California Draconian Rent Control and Property Tax Inc Nov Ballot

64 Replies

@Jon Schwartz

The $3m is the cumulative sum of all the "commercial property" they own, not the value of an individual property. It sounds pretty naive of you to say, how could a uber drive possibly own $3m worth of real estate... there are numerous success stories of people here on BiggerPockets that started from nothing with marginal income building multimillion dollar portfolios. What if that uber driver inherited a house or two in the Bay Area?

Funny how this editorial is no good, yet if it was from a liberal newspaper like say the LA Times it would be perfectly fine.  

You have obviously drank the blue cool aid. You have your mind made up and nothing anyone says here is going to persuade you otherwise.

Keep thinking that it’s a slippery slope argument, don’t forget that your talking about a state government that has a law regulating cow farts and exploded the idea of taxing residential drinking water. This state will try to squeeze a dollar out of anywhere they can find, because it’s expensive to run failing social programs. And you don’t think they will try to come after property taxes? Your either very naive or your just burying your head in the sand. 

Here is my question for you, can you show one article that says anything to the contrary?  

@Mary Cronin

Yes, this is exactly what my point was. Increasing cost for landlords equals increasing rent for small business. Most small businesses not just mom and pops typically operate on very thin margins. With lost revenue due to Covid and now the potential for increasing rents I see a lot of small business owners throwing in the towel. 

Originally posted by @Ryan Avila :
Well let’s start with this, “You can argue that there are a lot of mom and pop operations out there with over $3M in commercial properties. I don't think there are that many.” 

You are 100% correct there are absolutely not many small businesses that own $3M in commercial property, actually there are not many small business own any commercial real estate period. That's the point! When operating cost goes up for the landlord that increase in cost is passed onto the tenants. It's basic microeconomics... this group includes every small business in the state that rents their building, which is the overwhelming majority of business, not just NNN and under market value tenants.

Ok now this one, “Keep in mind that market rates are set on the margins by new transactions that typically don't benefit from Prop 13.  

Uhhh... Market rates are not set by new transactions... Market rates for commercial leases are set by the average price per square foot of comparable commercial leases in that area. If the operating expense goes up for all the commercial buildings in an area and those increased cost are passed onto commercial tenants in the form of increased rent, then the market rate for that whole area including all small business in that area goes up as well. Again basic microeconomics. 

Ok now for this gem, “Again, it won't increase costs for "all" small businesses, since outside of a NNN lease property taxes are paid by owners. You can examine the counterfactual. If property taxes were abolished, would you decrease your tenants rents?“ 

This is a completely nonsensical argument. Taxes are not being abolished they are being increased, leading to an increase in operating expense, which in turn leads to higher market rents. Again, basic microeconomics. When cost of goods sold goes up, i.e. operating expenses for landlords, the end price for consumers goes up as well. This is basic business math and business owners that do not understand this will not be in business for very long

One last thing, it’s pretty evident that you do not quite understand what a small business really is, as you keep referring to small businesses as “mom and pop”. The generally accepted definition of a small business is a firm with less then 500 employees and depending on the industry somewhere between $750,000 to $38.5m in annual revenue. Small businesses account for 99.7% of ALL businesses in the country and employ around 49.2% of ALL private sector employees. Does that sound like mom and pop to you? I think not. Small business are the backbone of the US economy and Prop 15 will impact ALL small businesses in California.

Look, it's apparent to me that you don't understand what we are talking about here. A tenant on a gross lease doesn't pay the property taxes. They just don't.

Second, I don't think that we are going to see, simultaneously, massively increased rents and higher vacancies. You might see one or the other, but not both, because higher vacancy means lower rent.

Third, you don't get to price stuff based on what it cost you. That's just not how it works.

Fourth, the point of the counterfactual is that rents won't go down if taxes do. That's because rents aren't based on costs.

Fifth, I have faith that small business can weather the storm... but more to the point, I don't think it's fair or even desirable to give 50 year old firms a competitive advantage over new entrants. Why should one vineyard pay 1/20th the taxes of a new vineyard down the street?

Originally posted by @Seth Borman :
Originally posted by @Ryan Avila:
Well let’s start with this, “You can argue that there are a lot of mom and pop operations out there with over $3M in commercial properties. I don't think there are that many.” 

You are 100% correct there are absolutely not many small businesses that own $3M in commercial property, actually there are not many small business own any commercial real estate period. That's the point! When operating cost goes up for the landlord that increase in cost is passed onto the tenants. It's basic microeconomics... this group includes every small business in the state that rents their building, which is the overwhelming majority of business, not just NNN and under market value tenants.

Ok now this one, “Keep in mind that market rates are set on the margins by new transactions that typically don't benefit from Prop 13.  

