Public Housing,,, Crazy program

[EconProf]

BG: Not everyone wants to be a landlord.
The decision of heirs to rent out rather than sell an inherited SFR depends upon a whole host of considerations. First, most heirs, especially if they are several, may have differing liquidity needs. They also face the question of managing the property, perhaps from afar, and dealing with all the headaches of landlording. SFRs are the least profitable of real estate categories from a cash flow standpoint. Yes, they may appreciate, but CA has had years-long episodes of depreciation at times, and having a tenant for a few years usually hurts the value.
Property taxes are only one of many expenses involved in making this investment decision, so it alone will not be the deciding factor.
BG, I agree with your opinion about the unfairness of the present laws. They grant an unearned tax break to an underserving population. This “subsidy” must be made up by other taxpayers.
But you have a tendency to jump to broad and unwarranted conclusions based on your own experiences in your particular older neighborhood. What’s needed are in-depth, unbiased, peer-reviewed studies of the total revenue loss due to these two Propositions.

[CA renter]

[quote=bearishgurl]I don’t want to hear any more complaining on this forum about inventory shortages causing skyrocketing housing prices (especially in coastal markets) from people who now profess not to care about the long-term ramifications of Props 58 and 193.

I get it that if an elephant is standing right in front of you, it can be a bit “tricky” to see what is on the other side . . . to get the complete “lay of the land,” if you will, before navigating your way around it :=]

I asked two very relevant questions earlier in this thread and the fact that no one answered them or commented on them is very telling to me.

[quote=bearishgurl]Food for thought and two questions for Piggs:

If you owned a SFR in SD County in good shape which was worth $400K, it had a current tax bill of $600 per year and could fetch $1750 in monthly rent, would you ever sell it?

If you had one or two siblings and your last parent recently passed and left their principal residence in San Diego County (a SFR worth $550K) to all of you in equal shares, would you attempt to purchase your siblings’ portion from them (~$275K – $367K) to take title to use the property for a rental investment? Current assessment is $78K, resulting in a current tax bill of $850, which would carry over to any new (child or granchild) owner. Monthly rent would be $2200 – $2400.[/quote][/quote]

I can answer this because we did sell a house that was worth ~$400K — with an original assessment in the low $100K range — and could have commanded somewhere around this rent (probably higher today).

Why?

1.) Because I was the trustee/executor (and beneficiary) of the trust and needed to liquidate some holdings in order to distribute funds to multiple beneficiaries.

2.) The market was in the beginning stages of tanking (mid-2007), so I wanted to get out and realize the gains from the sale before they disappeared. For the record, it has only now reached approximately the price level that we sold it at; it dropped by about 40-50% from peak to trough when the last bubble burst.

3.) It was in an area that was a bit too far for me to manage well directly, and our kids were quite young at the time, so I was definitely not looking to add more to my plate.

For many heirs, their parents homes can be depressing places after their parents have passed away. Also, many of these older homes have a lot of deferred maintenance issues, and the kids don’t have the money, the time, or the desire to deal with it.

So, yes, there are many reasons why people sell homes that are paid off (actually, having a paid off house makes it even easier), even when they have very low assessments as a result of Prop 13. In the vast majority of cases that I’m aware of, people have sold their parents’ homes when the parents died.

Even the home we live in now was owned by an elderly lady who bought in the 1970s. The house was paid off, had a low assessment because of Prop 13, and the kids wanted/needed to sell it after she passed away. It happens all the time.

[no_such_reality]

duplicate

[no_such_reality]

I saw the two questions previously, but didn’t think they were serious. A $4000 a year tax advantage is nice, but not the sole decision making item in a investment property decision. My thinking would go much like CAR’s above.

If I kept the house, it wouldn’t be because it had a $4000 tax advantage. I’d keep it because it was owned with no debt and generated a cash flow of around $15000 a year.

I’d sell for a variety of reasons, problematic neighborhood. I’ve seen some neighborhoods really turn to junk, while others gentrify. The difference is sometimes just a few blocks.

Would an ADDITIONAL $4000 tax bill increase my prospective of selling it? Yes, it would create a little less appetite for the deferred maintenance, remote landlording. The equation just become it’s free and clear and generates $11,000 instead of $15,000.

There’s a counter point to you discussion too. I’ve bought rental properties in the last five years. Take prop thirteen away, and I’d be passing sizeable rent increases on to tenants. Don’t think long term landlords are go prevent it either, they’ll all see the increases in property tax as an increase in expenses and raise rents with it.

