Crazy property taxes?

[ERICOPOLY]

Well, if the droughts and higher temperatures are a long-term change for California, then there is some almond farmland to be purchased elsewhere.

 

California grows 80% of the world's almonds and this is using up 10% of the state's water.  Over the past 20 years, California's planted almond acreage has doubled.

 

The growth in the almond acreage can't continue at that pace -- there just isn't the water.

 

This means that if you purchase an almond farm in an area with a more secure water supply then you will benefit from the future increases in almond prices (with California's production growth limited by water, then the supply/demand shift will happen and prices will increase).

 

 

Hey Eric,

Do you have a source for that 10% of CA's water being used for Almond farming? Not doubting it, but had never heard that....if that's true, could be a seriously interesting way to bet on continued droughts

 

It's pretty well known if you follow (as I do) the articles all over the place making the same claim.  Here is one link:

http://www.slate.com/articles/technology/future_tense/2014/05/_10_percent_of_california_s_water_goes_to_almond_farming.html

 

California water long term is really not a worry for me because the water is certainly here.  80% of the water is spent on agriculture as the state grows 60% of the nation's food.  Other states with more water can merely take up the slack and California can cut back.

 

Did you know that California grows 5% of the nation's alfalfa crop?  California uses 15% of it's water on alfalfa alone.  The alfalfa is mainly used to feed the cows of California's dairy industry.

 

So a way to save 15% of the state's water is to deport the cows to someplace like Wisconsin and just import the milk on refrigerated rail cars.

 

California residents (including businesses and government usage) use only 20% of the state's water.  The cows use 15%.

 

Montecito where I live is out of water, so we paid $700 per acre foot to a rice farmer to divert his water that he basically gets for free.

 

That's the main problem here -- it's all distorted by the government which built the reservoirs with taxpayer money.  They give away that water to the farmers for practically nothing, and they sell it to us for $700 per acre foot when they aren't otherwise flood-irrigating their land in California's central valley where it is 100 degrees all summer and evaporation is at it's peak.  All to grow rice, not the kind that feeds poor families but rather the high grade rice that is served in New York sushi restaurants.

 

It's a messed up system here and it's all because of the agricultural sector getting it's water at a price that doesn't reflect reality.

 

Somewhere to the south of me, in Carlsbad, they are spending $1b to construct a water desalination plant.  It will use a huge amount of energy and the operating costs will be about $2,500 per acre foot of potable water produced.

 

The government gives away the water to a rice farmer so he can flood-irrigate his land to grow rice in 100 degree heat, and elsewhere in the same state people have no water and are paying $2,500 per acre foot.

 

It's a stupid system we have here.

 

160 billion gallons of water are diverted from the Colorado river and exported to Asia (virtually) via the alfalfa that is shipped over to China to feed their cattle.  This started happening about 5 years ago due to the empty container ships on the return trip to China (due to the trade deficit).  Right, so they only get a $1,000 or so per acre (gross revenue) for that crop and it takes 5.5 acre feet to grow it.  That same 5.5 acre feet costs $13,750 to pull out of the ocean in Carlsbad.

 

And Carlsbad is just down the road from where the alfalfa is being grown (to feed cows in China).  It's the Imperial Valley Water District that is doing this and they're located just to the north of the Mexican border.  Think bloody hot weather to be growing grass (alfalfa).

 

Is the state's water being allocated to the highest-value use?

 

Landscaping and groundskeeping employs 107,000 people.  Agriculture employs 180,000 people.  About 12% of the state's water goes to landscaping.  So effectively when water is diverted from agriculture and used to create more landscaping instead, it creates 4x as many jobs versus if it were left allocated to agriculture.

[ERICOPOLY]

The almond crop is only worth 0.26% of the state's GDP.  Yes, only 2.6 tenths of one percent.  Yet we allocate 10% of the state's water to it.

 

 

[krazeenyc]

I love Eric's rants against alfalfa and almond farmers.

[fareastwarriors]

Yup I agree. Wrong priorities.

[indirect]

Eric is right, however, what  is the investment angle?

