Reply #59: The recent trend on demonizing Prop 13 is a Fraud [View All]

[Grinchie]

The reality of Proposition 13 is that it enables long term resident to not be blindsided by huge annual increases in property taxes.

The Powers That Be (PTB) in California know that id keeps them from a large percentage of Real Property Tax Money simply because it imposes a 3% a year cap on Appraised value.

When one realizes that this cap goes away as soon as the Property is sold, you can see very clearly why "Home Flipping" became all the rage during the Housing Bubble. Flipping a home, with the promises of short term profits enabled the reassessments of millions of Homes in California which were previously protected under Proposition 13.

It is the simple fact that Tax authorities want to make the most money that they can, that the incentive for convincing people to give up the long term benefit of Proposition 13 for a simple lump sum.

To be honest, take the owner of a Duplex who bought it 40 years ago. The taxes on this property are less than 1500.00 today, due to the fact that Prop 13 is in place. Most of the taxes are add on fees for Shool, Sewer and other services, so there is no savings there.

Now, sell that Duplex at the peak of the bubble, for say 800,000, and you now have annual taxes of about 10,000 dollars. Considering that at most you could wring 30,000 dollars gross out of a fully occupied rental property, that leaves you with almost 30% of Gross income taken by property taxes. Now add in Management fees, Maintenance and repair costs (It's been 40 years after all), Insurance (Manadatory because you have a crushing mortgage with associated liens by the bank on said mortgage) and you end up with a negative net income.

This is the magic of the Housing Bubble that taught people to ignore the reality of running a business, the costs of inflating housing prices, and the realities of Government who bases tax rates on ever increasing growth.

If Proposition 13 were allowed to go away, many businesses that did not jump onto the Flip for Money bandwagon would go out of business, because they are the only ones that had the stability of not being socked with extravagant taxes like the rest of the speculators were.