Uhhh... Market rates are not set by new transactions... Market rates for commercial leases are set by the average price per square foot of comparable commercial leases in that area. If the operating expense goes up for all the commercial buildings in an area and those increased cost are passed onto commercial tenants in the form of increased rent, then the market rate for that whole area including all small business in that area goes up as well. Again basic microeconomics. 

Ok now for this gem, “Again, it won't increase costs for "all" small businesses, since outside of a NNN lease property taxes are paid by owners. You can examine the counterfactual. If property taxes were abolished, would you decrease your tenants rents?“ 

This is a completely nonsensical argument. Taxes are not being abolished they are being increased, leading to an increase in operating expense, which in turn leads to higher market rents. Again, basic microeconomics. When cost of goods sold goes up, i.e. operating expenses for landlords, the end price for consumers goes up as well. This is basic business math and business owners that do not understand this will not be in business for very long

One last thing, it’s pretty evident that you do not quite understand what a small business really is, as you keep referring to small businesses as “mom and pop”. The generally accepted definition of a small business is a firm with less then 500 employees and depending on the industry somewhere between $750,000 to $38.5m in annual revenue. Small businesses account for 99.7% of ALL businesses in the country and employ around 49.2% of ALL private sector employees. Does that sound like mom and pop to you? I think not. Small business are the backbone of the US economy and Prop 15 will impact ALL small businesses in California.

Look, it's apparent to me that you don't understand what we are talking about here. A tenant on a gross lease doesn't pay the property taxes. They just don't.

Second, I don't think that we are going to see, simultaneously, massively increased rents and higher vacancies. You might see one or the other, but not both, because higher vacancy means lower rent.

Third, you don't get to price stuff based on what it cost you. That's just not how it works.

Fourth, the point of the counterfactual is that rents won't go down if taxes do. That's because rents aren't based on costs.

Fifth, I have faith that small business can weather the storm... but more to the point, I don't think it's fair or even desirable to give 50 year old firms a competitive advantage over new entrants. Why should one vineyard pay 1/20th the taxes of a new vineyard down the street?

Actually, it’s apparent that you do not understand what we are talking about. No one, including myself, ever said anything about tenants on a gross lease paying the property taxes. I’m not really sure where you got that one from. The point that has been made by me and numerous other people is, when the operating expense for the commercial landlords go up, i.e. raising property tax on commercial properties, that increase in operating expense will then be passed down to tenants in the form of rent going up. Again, it’s basic microeconomics.   

To your second point, when rents go up due to increased operating expense and tenants can’t afford the increases then those building go vacant. Which means increased rents along with increased vacancy to begin with, after the increase in vacancy then yes you are correct rents and property values would crash as a result. But that crash would be a result of the increased rent coupled with increased vacancy.  

Third, actually that is literally exactly how capitalism and free-market economy works. If the cost of good sold goes up, so does the product cost. In real estate terms, cost of goods cost equals operating expense and product cost equals rent. Economist refer to this as Cost-Push Inflation. This is exactly what is currently happening with cost of lumber.

https://www.investopedia.com/t...

Fourth, please see point three above. Everything in a capitalist economy is based off cost. 

Fifth, that’s great you have faith. But what quantitative data do you have to back up that position? Because the actual data points to businesses closing in record numbers due to Covid, let alone increasing rents.

Those new entrants should have better build those cost into their business model, or they won’t be in business for very long. Life isn’t fair and neither is capitalism, but there is a “fair” form of economy it’s called communism. Good luck with real estate in a communist country though, ever heard of the Chinese Land Reform Movement? The Chinese Land Reform Movement lasted from 1949-1953, during which time the communist leader Mao Zedong rounded up and murdered an estimated 2-3 MILLION landlords, he then redistributed their property to the peasantry.

https://en.m.wikipedia.org/wik...

Originally posted by @Ryan Avila :

@Jon Schwartz

The $3m is the cumulative sum of all the “commercial property” they own, not the value of an individual property. It sounds pretty naive of you to say, how could a uber drive possibly own $3m worth of real estate... there are numerous success stories of people here on BiggerPockets that started from nothing with marginal income building multimillion dollar portfolios. What if that uber driver inherited a house or two in the Bay Area? 

Funny how this editorial is no good, yet if it was from a liberal newspaper like say the LA Times it would be perfectly fine.  

You have obviously drank the blue cool aid. You have your mind made up and nothing anyone says here is going to persuade you otherwise.

Keep thinking that it’s a slippery slope argument, don’t forget that your talking about a state government that has a law regulating cow farts and exploded the idea of taxing residential drinking water. This state will try to squeeze a dollar out of anywhere they can find, because it’s expensive to run failing social programs. And you don’t think they will try to come after property taxes? Your either very naive or your just burying your head in the sand. 

Here is my question for you, can you show one article that says anything to the contrary?  

Ryan,

Here's an article that says the contrary:

https://www.politico.com/state...