[bearishgurl]

[quote=EconProf]BG: Not everyone wants to be a landlord.
The decision of heirs to rent out rather than sell an inherited SFR depends upon a whole host of considerations. First, most heirs, especially if they are several, may have differing liquidity needs. They also face the question of managing the property, perhaps from afar, and dealing with all the headaches of landlording. SFRs are the least profitable of real estate categories from a cash flow standpoint. Yes, they may appreciate, but CA has had years-long episodes of depreciation at times, and having a tenant for a few years usually hurts the value.
Property taxes are only one of many expenses involved in making this investment decision, so it alone will not be the deciding factor.
BG, I agree with your opinion about the unfairness of the present laws. They grant an unearned tax break to an underserving population. This “subsidy” must be made up by other taxpayers.
But you have a tendency to jump to broad and unwarranted conclusions based on your own experiences in your particular older neighborhood. What’s needed are in-depth, unbiased, peer-reviewed studies of the total revenue loss due to these two Propositions.[/quote]

EconProf, I myself never want to be a landlord again. I agree with heirs’ differing liquidity needs but one of my questions (if there were siblings) was “Would you attempt to buy them out (in order to get an investment property with an ultra-low assessment)?”

I did not state it here but both properties which were the subject of my two questions were free and clear. This fact, combined with their low assessments, makes turning them into rental investments (for a locally-based heir) a good option, considering the “safe” alternatives today. Frankly, I’ve never seen a house passed down around here which wasn’t free and clear at the time of the owner’s passing, EXCEPT ONE around the corner which had been vacant for nine years prior and in terrible disrepair (where ~$20K is currently owing on it). When their mom finally passed, the 60-something son and daughter finally came in on weekends in a 4-month time period and did major repairs themselves and cleaned the property up.

My “broad and unwarranted conclusions” stem from what I’ve personally seen and witnessed on the ground almost the entire time I’ve lived in SD (~40 years). At all times, I have lived in well-established areas where there were always “heirs” occupying SFRs (some were still caring for infirm parent(s) but were expected to “inherit” the family home one day). In most instances, they were only children. Usually, the only child or sibling who took care of their parent until they died never made good money on their own to begin with so did not really “sacrifice” a career to take care of mom and/or dad. In any case, they usually needed a “free” place to stay at various times in their lives, and their parent’s home was always convenient for that.

One of my biggest “heir” issues is with extremely low-income “heirs” attempting to shelter themselves in their former family home after their last parent’s death. This typical heir either did not receive any cash, received very little cash or had to use what cash they were entitled to from their parent’s estate to buy sibling(s) shares out of the property. The vast majority of them had no savings of their own and likely could not qualify for a mortgage. I actually know of two “heirs” who took over their parent’s home after their deaths who had been living out of their car and 5th-wheel camper for months/years before their last parent passed and did not want to leave SD under any circumstances.

Even if a SFR is 1000 sf or less, it is a SFR, usually more than 40 years old with a >=5000 sf lot and needs constant maintenance which, as we all know, is not cheap, especially pest control and tent fumigation. Nor are gas & elec and water and sewer cheap (low-income ratepayers eligible for 20% discount on SDG&E bill, however). If a very low-income heir takes title by themselves of a home they inherited, the property invariably ends up quickly going to waste with trash and discarded items piling up around the property in 4′ high weeds causing neighbors to report the address to the city, who fines the heir/”homeowner” (for the first time in their lives). You can’t squeeze blood out of a turnip.

It’s a sorry situation for their neighbors and I’ve seen it all over SD, South and East County (I’m sure it happens in North County as well as all over the state).

There IS a such a thing as being “too poor” for homeownership … even if that home is free and clear and has an ultra-low assessment attached to it.

I’ve had this very discussion with one of the top probate attorneys in town, who told me, “I don’t care if they (the heir) had been thrice bankrupt and/or just got released from prison yesterday. If they are named in the trust, they are entitled to their portion. If they are only children and the trust leaves them whatever the remaining parent still had at the time of their deaths, then it is all theirs. What they choose to do with it is their business.” The attorney was right, except a lot of these “heirs” never had an attorney and never received good advice for their personal situations after their parent died. Since some of them have been making poor choices all of their lives, what is to stop them from making poor choices when they are finally “heirs?”

