California proposes additional 25% tax for flippers

[Dan H.]

There is a bill proposed by Chris Ward district 78 called the California Housing Speculation Act that proposes charging a 25% additional tax (an income surtax) on the profit (above the regular tax collected on the profit) if a home is sold within 3 years of purchase.  The bill's author believes that the flippers are driving up the price of homes by purchasing them instead of the end buyer and selling them at a profit.

I am not a flipper, but I believe that flippers revitalize the properties while end buyers mostly do not. Without flippers, neighborhoods would get old. flippers and BRRRR investors play a large role in gentifying an area. It is my experience that neighborhoods like flippers and BRRRR investors. They typically know the property is run down and appreciate the improvement to the area that is accomplished by the rehab.

In addition, the rehab/revitalization of a property involves work and has risk.  People deserve to be compensated for their work and any risk that they take.

If the politicians go after flippers what is to say they will not go after BRRRR investors next or even turnkey rental property providers? BRRRR investors rehab properties to extract money but it also leads to higher rents than if we rented the unit in its old, run-down state. In addition, the property is owned by an investor instead of owner-occupied buyer.

To me it is an attack on property investors. If they attack any form of property investor, recognize your form could be the next to be attacked.

It is my view the bill is short-sighted (similar to rent control rules) and proposed to provide the optics of trying to address the problem of rising property values and lack of affordability.  I suspect Chris Ward has minimal understanding of Real Estate and is proposing this primarily to obtain votes.  I doubt he really would desire the consequences of reduced flippers.

[Joe Splitrock]

I am not really convinced that this tax will even hurt flippers. One of two things will likely happen:

1. Flippers will demand lower acquisition price on distressed properties.

2. Flippers will demand higher sales price on rehabbed properties.

So if this doesn't hurt flippers, it hurts sellers or buyers. Just like increasing taxes on corporations doesn't hurt corporations. It hurts share holders or raises prices for customers. I think people who propose these taxes have good intent, but don't fundamentally understand how business or the economy works. They believe taxing a flipper will drive flippers out of business or make more houses available to owner occupied. 

@Seth Young people can make a lot of money on fix and flip's in California, because of the high selling prices. You may rehab in middle America and pay $80K, then sell for $250K. In California you may pay $800K and sell for $1.5M. Even if the margin is lower in California, it is lower margin on a higher basis, so total profit dollars are much higher. Even with all the problems CA has, their housing market is exceptional.