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Updated about 6 years ago, 10/30/2018
CA prop 10 opinions
Hey Jonathan Taylor, were you able to get a property under contract yet? I have my first property under contract right now and honestly I didn't do enough due diligence and hadn't thought about this proposition.
I have the same questions as you and am wondering if I should pull out.
My current City in California doesn’t have rent control laws in affect just yet. I’m sure all landlords in California that aren’t in a rent control city are getting their rents up to market before prop 10 passes. I mean being realistic there is more renters in California than there is owners. We are out numbered. If all renters vote with prop 10 they have a good chance at passing new laws into new cities.
My answer to how to mitgate the risk of Prop 10 potentially passing is-- don't buy for cash flow. Have some other reason you are purchasing a property. The reality is, you can't buy for cash flow here anyway so why are you buying? Prop 10 is going to directly affect the monthly cash flow ability, of which there already isn't any. If you're buying for cash flow without Prop 10, that should already be something you should be questioning. Prop 10 would just make your already-negative cash flow worse if it pans out as it is anticipated it would.
With that said, I own a duplex in Venice and I'm dreading it getting passed. It will just make my already-negative cash flow worse, but when I bought the property I had quite a few other reasons and motivations for doing so and I was very clear on the negative cash-flow situation. So while it would suck for me, it doesn't mess up the initial reasons I bought it in the first place.
So my advice to anyone thinking of buying right now, not knowing whether it will pass or not- look at what it passing would do and how that may affect why you're buying in the first place (which is hopefully not out of assuming you'll somehow get magical cash flow in lovely SoCal. One can only dream!)
@Mark Wood , congrats on getting your first property under contract. What area is it in? always interesting to hear about people buying locally here in L.A. Does the property currently cash flow?
I'm guessing that it could take time for the local cities to implement Prop 10 if it does pass. Last I heard the No effort had raised a lot of money , but I'm seeing a lot of Yes on 10 ads...I just got one in the mail saying to vote Yes to stand up to "Housing bullies" . They also make it seem like it'll fix the homeless situation , which is a lie of course.
@Ali Boone , I believe if Prop 10 passes cities would be able to limit what landlords could charge even if a tenant moves out, which would be really bad. I didn't know you owned a duplex in Venice, as I know you focus on out of state investing. I'm sure if you've owned it for even a little whole it has appreciated nicely.
It seems like almost every multi in L.A is now advertised as a redevelopment type opportunity. Not sure the zoning/land size but would you be able to build condos or townhomes on the land?
I saw an article recently about rent controlled apartments in Santa Monica getting turned into office space.
There was a battle of course though
https://la.curbed.com/2018/10/19/17991202/santa-monica-landmark-building-office-space
What's next for CA, voting free beer and pizza for everybody? There's no serious economists that thinks rent control is a good idea. Renters vote against higher density zoning at the same time as they vote for rent control. No one wants to take responsibility.
Originally posted by @Joseph M.:
@Ali Boone , I believe if Prop 10 passes cities would be able to limit what landlords could charge even if a tenant moves out, which would be really bad. I didn't know you owned a duplex in Venice, as I know you focus on out of state investing. I'm sure if you've owned it for even a little whole it has appreciated nicely.
It seems like almost every multi in L.A is now advertised as a redevelopment type opportunity. Not sure the zoning/land size but would you be able to build condos or townhomes on the land?
I saw an article recently about rent controlled apartments in Santa Monica getting turned into office space.
There was a battle of course though
It would limit what landlords can charge, yes. But before that it gives the decision up to each city/municipality to make their own rent control rules. It's just assumed that will be one of the decisions. It could, overall, be detrimental to landlords.
I couldn't, or wouldn't, do that where my duplex is. The only way that would happen is if a developer came barreling through and bought up the entire neighborhood, which is honestly too big. There's other places close to it that could much easier be developed if that be the case.
And Venice is drastically different right now from Santa Monica. Santa Monica has gone crazy with development and continues to go crazy with it. I'm super-bitter because I fly out of that airport and the developers are having it shut down. I want nothing to do with Santa Monica. But I still heart Venice :)
You CAN cash flow in California. I've bought two properties in the last 18 months in the Bay Area. They are both cash flow positive. They were not, however, easy to "get" and required skillful negotiation. I'm zealously looking for my third, regardless of what happens with prop 10. I believe that when you buy right, you can invest profitably in any market, at any point in a cycle, with any pending legislation.
The Prop 10 polls aren’t looking good for the Yes vote. My company’s various business arms have been pumping millions into the No side and it’s working because the Yes votes have no real logical argument other than short term benefits for current renters. If you’re familiar with SF apts it’s a prime example of what happens when you get rent control - crappy buildings/obsolete units and insane market rents that are artificially inflated by rent control.
The thing to watch out for if you own commercial deals (5+ unit apts too), is on the 2020 ballot they’re going to have a vote to separate prop 13 so commercial deals are no longer protected. This bill is very likely to pass since the typical mom and pop owners who own smaller buildings/single family homes will still be protected.
I am hoping that the ad campaign will actually work. They are portraying renters and showing that fewer homes will be available to them, which seems true as some many on this thread are questioning investing in CA because of this.
