Low property taxes encourage speculation because it reduces the carrying costs of the underlying asset.

I'm not going to claim what you said is incorrect, but I'll say that I disagree with your end result. When someone invests in real estate, they generally have a target cap rate in mind. So, for example, if I'm not going to invest in a block of houses unless I can get 6.5% cap, I'm including the property tax outlay (minus the deduction I get for that as an expense to my venture) as part of my equation. My point being that if the numbers don't still add up to my target cap, I'm still not going to buy that piece of property. So if the market rents aren't going to cover my expenses plus my cap, it's irrelevant. (Smart) investors aren't just buying up any piece of property that hits the market unless they like donating money.

And if you're going to turn around and tell me that it's the appreciation (and not the rental income) you're talking about, I'm calling you out on it because all that appreciation will be taxed (likely at the highest marginal rate) via state income taxes at the sale (unless of course you're doing some sort of exchange, but then the state and fed will still get their tax money eventually when you DO cash out).

California taxes are brutal for young families....unless of course they are low income.

I disagree with this as well. You seem to be having both sides of it; you're talking about young families, but also assuming they are making enough money to be paying an amount in state taxes that is detrimental to their lifestyle. What families are we talking about here? Since a married couple making $60,000 a year would only be paying about 3% a year in California taxes, I'm just not seeing why you think these taxes are keeping families from setting up shop in California. If you're talking about a young family making $250,000 a year, they'd be paying closer to 8% in taxes, but you'll have a difficult time explaining to me how a young family grossing more than $20,000/mo can't live comfortably in California; taxes or not.

[Ultrarunner]

Originally Posted by user_id

Low property taxes encourage speculation because it reduces the carrying costs of the underlying asset.

Not all speculation is short-term though, prop 13 allows one's property taxes to decline in real terms over the years. So you have a situation where long-term property owners have significantly lower property taxes than new owners. This is a subsidy to older owners at the expense of newer owners.

This is another reason why California is so bad for young families, people that purchased 10+ years ago have relatively low property taxes which helps offset the high California income taxes. But today, with very high real estate costs, Californians end up paying a good amount in property taxes so there is no offsetting factors. California taxes are brutal for young families....unless of course they are low income.

People that bought 10 years ago are facing assessments 30 to 40% higher than those that bought 4 years ago in my part of the SF Bay Area.

Paid 598k for my home in 2004.

Couple up the street bought a larger home with upgrades for 380k in 2009.

I, the long term homeowner will always pay more than the young family with two toddlers up the street simply because Prop 13 is based on the fair market value at the time of transfer... nothing more or less.

The real benefit of Prop 13 is that it requires voter approval for new assessments even if it is only 55% for school infrastructure.

[hubbard53]

Yep. My family is an example of a young productive family that decided to invest our $1.5m house budget elsewhere due to the inflated real estate prices, tax structure, etc. CA will get some of my money as we will spend about 40% of our time here...but the other 60% of time and money will be spent elewhere

[zombocom]

Originally Posted by tickyul

I have seen prices in SOME areas of Ca DOUBLE in the last 18 months. This is a bubble....it will pop AGAIN.

I hope so! Bought during the last downturn, and just sold now, this would be a nice position of the cycle to be in on.

[user_id]

Originally Posted by zdg

So, for example, if I'm not going to invest in a block of houses unless I can get 6.5% cap, I'm including the property tax outlay (minus the deduction I get for that as an expense to my venture) as part of my equation.

You'll notice that I said speculation, not investment.

Originally Posted by zdg

And if you're going to turn around and tell me that it's the appreciation (and not the rental income) you're talking about, I'm calling you out on it because all that appreciation will be taxed (likely at the highest marginal rate) via state income taxes at the sale....

Speculation is mostly about appreciation, but the fact that the gains will be taxed (you can play a lot of games here..., for example, structure each property in its own entity) doesn't have anything to do with what I said. I said that lower property taxes reduce the carry costs of the asset and therefore make them more attractive as speculative instruments.

Originally Posted by zdg

You seem to be having both sides of it; you're talking about young families, but also assuming they are making enough money to be paying an amount in state taxes that is detrimental to their lifestyle. What families are we talking about here?

Having what both sides? I claimed that California taxes are brutal for young families unless they are lower income. California's income taxes aren't that progressive, the high rates start to hit fairly soon.
On the other hand, you're jumping from $60,000 to an income more than four times larger to make your point....

Regardless, in most of the state a young family has to make a decent amount to even afford the basics due to the high costs of housing and taxes. In contrast, a more established family that purchased a home 20 years ago could make it on $60,000. California is a much different place for more established residents than it is for new residents.

[beb0p]

Originally Posted by user_id

California is a much different place for more established residents than it is for new residents.

I think you'll find that this is the case for almost ALL cities, from London to Paris to Hong Kong to NYC to LA to SF Bay Area.

I'm not sure what you think can be done about it and I don't think this boom is solely caused by investors. Many factors are contributing to the real estate increase, including a booming economy in CA, low inventory, low interest rate, and pend up demand.

At least in USA, people have the options to move to a lower cost area. Some people living in other cities don't even have that options.

[BeauCharles]

Originally Posted by Ultrarunner

People that bought 10 years ago are facing assessments 30 to 40% higher than those that bought 4 years ago in my part of the SF Bay Area.

Paid 598k for my home in 2004.

Couple up the street bought a larger home with upgrades for 380k in 2009.

I, the long term homeowner will always pay more than the young family with two toddlers up the street simply because Prop 13 is based on the fair market value at the time of transfer... nothing more or less.

The real benefit of Prop 13 is that it requires voter approval for new assessments even if it is only 55% for school infrastructure.

Couldn't you have petitioned your municipality for a reassessment using the lower price in 2009/10 as a base? Most places over there are probably adjusting their assessments upward now to reflect the bubble of the last year or so (including your neighbors). You might as well have benefited for a couple years while the prices were languishing.