California’s well-known Proposition 13 tax policy of charging one percent property taxes based on the purchase price, then tied to inflation after - ward with a cap of two percent. The bill specifically targeted commercial properties over $3 million in value. Voters keep saying “No” to chang - es to Prop 13 but it continues to be brought up as a key change neces - sary to raise state revenue for gov - ernment services and education. The proposition appears to be a no-go but the vote was too close for comfort. PROPOSITION 21: California’s effort to give more local jurisdiction over rent control. With almost 60 percent of voters saying “No,” it appears Cal - ifornians don’t trust municipalities with rent control policing power. Even before Covid-related eviction morato - riums, California had already institut- ed statewide rent control measures like the Tenant Protection Act of 2019 (AB 1482). The issue of affordable housing is complicated, and Cali - fornia needs a holistic approach to fix it. Apparently, we don’t have that willpower and it is far easier to make landlords the villain. PROPOSITION 19: This measure is likely to pass and allows seniors (55+), the disabled, and victims of wildfire/disasters to transfer their primary residence’s tax base to a replacement property. The trade-off is that children who inherit prop - erties must move into the property and use it as their primary residence if they hope to retain the tax basis of their parents. Obviously, that’s a major factor in coastal markets for families with multiple rental hold- ings. Estate planning attorneys will be busy in 2021 because none of this considers the new administration’s initiatives. Tax increases, a $15,000
first-time tax credit, and potential changes to the 1031 exchange rules are all topics in discussion. Outside of how California will impact your pocketbook, the entire industry heads into 2021 with much uncertainty. Be cautious of high-end projects with massive repair budgets and extended timelines in California. Covid has backed up many building departments. Also, skilled labor, material price increases, and supply delays will continue to be a challenge in 2021. OPPORTUNITY FOR CALIFORNIA LOCALS Wall Street institutional money and ibuyers continue to expand in Califor - nia, but they’ve been here for years. Wall Street activity does tend to decrease profit margins and increase marketing costs depending on where they land, so investors need to pay attention. Institutional money seems better poised to chase note pools or the build-for-rent model instead of courthouse-step buying this time around. California SB 1079 intro-
duced a redemption period in 2020 that institutional money won’t like. And ibuyers seem singularly focused on speed and will avoid big rehabs. Many opportunities exist in Califor - nia. While cashflow may be challeng - ing at current prices, interest rates are half of what they were in the last cycle. ADUs and density projects open new categories of opportunities for investors with skills in creating equity and structuring deals where equity is difficult to buy off the shelf. Data-driven local niches around referrals, value-add projects, and off-market deals will continue to shine in 2021. In your niche, talking to the right prospects in the right channels will go a long way to saving you time and money as competition increases. •
Aaron Norris is VP of Market Insights with PropertyRadar. He writes and speaks nationally on data, trends, and technology. He’s a licensed real estate and mortgage broker and has been in the industry since 2005.
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