 

Almonds are difficult crop to grow and requires class A soil and class A water (Fed subsidized water rights), unlike pistachio or alfalfa. They also need soluble fertilizer which is made by Kerley, growing gangbusters and opening a second new plant in Hanford, CA. This stock was discussed by the board. Guess?

[ERICOPOLY]

You could invest in a paper and pencil and draw a huge ship's anchor labeled "agriculture" and draw it in the only lifeboat. 

 

Then you draw the sinking ship with all the state residents still onboard.

 

Perhaps the drawing could be sold to the AP.

 

The state government has mandated cuts to residential use, but has not mandated any cutbacks to agricultural uses.

 

You cannot, for example, legally water your lawn more than twice a week.  But you can still irrigate your alfalfa crop with 5.5 acre feet of water (no restriction on that). 

 

Never-mind that cutting back landscaping usage by 50% would only save 6% of the state's water.  Let's fight to preserve the exports of alfalfa to Asia instead.

 

They've even made it law that a restaurant cannot serve you water automatically -- you have to ask for it.  Umm... really folks???

 

[nodnub]

Time to plant alfalfa on your lawn and apply for an agricultural billing for your water usage?  :)

[Pelagic]

Eric is right, however, what  is the investment angle?

 

Almonds are difficult crop to grow and requires class A soil and class A water (Fed subsidized water rights), unlike pistachio or alfalfa. They also need soluble fertilizer which is made by Kerley, growing gangbusters and opening a second new plant in Hanford, CA. This stock was discussed by the board. Guess?

 

The other problem with almonds is they don't start to produce nuts for 6 years or so. Any money invested in an almond farm is stagnant until your first crops are harvested. However, once they do start producing they can keep producing for several decades which is part of the reason California's almond farmers are so protective of them, they have to take the long view in protecting their assets. Growing alfalfa in a desert though, crazy.

[DTEJD1997]

Hey all:

 

I looked at a property the other day in my area.

 

I felt bad for the owner, as they are JAMMED up over property taxes.

 

The building/land is very nice.  It was last used as a medical office/facility.  Almost no expense was spared when it was built about 15 years ago.  Very nice, excellent appointments inside.  it is also on a wonderful piece of land.  It is set back from the road and there are all sorts of trees providing natural shade.  Land is just over 1 acre.  Plenty of parking.  Arguably the nicest building in my area.

 

It has been vacant 2+ years.  Still in pretty good condition.

 

It is just over 6,000 sq. ft. and they are ASKING $300k.

 

Property taxes are set at about $29,500 per year.  Local government is valuing the building at about $700k.

 

The owner has contested the city's valuation.  They hope to eventually get taxes cut down by about 40%, maybe.

 

Who is going to buy the building with taxes being darn near ten percent of it's price?  They would have to gamble that they are a success in getting the appraisal lowered.

 

Meanwhile, the owner is probably stuck.  I'm sure that they spent MORE than $300k to build the building and the city is reluctant to lower it's tax value.  City thinks, "you spent $600k 15 years ago, why should we lower the taxes?".

 

So the building is stuck.  Will likely to remain "stuck" unless the owner marks it down substantially.  If they sold it for $125k, then the new owner would almost certainly be able to get the taxes lowered. 

 

Crazy situation here in Detroit!

 

Either way, the current owner is simply jammed.

 

 

 

 

[Gregmal]

Jeez, I thought mine were bad at 3.7% of appraised value with a typical 3% escalation.

[wachtwoord]

Hey all:

 

I looked at a property the other day in my area.

 

I felt bad for the owner, as they are JAMMED up over property taxes.

 

The building/land is very nice.  It was last used as a medical office/facility.  Almost no expense was spared when it was built about 15 years ago.  Very nice, excellent appointments inside.  it is also on a wonderful piece of land.  It is set back from the road and there are all sorts of trees providing natural shade.  Land is just over 1 acre.  Plenty of parking.  Arguably the nicest building in my area.

 

It has been vacant 2+ years.  Still in pretty good condition.

