Prop 5 & 10 - What YOU need to know!| #KeriTV Episode #9
KERI: Hey guys, it’s Keri TV, and we have a very special guest here today. This is Dave White, who is a big real estate investor, and also happens to be my father. So excited to have him here for our special episode. We were talking about this when we were in Palm Desert last weekend, about proposition 10 and proposition 5 and what it means. I said, hey dad, will you film an episode with me? So here we are.
KERI: As you know, the mid-term elections are coming up on the sixth of November. It’s really important to get out there and vote, of course, whatever your views are. We thought it was important for us to share a little bit about what these propositions mean in regards to real estate. For our clients, this is our PSA. First of all, we have proposition 10, which is the repeal of the Costa-Hawkins rent control act. That is one of the propositions among the ballot. Dave, tell us a little bit about what that means and what that means to homeowners.
DAVE: Well, Costa-Hawkins brought rent control in. Rent control is not really what everybody thought it was supposed to be. It’s supposed to help the housing prices. It’s been proven that rent control doesn’t help that at all. Now, with Costa-Hawkins, every property is now going to come under rent control. Your single-family home, your condominium, and your townhome. The other sad thing about this is, at the present time, with the current system we have, when you rent your property, if your property’s under rent control, you rent it out for 1200 a month, and the other units in the building might be renting out for 2000 a month, in the current system, if those people paying 1250 move out, we can now rent that unit for the 2200, or whatever.
KERI: Market value.
DAVE: Market value.
DAVE: When they get rid of Costa-Hawkins, they’re going to make it so that if those people move out of that unit paying 1250, the next person coming in only has to pay 1250 as well.
KERI: What about people who can’t really afford to live in buildings like this? They’d love to live in a place for 1250. Wouldn’t that be considered a good thing?
DAVE: Well, it would be a good thing if all the people who couldn’t afford it could get into those buildings. What happens is the lucky few who do end up in one never move out of them. Now, all of a sudden after ten, fifteen, or twenty years you show up and here’s the guy renting the unit or the girl pulling up in their nice Ferrari.
DAVE: It’s an actual fact. It’s supposed to be for low-income people. The system just doesn’t work as it is. It’s sad. The lack of housing is caused because of supply and demand. When you’ve got more supply than demand, as in other states, where the vacancy factor’s fifteen percent, what happens there is the landlords are having to offer moving expenses or one month free to get people into their units. But out here in California, where it’s probably four percent, there’s no need for landlords to offer anything and everybody’s squirming to get into the unit.
KERI: What happens when there are people paying low rents the other units get pushed up even more in costs, because there’s nothing available to rent. When these people stay in these units and they never move out, it stops the flow of inflation in society and values going up, because property owners don’t want to have buildings where people are paying low income, because it doesn’t increase their value. They tend to become slum lords, because they want market value rates and market value renters in there.
DAVE: The other thing that happens is if you can only get 1250 dollars a month for your unit, which should be getting 2200, then it’s not even worth leasing it out. You’d probably take it off the market.
KERI: That’s exactly what happens. Yeah.
DAVE: Values drop. When the value drops, that means there’s less property tax coming in. What happens to the streets and everything the city has to look after when there’s less money coming in?
KERI: With these new laws going in, it’s actually going to cost the taxpayers more money because they’re paying for these new rules. If property values are decreasing, the city’s going to lose money. There’s actually less money going towards emergency services, schools, and it actually will not create the low-income housing that they’re saying that it will.
DAVE: Back East, many years ago, they brought rent control in. All the students decided they wanted to get low-income. What happened? All these students never moved out of the units. All of a sudden, they decided, this doesn’t work. They changed the rules and got rid of the rent control. Now all those people who have been there for years finally went and bought homes and moved out of the apartments.
KERI: Yeah. That’s another thing that’s so important. It happens a lot here in Santa Monica. Someone will be paying 800 or maybe 1200 for a one-bedroom or two-bedroom, or even 2200 for a two-bedroom near the beach, they don’t have motivation to move because they’re getting such a good deal. Then what happens when ten, twenty, or thirty years go by, sure, they’ve been living with low-rent, they don’t own anything. They haven’t built any equity. They don’t have anything to show for themselves. You could be in a place that has grown five hundred, seven fifty, in equity and have a great retirement or invest in other buildings that make you more money. Isn’t the whole goal to one day be sipping margaritas on the beach? Right dad?
DAVE: Two years ago, I met a guy on a party on a boat.
DAVE: That’s what you do, right, when you have real estate?
KERI: That’s what you do.
DAVE: Anyway, I talked to this guy and he said I’d like to buy something. He was sixty-two years old. I said to him, well, what do you own now? He said, I don’t own anything. Unfortunately, I got caught up by rent control.
KERI: What did he say?
DAVE: He said, I got tied up with rent control.
KERI: Caught up with rent control, did you hear that? Tell us more.
DAVE: Because he thought he was on a great bargain because he was only paying a thousand dollars a month.