I apologize if the above sounds judgmental to some folks. This is my “brethren” I’m discussing here and I don’t have a college degree myself (but had a good public K-12 education and 2.5 years of college). For the life of me, public schools used to be very good to excellent in SD, South and East County (at the time these people attended them or abt 1955 – 1975). I’ve interviewed dozens of people (mostly age 55-62) in recent years in attempting to help them with their seemingly intractable problems and I often had a difficult time understanding how they allowed themselves to end up in the situations they were in. I came to the conclusion that they apparently just never took charge of their own lives.

[bearishgurl]

[quote=no_such_reality] . . . There’s a counter point to you discussion too. I’ve bought rental properties in the last five years. Take prop thirteen away, and I’d be passing sizeable rent increases on to tenants. Don’t think long term landlords are go prevent it either, they’ll all see the increases in property tax as an increase in expenses and raise rents with it.[/quote]

NSR, you can only pass on rent increases to your tenants which the local market will bear or you will likely lose your tenants in short order. Your prospective tenant(s) won’t give a rat’s @$$ how much your property taxes, Mello Roos or homeowners dues cost you, nor should they.

[no_such_reality]

You miss the point. The market will bear up to where they can’t make the payments. If you take prop 13 out, all the landlords will be being hit with the same increase . All will be seeking the same rent increases. Essentially just greater rent inflation. Perhaps the market won’t bear and the renters will downgrade the properties they rent. Or landlords on higher end properties will go wanting and lower their rent.

If that occurs, landlords will stop upgrading.

Net result, lower grade rentals for the same or higher rent.

Frankly your post on this topic smell of sour grapes. You reach conclusions based off a question that landlords don’t answer because it’s a minor factor and largely irrelevant.

Would we try and buy it from our sibling for the tax advantage? Frankly, I suspect most of us would like to but also realize that the deal is also potentially too problematic to complete. Sure if the sibling has a realistic market rate view of its worth, the purchase isn’t going to create a boatload of other baggage, and the property is one we would look to buy if it was on the general market. Then the 3/4s of 1% savings on taxes makes a nicer cash flow. Around here, it may be the difference of cash flow or even covering the mortgage if you have to buy a sibling out. Frankly avoiding a 8% transaction cost of having liquidate the house is even more attractive. Perhaps is unfair they don’t have to sell /sarcasm.

Given the same type house, on the same type lot, in the same neighborhood, same deferred maintenance etc, the house with a tax advantage is desirable over the regular tax house which is more desirable over the houe with mello Roos. All that said, most investors here will buy any of those given they will reliably rent, to reliable tenant, and provide cash flow. Higher taxes and mello Roos makes it harder to have it sit empty to upgrade or wait to get a “good” tenant.

[bearishgurl]

NSR, I could see your point if Prop 13 was repealed (extremely unlikely to happen) and all CA properties were reassessed to market value or near-market value.

There are no “sour grapes” on my end regarding Prop 13 in and of itself. My only issues are with “heirs” receiving their parent’s/grandparent’s assessment appurtenant to any real property they inherit. It is wrong because (a) they are usually younger, able bodied and no more deserving than you or me to get a HUGE tax break; (b) most of the “heirs” can well afford to pay tax on the “stepped-up value” of the property upon their parents/grandparents death (and if they don’t think so, they can learn to budget for property taxes …like you and I do… or decide to sell the property instead); and, (3) Props 58 and 193 heavily encourage and facilitate keeping a property in the family into perpetuity, thus reducing inventory and resulting in higher asking prices.

[bearishgurl]

Like CAR, I don’t believe that multifamily and commercial owners (including corporations and REITs) should be able to transfer title (usually in straw name only) whilst continuing to take advantage of humongous property tax breaks stemming from ONE owner’s ancestor’s original assessment.

A review of multifamily and commercial parcels’ tax bills in SF (District by District) would be a very laborious but highly instructive exercise in seeing exactly how this is done and exactly how much money these (mostly slumlords) are pocketing in property tax savings every year whilst charging their tenants exorbitant rents (where allowable by law).

[no_such_reality]

That laborious activity is what is needed. Corporations don’t need prop thirteen. An heir I’m more neutral on. Like the housing authority starting the thread, is the problem less than 1% of owners or 30% of owners?

As for non principal residence, I think those impacts would actually hurt the 99% more than it would benefit them. It would severely impact the rental market quality and availability and I doubt it would lower sales prices as the homes. Net result, desirable areas would become even more income elite with even fewer rentals.

