WOW... a new 24% "Flip" tax?

22 Replies

Well... San Francisco is at it again! Apparently, according to this news article, there are a number of people backing a “Stop the Flip” proposal that will appear on the November ballot that could create a 25% tax for those who flip properties within a 5 year time frame. 

Thoughts? Do they have any leg to stand on here, or is this just someone being crazy? 

Check out the article and let us know what you think!

I could see this happening. There are some big flippers here in the city churning out properties as prices keep climbing higher and higher.  Even with a 25% tax, the fat profits these people are making will not dissuade them from leaving the flipping business.

Wouldnt surprise me. San Fran does all kinds of stuff thats nuts

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The article sounds like it only targets multi-unit properties. So are they proposing that the older, run down properties should be left to slumlords who want to just milk it for all it's worth? 

How stupid! Aren't we a free enterprise, capitalist nation?

@Brandon Turner   They taught me in history class that the cold war was an ideological battle between the free capitalist world and the communists. I always thought we were on the side of the former and NOT the latter. LOL.

Yes, I get that flippers are sort of contributing to the rising prices, but so too are the retail buyers buying personal residences. Investors are all about making profit, but at least we don't walk into a home, and bid it up ad infinitum because we like the molding. LOL. 

People need to understand that investors didn't cause the housing crash. That was the result of easy lending to sub prime borrowers who didn't meet the ideal criteria. NOT the intelligent folks that are running great businesses, improving communities, and changing their lives for the better that I come across a lot on bigger pockets.

@Nick Keesee Exactly! It's earned income, so there are no funky tax loopholes they're using. 

The thing that drives me mad is that so many of these lawmakers are a bunch ideologues that have never created jobs or started a business. 

This isn't political, it's just common sense. 

Sounds like it will be cheaper for Cali flippers to band together and lawyer up. Hit Cali with some legal action and then they won't think it's such a great idea. From what I hear from others Cali is looking at BK and is trying to grasp at straws for money anyway possible.

I have no clue this is just what I hear.

So all of the flippers and would-be flippers need to appear at those town-hall meetings from here on out. Rock the vote! This is where political networking and all the beaurocracy b.s. has to be stepped up! There's power in numbers and if the San Fran flippers band together for the common interest of getting this shut down by making the right moves at the right time, then its dead in the water...  Either way its up the those investors in the bay area whether or not that bill comes to fruition.

Kudos,

Mary 

This is a better (read: local) article about the proposed "flip" tax.

http://www.sfgate.com/politics/article/Tax-to-brake-S-F-real-estate-speculation-headed-5558857.php

It only affects small, rent-controlled multi-family buildings. Most flippers, myself included, only tackle SFH, condos or townhouses. I don't think this will affect that many people.

Small MFRs today, every other type of property afterwards. Once the bill has been made law its only a matter of time before they move to add SFRs, etc. Its easier after the law is created to make an addendum to it.... kill it while its a small weed before it gets out of control and you're wondering "how did this happen". Once investors unite in SF to nip it in the bud it will give investors in other housing markets a fighting chance should something like this happen...or, wait around for the I told you so!

Kudos,

Mary  

Rediculous. Just unconscionable.

I wouldn't be too concerned..........

like all taxes it will be temporary :)

Fun fact - laws are written by people and people always make mistakes (think loop holes). So maybe I buy the property with an LLC and then sell the LLC? Just thinking off the top of my head.

I found it ironic that at the end of the article there was an ad for a website that teaches how to flip houses.

Well, it's not all bad, at least the measure exempts "...properties not being sold at a profit".  This is unlike other California taxes the require tax on gross proceeds even if you lose money.

I can see a law like this coming into place but the lawmakers are not considering every aspect of how the law will effect the community if they apply it to every one.

If a 25% flipping tax applies in every situation then dilapidated houses are going to stay that way with no one that is motivated to renovate them. Either the profit is to marginal for big time flippers or small time flippers won't be able to make a profit.

I think a tax would only be applicable if the flip generates over $100,000 in revenue.

This gives the city their piece of the pie while allowing small independent flippers to continue their own ventures.

I have a hard time believing that this wouldn't get reversed in court. SF has an activist "Bored of Stupivisors" that is know for passing local anti real estate ordinances that frequently get reversed at state court, and occasionally even get reversed by minor inconveniences like violating constitutional law. IMO this is a clear taking, and will be challenged. 

