There should be a higher tax on unoccupied units, and they shouldn't be able to write down the unit as a loss (I don't know if this is even possible, a whole building but they shouldn't be able to structure their revenue like that).
Or too high, compelling landlords to hold out for a higher bidder on rent to cover the cost of the taxes. Once you accept a tenant, you are effetely stuck with them, so one has to be careful to choose wisely.
Imagine a hypothetical scenario where tax is $1,000 per month, the cost of hosting a tenant is $500 per month, and prevailing rents are $1,500. –– You can accept a tenant right away and break even. Or you can wait a couple of years until someone agrees to pay $2,000 per month. Which do you choose? Spend $18,000 to wait and then make $120,000 in the following 20 years, or spend nothing now and make $0 in the following 20 years?
On the flip side, if the tax were only $500 per month then you could accept the tenant willing to pay $1,500 right away.
That scenario does not make any sense, given that it ignores the option of selling the property, and there is no guarantee someone will pay you $2k in 2 years. Why not wait 5 years for $5k?
You have your cash flow now, and your potential customers now. If it is a money losing money proposition, you can sell. If you want to bet on prices in the future, you can, but the higher the property taxes, the worse that bet is, and the less likely it is to be made.
> that it ignores the option of selling the property
While it does not speak to selling, it doesn't ignore it. It is factored in.
> Why not wait 5 years for $5k?
Well? Don't leave us hanging.
> If it is a money losing money proposition, you can sell.
And then what? Maybe in recent months the tide has started to turn, but over the past 10+ years interest rates were effectively 0 for a reason: Nobody had any idea what to do with money. Interest rates are a product of supply and demand like everything else. Real estate is the last resort where money goes when all other ideas have been exhausted. If real estate is what you are invested in, you got there by not having better ideas.
Wait 100 years for $100k…it is meant to show why your scenario makes no sense.
> And then what?
And then someone who does want to do something productive with the property purchases it. Such as a homeowner, to live in.
> but over the past 10+ years interest rates were effectively 0 for a reason: Nobody had any idea what to do with money.
This is getting off topic, but interest rate and monetary and fiscal policy is a political thing. At least one person (me) has an idea of what to do with money. Providing kids with healthy meals at school would be a start.
> Wait 100 years for $100k…it is meant to show why your scenario makes no sense.
If you have something to show, I'm interested. Why hold out on us?
> And then someone who does want to do something productive with the property purchases it.
And now the former property owner has nothing. What's the point of them going to all the trouble? I am sure they would rather use that time to post on HN, like you and I have the luxury to.
> but interest rate and monetary and fiscal policy is a political thing.
Interest rates are adjusted in accordance with certain political goals, yes, but they are adjusted in response to behaviour. Rates were lowered because people weren't looking for money, not that people stopped looking for money because interest rates were low. Basic supply and demand.
> At least one person (me) has an idea of what to do with money. Providing kids with healthy meals at school would be a start.
And if you invest wisely, you'll have even more money to help with that! So, we're back to trying to figure out what to invest in. Any ideas?
This shows that a lower tax is more profitable. The case where profit is <=$0 exists, but the the speculation also generally increases profit if we're just ignoring the part about it being speculation (with risk of never filling a spot or not having cash flow). A solution might be to lower taxes, but the incentive to speculate is still present (would you rather $84,000 or $204,000?). A better solution would be to punish the speculation directly. A variable tax rate where the unoccupied unit is taxed higher might accomplish this.
All that will happen is smaller players will be forced out and folks like Essex will be able to stay in longer.
The same thing happens in new "luxury" buildings in LA. Poorly constructed, barely occupied, but resets the rent in the neighborhood and can afford to be at 50% occupancy for 2 years+ until folks capitulate.