[bearishgurl]

[quote=no_such_reality]That laborious activity is what is needed. Corporations don’t need prop thirteen. An heir I’m more neutral on. Like the housing authority starting the thread, is the problem less than 1% of owners or 30% of owners?

As for non principal residence, I think those impacts would actually hurt the 99% more than it would benefit them. It would several impact the rental market quality and availability and I doubt it would lower sales prices as the homes.[/quote]

The “transfers” pursuant to Props 58/193 mainly exist in communities of the state which were built out by about 1986. So, in spot checking, you won’t see too many of them (if any) in communities which are newer than that. In vacant land and commercial and multifamily properties, Prop 58/193 transfers exist everywhere in CA … ex: office buildings, section 8 complexes, wineries, ranches, egg farms and beef processing plants in rural areas. In single family homes, the older the community, the more 58/193 transfer deeds you will come across at the recorder’s office. The higher the market value in an older community, the more 58/193 transfer deeds you will run across. Examples where you will see the bulk of 58/193 transfers in SFRs are: “trophy properties,” “trophy streets,” inside coastal covenants (ex: RPV in LA County), sit-down full water-view streets, streets in historical districts and homes with Mills Act contracts. It will not be 30% of total CA properties because there are many newer communities and less desirable areas which have lower property values (where a 58/193 transfer wouldn’t have much benefit and an heir wouldn’t be that interested in keeping the property), such as in inland cities and counties. But I predict it will be close to 30% of the tax that would have been collected overall had it not been for the later additions of Props 58 and 193, due to the HUGE disparity on each property between what the annual tax actually IS in relation to the property’s current market value or even its stepped-up value at the time of title transfer.

These title transfers on “garden variety” Chula Vista (or Allied Gardens SD, Buena Park, Milpitas, etc) properties matters, also, because their numbers are significant due to their coastal county location and they are often the largest and/or only asset in a small estate. Throughout history, CA coastal counties have seen the highest real estate appreciation in the state. It doesn’t matter if it is a “shack” (by your standards) or located in a “marginal area.” It is “shelter” for an heir … very often “free” shelter located in the coastal county the heir grew up, wishes to remain in and can ill afford to continue living in on their own.

[spdrun]

If you have a paid-off home with low taxes, how can you possibly ill afford living in SD Co? Other than housing and maybe gasoline, costs of living aren’t much different from the rest of the US.

[no_such_reality]

[quote=bearishgurl][quote=no_such_reality]That laborious activity is what is needed. Corporations don’t need prop thirteen. An heir I’m more neutral on. Like the housing authority starting the thread, is the problem less than 1% of owners or 30% of owners?

As for non principal residence, I think those impacts would actually hurt the 99% more than it would benefit them. It would several impact the rental market quality and availability and I doubt it would lower sales prices as the homes.[/quote]

The “transfers” pursuant to Props 58/193 mainly exist in communities of the state which were built out by about 1986. So, in spot checking, you won’t see too many of them (if any) in communities which are newer than that. In vacant land and commercial and multifamily properties, Prop 58/193 transfers exist everywhere in CA … ex: office buildings, section 8 complexes, wineries, ranches, egg farms and beef processing plants in rural areas. In single family homes, the older the community, the more 58/193 transfer deeds you will come across at the recorder’s office. The higher the market value in an older community, the more 58/193 transfer deeds you will run across. Examples where you will see the bulk of 58/193 transfers in SFRs are: “trophy properties,” “trophy streets,” inside coastal covenants (ex: RPV in LA County), sit-down full water-view streets, streets in historical districts and homes with Mills Act contracts. It will not be 30% of total CA properties because there are many newer communities and less desirable areas which have lower property values (where a 58/193 transfer wouldn’t have much benefit and an heir wouldn’t be that interested in keeping the property), such as in inland cities and counties. But I predict it will be close to 30% of the tax that would have been collected overall had it not been for the later additions of Props 58 and 193, due to the HUGE disparity on each property between what the annual tax actually IS in relation to the property’s current market value or even its stepped-up value at the time of title transfer.