 

It is just over 6,000 sq. ft. and they are ASKING $300k.

 

Property taxes are set at about $29,500 per year.  Local government is valuing the building at about $700k.

 

The owner has contested the city's valuation.  They hope to eventually get taxes cut down by about 40%, maybe.

 

Who is going to buy the building with taxes being darn near ten percent of it's price?  They would have to gamble that they are a success in getting the appraisal lowered.

 

Meanwhile, the owner is probably stuck.  I'm sure that they spent MORE than $300k to build the building and the city is reluctant to lower it's tax value.  City thinks, "you spent $600k 15 years ago, why should we lower the taxes?".

 

So the building is stuck.  Will likely to remain "stuck" unless the owner marks it down substantially.  If they sold it for $125k, then the new owner would almost certainly be able to get the taxes lowered. 

 

Crazy situation here in Detroit!

 

Either way, the current owner is simply jammed.

 

Two "jammed" owners of comparable property should buy each other's property (swap) at a low (or at least realistic) valuation. Or would that be unlawful?

[Castanza]

Hey all:

 

I looked at a property the other day in my area.

 

I felt bad for the owner, as they are JAMMED up over property taxes.

 

The building/land is very nice.  It was last used as a medical office/facility.  Almost no expense was spared when it was built about 15 years ago.  Very nice, excellent appointments inside.  it is also on a wonderful piece of land.  It is set back from the road and there are all sorts of trees providing natural shade.  Land is just over 1 acre.  Plenty of parking.  Arguably the nicest building in my area.

 

It has been vacant 2+ years.  Still in pretty good condition.

 

It is just over 6,000 sq. ft. and they are ASKING $300k.

 

Property taxes are set at about $29,500 per year.  Local government is valuing the building at about $700k.

 

The owner has contested the city's valuation.  They hope to eventually get taxes cut down by about 40%, maybe.

 

Who is going to buy the building with taxes being darn near ten percent of it's price?  They would have to gamble that they are a success in getting the appraisal lowered.

 

Meanwhile, the owner is probably stuck.  I'm sure that they spent MORE than $300k to build the building and the city is reluctant to lower it's tax value.  City thinks, "you spent $600k 15 years ago, why should we lower the taxes?".

 

So the building is stuck.  Will likely to remain "stuck" unless the owner marks it down substantially.  If they sold it for $125k, then the new owner would almost certainly be able to get the taxes lowered. 

 

Crazy situation here in Detroit!

 

Either way, the current owner is simply jammed.

 

Two "jammed" owners of comparable property should buy each other's property (swap) at a low (or at least realistic) valuation. Or would that be unlawful?

 

I was thinking the same exact thing. I would highly doubt there would be a loophole that obvious. Couldn't you also just sell it to a friend for a low price and then buy it back for the same low price?

[Cigarbutt]

^The above-described swap transactions would probably not be OK with tax authorities and their appraisal staff as they would not qualify as open market transactions but it is interesting to note that such non-arm's length transactions would simply tend to accelerate price discovery and the sticky adjustments of property taxes. So, the underlying question may be the expected trajectory of fundamental property values in the Detroit area. It seems that it will get worse before it gets better, and perhaps the timeline will be extended? Aren't many owners stopping paying taxes hoping to be ignored and hoping to buy back on the cheap in the auctions?

 

For comparative purposes, here is a commercial property I've been looking at in my area:

-built in 2000, good condition, well localized, 0.8 acre.

-total 6.3K SF with 45% lent to a bank and 55% vacant for a while

-appraised value  land: 0.7M  building: 0.97M    total: 1.67M  property tax: 37.5K

-for sale, asking price: 2.495M

 

The common denominator is the inadequate cap rate in both places, but for different reasons.

[SharperDingaan]

Hey all:

 

I looked at a property the other day in my area.

 

I felt bad for the owner, as they are JAMMED up over property taxes.

