Do State Regulations or Taxes Affect Where You Buy?

Question

There are a number of states where I have zero interest in owning a land lease community either because of taxes or state regulations regarding the operation of a community. How about you? If it doesn't stop you does it affect what you are willing to pay?

Justin Fox · Answer

Yep.  In my area I stay out of the city limits at all cost.  There are pockets of communities that have county sewer/water but aren't in the district.  The tenants pay a premium on their water bills, but I don't have to pay taxes associated with the city.  Well/Septic really aren't an option because of the initial cost and would only pay off on a MF probably.

Russell Brazil · Answer

It absolutely makes a difference to me.  In Maryland, most properties are taxed at about 1% of their value.  In Baltimore City, they are taxed at 2.25%, and on top of that they often appraise the properties well above the market value....so Ive never owned anything in Baltimore, as I cant really get the numbers to work for me on the types of properties I buy.

Ken Rishel · Answer

Frankly, I do not have enough data to answer that question. In the areas I know to be liberal, rents are generally higher, in Illinois at least, but there are other factors bearing on the rent as well. Most areas with higher rents are also in areas where land costs are higher, property taxes are higher, and housing costs are higher in general, so that must be factored in to the higher rents as well.

I wish I had the answer to your question because I would also find the answer useful. Here are a couple of things I do know:

• I have a dear friend that sold a very healthy portfolio of Illinois communities recently because he was ready to retire. One of the things he related to me that caused him to start considering it was the almost certain potential of a major increase in property taxes in general, a proposed increase in the state income tax from 3.75% ( a recent increase itself) to 9.75%, and the State making compliance with Dodd-Frank/the SAFE Act/and other lending regulations, more difficult by changing the licensing authority for making chattel loans on manufactured homes.
• I am still investing in Illinois communities in part because the way the homes themselves are taxed when placed in a manufactured housing land lease community makes them a housing bargain to the purchaser and the difference in the way they are taxed and the way a similar sized single family residence would be taxed more than pays the lot rent to the community. Since I like communities that need lots of new homes to fill vacant lots, to me that is a major advantage.

The question still stands - how does the rest of this forum react to laws, taxes, etc?

Justin Fox · Answer

Thomas S.

I would imagine that rents are much higher in liberal/tenant-friendly areas as there is greater risk.  Is this true in general?

Ken Rishel · Answer

Yet there are some numbers that cannot be factored in that do vary, which is part of the question. For example: In the liberal counties in Illinois that often means liberal judges. So, a non paying tenant we are trying to evict may get 90-120 days to move instead of the customary 30. Since they won't pay that rent either, we are out a whole lot more income. If they owe fines or fees for services, the judge often dismisses the extra charges altogether even though Illinois law specifically allows for them to be charged and collected.

Contrast this with communities in areas with sensible judges where we have seen a judge tell them they couldn't even go back to the home and that the community would deal with any transporters or buyers the errant resident might have for a fee set by the judge. While this is not normal, it was very satisfying. Normal is 30 days with conditions on the tenant.

Consequence: I will never pay as much for a community in a liberal county as I would for the same everything else in a more business friendly area. I might still buy it, but at a lower price than otherwise. I am also going to raise lot rents on the good tenants to cover those income losses, so only the scum and the liberals get any benefit and that at the expense of good people.

I have a number of other examples, but what I really an interested in is finding out what, if anything, might affect forum member's decision making process when considering buying a community.

Thomas S. · Answer

I base my decisions strictly on numbers so yes it defiantly effects what a investor should pay. If the numbers work, meaning the tenants cover whatever those costs are plus my profits, it's a worth while investment if not it isn't worth investing. Everything is factored in regardless of the type of investment property.

I am aware of one in my area for sale and I am in a extremely pro tenant jurisdiction. Making a profit is extremely difficult and the seller has very poorly managed the property. All factors considered it is worth only 1/2 of what he wants but I am certain some newbee investor will eventually pay his price based soley on the income.

Do State Regulations or Taxes Affect Where You Buy?

Most Popular Reply