DAVE: For this unit in Santa Monica that everybody else was paying 3000 dollars a month for. He said, I watched all my friends who couldn’t get into rent control go out and buy homes and he said, now, they’re all worth a lot more money than me because their homes have gone up in value.
KERI: There’s nothing wrong with paying a low rent, of course. But the long-term game is to make money, to invest, and to retire. The short side of that vision is that rent control’s a good thing when in fact it decreases property values, it lessens the money going to the government, and it creates slum lords.
DAVE: It creates a shortage.
KERI: And a shortage.
DAVE: Who is going to build more buildings when you can’t make money on them? Because the other thing that we haven’t made a way yet, when or if Costa-Hawkins gets voted out, that means that now the government can come in and tell you how much you can rent your home out for, your unit. They can decide what you get for it.
KERI: So, you know how your relator tries to tell you what price you should rent one of your units or your houses? Now, instead of listening to the advice, you’re going to get told. Well, this is what you can rent it for and we don’t care what you think. So, does that sound like a fun thing for anybody? Probably not. Of course, do your research, investigate everything you can about proposition 10, but when it comes to real estate and building equity and building wealth, which is what we’re proponents of, we’re saying vote no on proposition 10.
DAVE: Hey, let’s imagine that prop 10 doesn’t pass, we’re going to go and buy another building!
KERI: [cheer] Yay! We’re going to buy a building. To summarize, we vote no on proposition 10, because we want to keep our property values increasing, we want to keep the market stable with the right market value rents and we don’t want to increase our taxpayer dollars, do you? Now, the other proposition we want to highlight that has to do with real estate and our clients, of course, is proposition 5. This is super exciting because right now, as it exists, if you are 55 or older, you can take your tax basis with you one time for one move. What this is going to do is allow people that are over 55, plus people who are disabled or victims of natural disasters to take their tax basis more than once and for any price point. This is super exciting because of all the people that get stuck in their homes because they can’t afford another twenty grand a year on taxes. Dave, tell us a little bit more about why you think we should vote yes on proposition 5. It’s yes, right? Yes on 5?
DAVE: Yes, it is.
KERI: Okay, yes on 5.
DAVE: Like 10 is bad for real estate, 5 is excellent for real estate.
KERI: So good for real estate.
DAVE: It is.
KERI: And old people.
KERI: We like old people.
DAVE: But remember one thing. When you purchase your home for 200,000 and your property tax is below, they only go up one percent a year.
KERI: I calculated a hundred grand. 1800.
DAVE: Okay. But the problem is when you go to buy a house that’s a million dollars, now your taxes are going to be way up there. That’s what stops a lot of people from selling their homes. Here’s the other thing that hurts the older people like me. We can’t sell. We’ve got this big house that’s got a pool and huge gardens, and we’re wasting all our money.
KERI: Unused bedrooms.
DAVE: Now, with prop 5, we can sell, move to a beautiful home on the beach, and only pay the low taxes. The biggest change with this is, the way it is now, you can only do this once.
DAVE: You can move once and get the property tax saving. The other big thing is, in the old way, if you sold your house for a million and you had to buy something, you could only go three percent above. Now you can go and pay whatever you want for a house.
DAVE: You could pay two million, if you wanted to.
KERI: Which is so great. Yeah.
DAVE: Well, the big thing is, most people, when they’re older, they’ve paid their houses off. So, it’s all cash.
KERI: All cash. Cash, cash, money. That’s the thing too. They can take all that cash, buy something with cash, and then they only have a low property tax. Say they bought their house for a hundred grand. They’re selling it for a million or a million five. They move into a cool condo on Ocean Avenue or a little house somewhere nearby. They’re not paying anything monthly, which is the whole point, because they can’t afford it, and the property taxes don’t change. Their lifestyle remains the same. You get to have mom and dad around for raising the grandkids. It’s also really great for people who are disabled, same thing. They need to move into something that works for their disability, whether it’s one-level or smaller. Then, the other factor is for people who are victims of natural disasters that happened this year. Floods, fires.
DAVE: Grandkids? I’m excited to hear grandkids. Grandkids, wow.
KERI: Get excited dad.
DAVE: Sounds great!
KERI: Got to get married first. Anyways. Sh. So, we know that proposition 5, a vote yes on proposition 5 will help even a lot of our clients who are trying to buy a property, and there’s more people that would sell if they could take their tax basis with them, and then these awesome young couples or young couples with babies could move into their houses, to their four and five bedrooms with pools. So, overall, it will stimulate the economy, stimulate housing, open up inventory which we all know, we’ve had a shortage of inventory, right?
DAVE: Right. Let’s help these older people that worked all their lives to support the community they live in. Let’s help them out, now that they’re old and retired and enjoy life.
KERI: Yes! And help the disabled and help the natural disaster victims. Proposition 5! Vote yes! Again, if you have any questions about proposition 5 or proposition 10, do your research. We always vote for real estate wealth and real estate economy and your wealth, and that is why we are giving these tips today on Keri TV.
KERI: Fantastic. Thank you for joining me.