But never mind all that. As an SF investor (who doesn't flip), this, like many other things done here to restrict supply, inevitably increases property values. The RE and rental markets here are so distorted and out of whack compared to any normal market, it has created incredible wealth opportunities for those who know how to play this game. I could write a short book on all the sh!t that's gone down here. (I should title it, making money in inefficient markets.)  Between the bored of stupidvisors, a host of tenant activist organizations, and of course rent control, average condos are close to $1 mil and homes closer to $1.5 mil.  An average 2BR apartments is now renting for at least $3500. And the tech industry juggernaut keeps pushing everything forward!  

But having invested in SF RE for over 10 years now, all I can say is thank you to all the quasi- socialist policies, the naked tenant pandering, and sometimes just plain sheer stupidity- thank you for creating this highly distorted (and often entertaining) clusterf*ck that has made me a multi millionaire. 

Tag: @J. Martin  

Originally posted by @Amit M.:

I have a hard time believing that this wouldn't get reversed in court. SF has an activist "Bored of Stupivisors" that is know for passing local anti real estate ordinances that frequently get reversed at state court, and occasionally even get reversed by minor inconveniences like violating constitutional law. IMO this is a clear taking, and will be challenged. 

But never mind all that. As an SF investor (who doesn't flip), this, like many other things done here to restrict supply, inevitably increases property values. The RE and rental markets here are so distorted and out of whack compared to any normal market, it has created incredible wealth opportunities for those who know how to play this game. I could write a short book on all the sh!t that's gone down here. (I should title it, making money in inefficient markets.)  Between the bored of stupidvisors, a host of tenant activist organizations, and of course rent control, average condos are close to $1 mil and homes closer to $1.5 mil.  An average 2BR apartments is now renting for at least $3500. And the tech industry juggernaut keeps pushing everything forward!  

But having invested in SF RE for over 10 years now, all I can say is thank you to all the quasi- socialist policies, the naked tenant pandering, and sometimes just plain sheer stupidity- thank you for creating this highly distorted (and often entertaining) clusterf*ck that has made me a multi millionaire. 

Tag: @J. Martin  

Naked Tenant Pandering.  Sounds like a Bay area parade or festival.  

The Bay area cities are famous for passing laws that get overturned. I take everything I read in the news about Bay area RE and tenant rights with a wait-and-see approach now.  

@Amit M. Rent control doesn't scare me, but having a tenant you can't get rid of scares the jesus out of me... How do I buy and hold in SF without getting a lifetime tenant I can't rid of?

Originally posted by @Manch Hon:

@Amit M. Rent control doesn't scare me, but having a tenant you can't get rid of scares the jesus out of me... How do I buy and hold in SF without getting a lifetime tenant I can't rid of?

I have "Pacific Heights" the move in my Netflix DVD Queue to show somebody (I've seen it before), and under "Expected Availability" it shows "Very long wait"... seems you aren't the only one that's heard about the SF tenant induced landlord insanity problem.

@Amit M.  and Kristine Marie Poe , 

I agree. Great grandstanding. We'll see what actually happens with it. All the way through the courts.. Might just be a "slow it down" tactic to add some uncertainty, even if it won't hold up.. SF also passed a no-concealed weapons law.. Where's that? Overturned!

I consider this more of a proclamation: like Emperor Norton proclaiming himself the "Emperor of these United States." They're making a statement.. 

As Amit knows, for every silly SF law enacted, there is money to be made somewhere.. He and other longer-term holders can only hope it holds up so all the good deals previously going to flippers trickle down to the value-added "fix and holders." ;) Time will tell..

Originally posted by @Manch Hon:

@Amit M. Rent control doesn't scare me, but having a tenant you can't get rid of scares the jesus out of me... How do I buy and hold in SF without getting a lifetime tenant I can't rid of?

 Purchase a property that is not under rent control, so you can always charge the high side of market. This usually takes care of most of the crazy long-term tenant  issues.. See the vibrant discussion at @Elizabeth O.  's recent post on her SF property..

On the one hand I am glad I sold all my SF properties many years ago due to the insanity that is SF.  Then I look and see that one property sold recently for 1 million more than I got when I sold and another 1.5 million more than I got. Sigh.

@Manch Hon I'll add to what J said to be very selective with tenants (look for those that will move on in life, have plans like buying a home in the future, etc.) you can always buy them out too. And lastly, SFH 's and condos are not under RC.

Most important advice: DONT casually dabble in the SF market!  It's hardcore out here. You need to know a lot about the laws, political trends, tenant selection, airbnb/vbro rentals, neighborhood dynamics, etc., etc. to definite your investment strategy. Casual players often get their asses handed to them. If you're in, and you want to win, go all the way!

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