These title transfers on “garden variety” Chula Vista (or Allied Gardens SD, Buena Park, Milpitas, etc) properties matters, also, because their numbers are significant due to their coastal county location and they are often the largest and/or only asset in a small estate. Throughout history, CA coastal counties have seen the highest real estate appreciation in the state. It doesn’t matter if it is a “shack” (by your standards) or located in a “marginal area.” It is “shelter” for an heir … very often “free” shelter located in the coastal county the heir grew up, wishes to remain in and can ill afford to continue living in on their own.[/quote]

So the problem is the now 50 year old kid that grew up in La Jolla gets to keep his parents SFR there and not pay $20,000 a year in property taxes? Cause that last sentence looks like the perfectly good reason to allow the transfers. If that kid that grew up in la Jolla isn’t making $100k a year, ye, the horror, he can actually live in La Jolla after his parents die and give his kids the chance to experience it. And maybe she’s a sr engineer at Qualcomm through the boom years and can afford to buy her own la Jolla home, so what?

Are you trying to claim the State needs the money? That of we had it, we wouldn’t have some of the other high taxes we have? That we’d be able to fund Jerry’s high speed train to Modesto dreams? That many of the schools in LAUSD wouldn’t be the —-holes they are because the problem is they just haven’t been spending enough?

[bearishgurl]

Ha, ha, NSR! I think ALL heirs from EVERY area of CA (not just the LJ’s of CA) should pay property tax based upon the stepped-up value of their parents/grandparents home on the date of their death (or date of transfer, whichever occurs first). Presently, they’re having their cake and eating it, too. I don’t care if they’ve been living out of their car for the last three years. If they can’t afford $3000+ per year for property tax to live in an otherwise “free” home, then they can’t afford to live there and should elect to sell it. This doesn’t even include the costs of fire insurance (which they undoubtedly don’t all have), extermination, utilities, landscaper, pool person (if applicable) and handyman if they can’t do the maintenance themselves.

And I agree with spd. I’ve been “shopping” on the ground … very informally since Fall 2012 in four states … all “flyover states.” Even though I have 2 longtime RE broker relatives I could get instant help from, I never utilized either of them and never actually viewed a property … didn’t need to. I understand types of houses well enough from online photos and wasn’t yet a serious buyer. I just drove though areas and drove by a few properties to “get a feel” for the area. These exercises helped me to decide to remain in Cali. People, there are no “bargains” out there. For what I want (fairly simple one-story home on larger lot), it isn’t any cheaper in those states when you take into account A/C running constantly several months per year, extermination in and out (nearly year-round in some areas), attempting to mitigate excessive humidity or excessive dryness in the home (both of which I’m sensitive to), the presence of blooming trees and plants everywhere for half the year which I’m highly allergic to, the cost and hassle of winterizing vehicles and homes, rusty water you can’t drink and don’t really want to bathe in, polluted lakes and streams, frequent hail, high winds (incl tornadoes) and scorching heat, etc, Cali seems like a bargain when all is said and done … even with the threat of earthquake! Housing in the state of Colorado (which is breathtakingly beautiful in some areas) is pricey in all the areas I was even remotely interested in living in (on par with SD prices except the coast). On the front range, it has been a hot seller’s market for at least 18 months (and for up to 3 years in some of my choice areas). Bidding wars are the norm, just for the typical mid-century brick ranch (with or without a basement) which are everywhere. My mom’s old home just a few miles from downtown Denver, which we sold almost 20 years ago (after her death) is now worth four times as much as we sold it for and the couple we sold it to is still there, now with four teenage kids. (They all posed for a pic for me this summer in the front yard next to now HUGE trees :-)) Good one-story mountain homes start at about $450K (in lesser-known small towns) and don’t always have access to natural gas, sewer or high-speed internet. The “radiant” (floor) heat used in many mountain homes is very expensive to run and a leachfield is expensive to maintain in often rugged terrain.

In flyover states, gas for your vehicle is really the only thing that is cheaper than Cali.

South Lake Tahoe is looking better and better to me and is still relatively “affordable.”

[bearishgurl]

Oh, and I don’t see Jerry’s high speed train thru podunk Hwy 99 farmbelt actually ever coming to fruition. CA could most definitely fund the courts much better than it has in recent years, though. It takes ridiculously long to litigate anything these days, filing fees have almost quadrupled in the last 15 years and the clerk’s offices have been majorly dysfunctional for over ten years now, due to lack of staff (no budget to replace recent retirees, including judges). It now takes 4-6 months just to get a judge’s signature on a stipulation or post-judgment order (where the parties made an agreement and a court date is not needed). Their lines are inordinately long and they don’t even have enough people to collect fines!

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