Originally posted by @Eduardo Zepeda:
You CAN cash flow in California. I've bought two properties in the last 18 months in the Bay Area. They are both cash flow positive. They were not, however, easy to "get" and required skillful negotiation. I'm zealously looking for my third, regardless of what happens with prop 10. I believe that when you buy right, you can invest profitably in any market, at any point in a cycle, with any pending legislation.
Agreed - there are several ways to cash flow in CA, even in the Bay Area it's definitely possible.
Don't bother trying to convince @Ali Boone. She sells/markets turnkey rentals for turnkey providers so she benefits by touting OOS investing and by making false claims that cash flowing in CA is impossible...even though there are several markets where it's possible to do so.
Ali, I could show you 15 properties in Sacramento, Vallejo, Stockton, and even Oakland where you could cash flow on Day 1. I don't make any money by doing so, but would be glad to educate you so you can stop with the false claims.
Originally posted by @Alex Vidal:
The Prop 10 polls aren’t looking good for the Yes vote. My company’s various business arms have been pumping millions into the No side and it’s working because the Yes votes have no real logical argument other than short term benefits for current renters. If you’re familiar with SF apts it’s a prime example of what happens when you get rent control - crappy buildings/obsolete units and insane market rents that are artificially inflated by rent control.
The thing to watch out for if you own commercial deals (5+ unit apts too), is on the 2020 ballot they’re going to have a vote to separate prop 13 so commercial deals are no longer protected. This bill is very likely to pass since the typical mom and pop owners who own smaller buildings/single family homes will still be protected.
The split roll won't effect any residential real estate. Even the residential portion of a mixed use building will still fall under current law. Size won't change that.
What the prop will do is kick underutilized parcels onto the market. Vacant land, parking lots, low grade retail, etc will kick loose for residential development.
Originally posted by @Seth Borman:
Originally posted by @Alex Vidal:
The Prop 10 polls aren’t looking good for the Yes vote. My company’s various business arms have been pumping millions into the No side and it’s working because the Yes votes have no real logical argument other than short term benefits for current renters. If you’re familiar with SF apts it’s a prime example of what happens when you get rent control - crappy buildings/obsolete units and insane market rents that are artificially inflated by rent control.
The thing to watch out for if you own commercial deals (5+ unit apts too), is on the 2020 ballot they’re going to have a vote to separate prop 13 so commercial deals are no longer protected. This bill is very likely to pass since the typical mom and pop owners who own smaller buildings/single family homes will still be protected.
The split roll won't effect any residential real estate. Even the residential portion of a mixed use building will still fall under current law. Size won't change that.
What the prop will do is kick underutilized parcels onto the market. Vacant land, parking lots, low grade retail, etc will kick loose for residential development.
Thank you for clarifying that. The original post had me worried as I have a few 5+ unit buildings in Oakland
Originally posted by @Seth Borman:
Originally posted by @Alex Vidal:
The thing to watch out for if you own commercial deals (5+ unit apts too), is on the 2020 ballot they’re going to have a vote to separate prop 13 so commercial deals are no longer protected. This bill is very likely to pass since the typical mom and pop owners who own smaller buildings/single family homes will still be protected.
The split roll won't effect any residential real estate. Even the residential portion of a mixed use building will still fall under current law. Size won't change that.
I actually haven't looked at how the 2020 split roll ballot initiative that will repeal Prop 13 protections for commercial real estate is defining "commercial." Have you? There's precedent (in Oakland for example) for drawing a line in the sand other than the standard "5+ unit or mixed use" line.
@Ali Boone what year did you buy your Venice duplex?
@Alex Vidal , I've heard about the bills to overturn Prop 13 for commercial properties. This would result in higher consumer prices. It could also put many long time business owners that own their property out of business. Also with NNN leases the tenant pays taxes it could put them out of business.
Either way it puts uncertainty into the economy which isn't a good thing.
Originally posted by @Seth Borman:
Originally posted by @Alex Vidal:
The Prop 10 polls aren’t looking good for the Yes vote. My company’s various business arms have been pumping millions into the No side and it’s working because the Yes votes have no real logical argument other than short term benefits for current renters. If you’re familiar with SF apts it’s a prime example of what happens when you get rent control - crappy buildings/obsolete units and insane market rents that are artificially inflated by rent control.
The thing to watch out for if you own commercial deals (5+ unit apts too), is on the 2020 ballot they’re going to have a vote to separate prop 13 so commercial deals are no longer protected. This bill is very likely to pass since the typical mom and pop owners who own smaller buildings/single family homes will still be protected.
The split roll won't effect any residential real estate. Even the residential portion of a mixed use building will still fall under current law. Size won't change that.
What the prop will do is kick underutilized parcels onto the market. Vacant land, parking lots, low grade retail, etc will kick loose for residential development.
Which will accelerate gentrification..ironically.. There are still underutilized parcels in L.A , many of the owners don't have incentive, but if they have a big tax increase they will.
Gentrification helps local residents as it usually brings middle class people to the area. Usally the very wealthy are not moving into these neighborhoods. It's usually younger, artsy, progressive types that move into gentrified areas too
No on 10!!!
