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Imagine it is you that own such a plot. Can you think of reasons why you yourself might forgo potential rent? To fetch rent, you typically need to build someth
by xyzzyz 7y ago
Imagine it is you that own such a plot. Can you think of reasons why you yourself might forgo potential rent?
To fetch rent, you typically need to build something, which requires capital. Even if you have capital, opportunity cost might make it more profitable to invest it in something else. Even if building something is best alternative at the moment, expectations of change in future market conditions might make the risk-adjusted return too low to justify the opportunity cost. If you don’t have capital, you need to take a loan, which might not be possible depending on your personal financial situation and credit worthiness, but even if it is, it makes the whole business even more risky.
Now, given it’s California, even if you have capital and actually want to build something, it might as well turn out that your development efforts might be stuck in a local planing and zoning committee limbo for a decade, and often be ultimately unsuccessful, which results in lots of money lost and opportunity cost paid.
As you can see, there are plenty of reasons why you might forgo potential rent.
- JMTQp8lwXL 7y agoBuilding will also trigger a re-assessment (which is why you'll see lot with existing structures stripped to the studs to avoid reassessment).
- refurb 7y agoI'm sure the rules are complex, but even if you stripped to the studs you'd get reassessed on the improvement to the structure, correct? Not a reassessment of the whole property? Say your property tax should be $10,000 per year, but you're paying $1,000 because of Prop 13. If you were to put an addition on, with a value of $200,000, you'd have to pay property tax on that ($2,000 per year), but they wouldn't reassess the whole property and make you pay $12,000, I assume?
- svachalek 7y agoProperty assessment is a single value, not a room-by-room piecemeal kinda thing.
- refurb 7y agoApparently not in SF.
- ping_pong 7y agoNo you get reassessed on the entire thing.
- fortran77 7y agoYou will get re-assessed even if you left the frame (or one wall standing). And new construction is reassessed. And even under prop 13, tax can increase 2% / year. Prop 13 is not why California doesn't have enough housing. This is a lie propagated by teachers unions who flood internet forums with falsehoods. California's problem is there are hundreds and hundreds of little "cities" each with their own restrictive zoning laws. They need the state to overrule zoning laws and allow denser housing. These local cities also cut "sweetheart deals" for companies and give them property tax breaks. So Apple or Facebook or anyone building a new campus pays bargain rates -- not because of Prop 13, but because the local cities have the ability to negotiate tax rates for these companies to encourage them to move in.
- refurb 7y agoOnly the portion that is being remodeled or added to the existing home is assessed. The final assessment resulting from the new construction is then added onto the factor base year value. They only assess the changes. It makes sense. Otherwise if you're paying $1000 per year in property taxes (instead of $12,000) and you put new countertops in, you'd be hit with a massive reassessment. They even give an example in their fact sheet[2]. Adding two bedrooms would add $200,000 to your base assessment which is set by Prop 13. [1]https://www.sfassessor.org/property-information/homeowners/new-construction-remodeling-repair https://www.sfassessor.org/property-information/homeowners/n... [2]https://www.sfassessor.org/sites/default/files/uploaded/ARS_Factsheet_NewConstruction.pdf https://www.sfassessor.org/sites/default/files/uploaded/ARS_...
- ping_pong 7y agoThis is useful information, I was told differently, but thanks for the links.
- JMTQp8lwXL 7y agoCountertops wouldn't trigger reassessment. It has to be electrical, plumbing, or structural changes (e.g, changing the size of a window or door entry).
- harikb 7y agoMost answers below are wrong on one thing. Yes, your house may be reassessed, but only the structure portion can be reassessed. If have a 1 M house, usually land is 800 K and house is 200 K, and in the case of a long term owner, it could be 300 K land + 50 K structure or something like that. County can’t re-access your entire land. They might add 300K for your structure improvement. Yes, it is bad, but not as bad as someone who is buying that home now.
- flomo 7y agoGood points, but it's probably not "empty land" we're talking about. Instead, it is an existing development which is not the "highest and best use". Prop 13 means underdeveloped properties can still be quite profitable in CA, and that is what discourages redevelopment. Also, I'll add that these places are often owned by a trust. Someone in Florida is getting a check (they need) every month, and they aren't bothering the trustees to maximize the investment potential.