In this article, Gavin Newsom, a pretty prominent supporter of Prop 15, says he supports it because it will prevent the state from having to raise income taxes on everybody and property taxes on residential property.

Maybe I'm naive to believe that. Maybe so. But all I'm asking for is some shred of evidence that Prop 13 is the first step of a larger plan. Can anybody find me any quote from a Prop 13 backer along the lines of, "First we'll do a split-roll system, and then we'll get residential property on here"?

Thanks!

Jon

 

@Jon Schwartz

I think you have completely missed the point that @Christopher Smith is making.

This wouldn't be a Trojan horse if the supporters just came out and said what the real long term goal was. Just like California politicians will never just come out and express their actual desire to be a authoritarian socialist state but that’s the reality of what it is, sometimes you need to be able to read through the lines and see the big picture.  

Gavin Newsom, supports anything and everything that brings more money into the state coffers, so that he can turn around and use that money for social programs. You don’t think if tomorrow the state legislature put up a bill to increase property tax or income tax Gavin wouldn’t be the first supporter in line? And before you say well this money is for schools not social programs, where do you think the money for school comes from currently? It comes from the state general fund, so if that money from the general fund is not longer going to schools due to prop 15, then the state suddenly has more money from the general fund that it can divert into social programs. 

@Ryan Avila

He's utterly incapable of facing reality because to do so would be to face a truth he is clearly unwilling to accept.

He therefore chooses to live in a bien pensant cult bubble.

Originally posted by @Ryan Avila :

@Jon Schwartz, 

I think you have completely missed the point that @Christopher Smith is making.

This wouldn't be a Trojan horse if the supporters just came out and said what the real long term goal was. Just like California politicians will never just come out and express their actual desire to be a authoritarian socialist state but that’s the reality of what it is, sometimes you need to be able to read through the lines and see the big picture.  

Gavin Newsom, supports anything and everything that brings more money into the state coffers, so that he can turn around and use that money for social programs. You don’t think if tomorrow the state legislature put up a bill to increase property tax or income tax Gavin wouldn’t be the first supporter in line? And before you say well this money is for schools not social programs, where do you think the money for school comes from currently? It comes from the state general fund, so if that money from the general fund is not longer going to schools due to prop 15, then the state suddenly has more money from the general fund that it can divert into social programs. 

So you know what the Prop 15 backers' real long-term goal is? You can't point to anything concrete, but you know. Okay. I'll take your word on it, Ryan. Thanks for slapping that Kool-Aid out of my hand! Well done!  

Can anyone tell me the details about the exemption for owners who own no more than 2 properties with Prop 15?  I currently own 1 rental home in California and one in Indiana so I believe , if Prop 15 passes, it would not apply to me.  However, if I buy a second rental home in  Indiana  ( so I own 3 total) could I potentially be required to comply with the Prop 15 rent control on my California home if Prop 15 passes?  Thanks!

Originally posted by @Tricia O'Brien :

Can anyone tell me the details about the exemption for owners who own no more than 2 properties with Prop 15?  I currently own 1 rental home in California and one in Indiana so I believe , if Prop 15 passes, it would not apply to me.  However, if I buy a second rental home in  Indiana  ( so I own 3 total) could I potentially be required to comply with the Prop 15 rent control on my California home if Prop 15 passes?  Thanks!

Why don't you just sell your California home and get a good night's rest?

 

The solution for California's fiscal woes will never be to give
Sacramento more money. That's like giving a compulsive spender a new credit card, he will continue his same bad habits.

@ Marybeth Green

"The solution for California's fiscal woes will never be to give
Sacramento more money. That's like giving a compulsive spender a new credit card, he will continue his same bad habits.'

Now if we can get them all fired, there won't be anyone in Sacramento to enact more stupid laws we don't need or want. 

Hmm. I forget what I'm advocating - nihilism or anarchism? 

Sorry as a science (and law) grad, never had to suffer through poli sci. 

As a California resident I have always questioned how a land so coveted and vast could be in such a deep hole financially, but i guess you can ask that same question about our country.


I appreciate everybody's insight to this discussion I have learned some good stuff tonight!

@Mary Cronin


"Now if we can get them all fired, there won't be anyone in Sacramento to enact more stupid laws we don't need or want."

Besides working with the BRRRR program, I spend time working on the Recall Gaven campaign.

Do you work in California? I do my investing out of state.

@ Marybeth Green

Live in CA (for the moment) but looking for rentals in NM.

Recall Gavin Newsom? Good idea, but how about the rest of them?

They should all be unemployed for the same amount of time that the longest unemployed person in CA has been - teach a little reality to them - preferably without any stimulus rescue. I have a friend (a welder) who's been unemployed probably close to a year (so part-COVID, but otherwise? union worker in Bay Area, but lives in Stockton).