That's an interesting point. I've heard a lot about how sitting on low taxed vacant land is bad for tenants and buyers, it keeps inventory low and prices up. There's some cranks who say a flat property tax , just on area not improvements, would be the best thing to insure the most productive use of land.
Originally posted by @Account Closed:
Originally posted by @Eduardo Zepeda:
You CAN cash flow in California. I've bought two properties in the last 18 months in the Bay Area. They are both cash flow positive. They were not, however, easy to "get" and required skillful negotiation. I'm zealously looking for my third, regardless of what happens with prop 10. I believe that when you buy right, you can invest profitably in any market, at any point in a cycle, with any pending legislation.
Agreed - there are several ways to cash flow in CA, even in the Bay Area it's definitely possible.
Don't bother trying to convince @Ali Boone. She sells/markets turnkey rentals for turnkey providers so she benefits by touting OOS investing and by making false claims that cash flowing in CA is impossible...even though there are several markets where it's possible to do so.
Ali, I could show you 15 properties in Sacramento, Vallejo, Stockton, and even Oakland where you could cash flow on Day 1. I don't make any money by doing so, but would be glad to educate you so you can stop with the false claims.
I'm actually a very easy person to convince. Not sure why the hasty claims. Sure, I'd love to see some properties that cash flow. I've actually asked people several times who say they've found cash flow to show me a property or two and they never do. And I'm far from the only person on here who says there isn't cash flow. And for the record, I'm usually talking specifically about SoCal since I don't know directly about properties elsewhere.
There's really no need to be an *** right out of the gate.
Originally posted by @Amit M.:
@Ali Boone what year did you buy your Venice duplex?
This year.
Originally posted by @Susan O.:
Gentrification helps local residents as it usually brings middle class people to the area. Usally the very wealthy are not moving into these neighborhoods. It's usually younger, artsy, progressive types that move into gentrified areas too
No on 10!!!
Agreed, definitely no on 10.
Originally posted by @Chris Mason:
Originally posted by @Seth Borman:
Originally posted by @Alex Vidal:
The thing to watch out for if you own commercial deals (5+ unit apts too), is on the 2020 ballot they’re going to have a vote to separate prop 13 so commercial deals are no longer protected. This bill is very likely to pass since the typical mom and pop owners who own smaller buildings/single family homes will still be protected.
The split roll won't effect any residential real estate. Even the residential portion of a mixed use building will still fall under current law. Size won't change that.
I actually haven't looked at how the 2020 split roll ballot initiative that will repeal Prop 13 protections for commercial real estate is defining "commercial." Have you? There's precedent (in Oakland for example) for drawing a line in the sand other than the standard "5+ unit or mixed use" line.
When I dug into it they defined residential as long term rental uses (houses and apartments). As written it is mostly painless for the majority of people, unless those people own parking lots, in which case they are about to realize some capital gains!
The best public policy would be to get rid of Prop 13 altogether. The second best would be to limit it to natural persons in their permanent residence.
Originally posted by @Joseph M.:
@Alex Vidal , I've heard about the bills to overturn Prop 13 for commercial properties. This would result in higher consumer prices. It could also put many long time business owners that own their property out of business. Also with NNN leases the tenant pays taxes it could put them out of business.
Either way it puts uncertainty into the economy which isn't a good thing.
The tax benefit of Prop 13 is capitalized into the value of the property. Repealing Prop 13 will see asset values fall, not rents go up. Even in cases where they do go up the benefits outweigh to costs. So what if a few tire shops and parking lots go under? We will see a whole wave of residential land go up for sale.
Originally posted by @Joseph M.:
Originally posted by @Seth Borman:
Originally posted by @Alex Vidal:
The Prop 10 polls aren’t looking good for the Yes vote. My company’s various business arms have been pumping millions into the No side and it’s working because the Yes votes have no real logical argument other than short term benefits for current renters. If you’re familiar with SF apts it’s a prime example of what happens when you get rent control - crappy buildings/obsolete units and insane market rents that are artificially inflated by rent control.
The thing to watch out for if you own commercial deals (5+ unit apts too), is on the 2020 ballot they’re going to have a vote to separate prop 13 so commercial deals are no longer protected. This bill is very likely to pass since the typical mom and pop owners who own smaller buildings/single family homes will still be protected.
The split roll won't effect any residential real estate. Even the residential portion of a mixed use building will still fall under current law. Size won't change that.
What the prop will do is kick underutilized parcels onto the market. Vacant land, parking lots, low grade retail, etc will kick loose for residential development.
Which will accelerate gentrification..ironically.. There are still underutilized parcels in L.A , many of the owners don't have incentive, but if they have a big tax increase they will.
Gentrification doesn't really work the way that you think it does. The biggest cause of gentrification is a shortage of housing in the most desirable neighborhoods. Want to protect South LA from gentrification? Develop housing in all the golf courses in West LA so people don't have to move to the hood to pay less than 10 years income for a termite ridden fixer upper.
Also, keep in mind that before development happens investors (that would be us) have already bought up all the value add properties and turned them around. Money flows to development when you just can't find apartments anymore and you have to start building them.