Why Real Esate Investors Hoarding CA Real Estate

 san fransisco

 

California can be a great state to park your long-term real estate  investment dollars. Not only has the Golden State provided outsized wealth  growth for real estate owners over the past 40 years, but going forward it has  some unique characteristics that make it quite appealing to an investment  property owner.

Now this isn’t to say that you can just blindly buy any old property in the  state and build wealth. But if you do your homework you can find properties that  make smart sense. Here’s why:

Proposition 13: Property tax limits

Back in the late 1970s Californians were tired of ever increasing property  tax levies, so they passed a initiative that limited property taxes and property  tax increases. When you buy any property in California, your regular property  taxes are 1 percent of your purchase price. So on a $100,000 property you would  pay $1,000 per year in regular property taxes (there may be additional county  bond levies or Mello-Roos taxes). That original $1,000 amount can only increase  a maximum of 2 percent per year, and it’s averaged about 1.5 percent since Prop  13 was passed. This is contrary to how the vast majority of states’ property  taxes work. Most states’ taxes go up each year corresponding to increases in  property values, so if your value soars, so do your taxes. But not in  California, and that’s a big plus for real estate owners in the state.

Scarcity of valuable land

In most desirable metropolitan areas of the state, very little land is  available for development within a reasonable distance from the main employment  centers. For example, in San Diego, only a few big parcels are left within an  hour drive of the city, and they are all under development. Fewer than 25,000  lots remain before all the land in the county is pretty much built out. So this  restricted supply means prices for “dirt” and existing homes should increase  over the long term. The major California cities or counties — San  Francisco, Los Angeles and Orange County — are all in the same boat.  Because of the scarcity of land, the prospects are good for value increases over  time.

Difficulty of development, permitting, building

In addition to a lack of available land, it’s really tough to develop in  California. It could be a group fighting the developer and demanding lower  density of units on the parcel; a land owner wanting a fortune for his or her  property; a city’s exorbitant impact and building permit fees; or the  sky-high cost of construction materials and labor. These all hamper  affordable housing, profitable development and increasing the housing stock. And  again, this will restrict supply and most likely increase values of the current  stock of property.

Population increases

If you watch TV, read the paper or surf the Internet, you are probably aware  that the population of the U.S. is projected to increase during the next 50  years. And people seem to want to live in the coastal areas. So with the  population expanding over future decades, and the desirable weather in the  Golden State, it’s likely that California property prices will swell.

Those are the fundamentals, but again, you still need to make a smart  purchase decision. Investors should target moderately priced properties that  have positive cash flows, then manage their properties well and do their best to  maximize profits and minimize hassles. If you do, the chances are good that your  investment in some of the best dirt in the nation will help your retirement  picture.

California has high sales, income and use taxes, all  of which should be factored into your overall financial  decisions

Source: BI

Uniting All The Best In     Real Estate ~Nino M. Gaetano~      650.207.1986
Uniting All The Best In Real Estate
~Nino M. Gaetano~
650.207.1986

 

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