Originally posted by @Dan H.:
Do you invest in RE in So Cal? What do you define as long tenured owners? Average SFR in San Diego have raised ~$152K in the last five years. Commercial property appreciation has been similar. In the last year SFR have gone up in San Diego ~10%. Assuming a similar appreciation rate for commercial would mean that even an owner who purchased a year ago would experience a ~10% tax increase. I guarantee you that the Property investors will raise rents when their expenses rise and that when they raise rents in the volume of everyone who has owned for greater than a year, it results in a raise of the market rent.
I have not seen RE values fall for other increased expenditure costs such as an increase in interest. The owners just pass the costs on to the tenants. Can you think of an increased expenditure that has caused a significant RE price decline in Coastal So Cal?
I believe rents will rise if property taxes increase. I believe the RE investors will not need to take a reduced profit for an increased expenditure that is likely to impact such a large percentage of the market investors. I reference interest rate rises and the associated rent increases as my rationale for my belief. I also reference that as RE prices increase rents increase. Increased expense results in increased rent.
You can guarantee that commercial property owners will raise taxes, but when push comes to shove they can only charge market rates. You are asserting that the increases in expenses will be borne by the tenant rather than by the owner in the form of an increased cap rate.
Expenses here are a fraction of what they are in other places. Usually in a non rent controlled property they are only 25-30%. Property taxes are a large chunk of that, but even if they went up 10% you are talking about expenses going up a few percent.
Now, what I see here that I don't see elsewhere is people buying at inflated prices and waiting for time to give them a profit. Rents go up at 3-5% per year in rent controlled properties and 7% in NRC properties. Property taxes go up at 2%. I see people buying properties and waiting 7-10 years for them to start cash flowing. Getting rid of Prop 13 would end that nonsense.
I don't know what other expenses have performed like. Everything is pretty cheap here compared to Seattle. In fact, I'm amazed at how cheap water and labor are here.
You are telling me that increases in expenses, asset values or interest rates make rents rise. That's not how math works. At a given cap rate an increase in expenses means asset values fall. Increases in interest rates mean asset values fall.
And yes, I invest here. I've worked in MF acquisitions and am now flipping houses.