 

The building/land is very nice.  It was last used as a medical office/facility.  Almost no expense was spared when it was built about 15 years ago.  Very nice, excellent appointments inside.  it is also on a wonderful piece of land.  It is set back from the road and there are all sorts of trees providing natural shade.  Land is just over 1 acre.  Plenty of parking.  Arguably the nicest building in my area.

 

It has been vacant 2+ years.  Still in pretty good condition.

 

It is just over 6,000 sq. ft. and they are ASKING $300k.

 

Property taxes are set at about $29,500 per year.  Local government is valuing the building at about $700k.

 

The owner has contested the city's valuation.  They hope to eventually get taxes cut down by about 40%, maybe.

 

Who is going to buy the building with taxes being darn near ten percent of it's price?  They would have to gamble that they are a success in getting the appraisal lowered.

 

Meanwhile, the owner is probably stuck.  I'm sure that they spent MORE than $300k to build the building and the city is reluctant to lower it's tax value.  City thinks, "you spent $600k 15 years ago, why should we lower the taxes?".

 

So the building is stuck.  Will likely to remain "stuck" unless the owner marks it down substantially.  If they sold it for $125k, then the new owner would almost certainly be able to get the taxes lowered. 

 

Crazy situation here in Detroit!

 

Either way, the current owner is simply jammed.

 

Two "jammed" owners of comparable property should buy each other's property (swap) at a low (or at least realistic) valuation. Or would that be unlawful?

 

I was thinking the same exact thing. I would highly doubt there would be a loophole that obvious. Couldn't you also just sell it to a friend for a low price and then buy it back for the same low price?

 

There will not be a problem if it is a sale and lease-back; even if there is a conditional option to repurchase > N years, or a specific event. The substance is a 3rd party market transaction, and the seller is not obliged to repuchase.

 

SD

 

 

 

[DTEJD1997]

hey all:

 

Simply selling, or swapping, or exchanging properties would NOT solve the situation.  At best, it might help a bit.

 

Taxes & property values are not solely based on the price paid for the property in an open market transaction.

 

The price paid (in open market transaction) is a determining factor, but it is not the only one.  The adjustment board will also look at other properties values & open market transactions in the city.

 

When I bought my properties, I was looking for an 80% reduction (price I paid).  After arguing & going in front of the board for 2 years, I finally settled on a reduction of just over 40%.  I talked with other property owners in my area, and they were simply SHOCKED that I got as much off as I did.

 

Right now, in my city, not too many property owners are making concerted efforts to fight their taxes & appraisals.  If they did, I am sure the city would be in a more difficult position than it already is in.

 

Crazy thing is this...properties in Detroit tend to be highly taxed, but the situation is not nearly as bad as these close in suburbs.  Detroit's rate, while high, tends to have a more accurate "market value" of the property.

 

One way to solve the over assessing of values might be to have a "put" to the city.  For example, you can sell your property to the city at 70% of assessed value.  Perhaps that would make the assessments a lot more accurate?  Then if an assessor has more than a couple properties "put" back to the city, they lose their job?

 

I'll bring this up at the next city council meeting!

[DooDiligence]

Reduce your property taxes with goats, maybe?

See the last sentence in this article for a quick explanation.

 

https://money.cnn.com/2016/10/25/news/companies/donald-trump-property-tax-fights/?iid=EL

[wachtwoord]

hey all:

 

Simply selling, or swapping, or exchanging properties would NOT solve the situation.  At best, it might help a bit.

 

Taxes & property values are not solely based on the price paid for the property in an open market transaction.

 

The price paid (in open market transaction) is a determining factor, but it is not the only one.  The adjustment board will also look at other properties values & open market transactions in the city.

 

When I bought my properties, I was looking for an 80% reduction (price I paid).  After arguing & going in front of the board for 2 years, I finally settled on a reduction of just over 40%.  I talked with other property owners in my area, and they were simply SHOCKED that I got as much off as I did.

 

Right now, in my city, not too many property owners are making concerted efforts to fight their taxes & appraisals.  If they did, I am sure the city would be in a more difficult position than it already is in.

 

Crazy thing is this...properties in Detroit tend to be highly taxed, but the situation is not nearly as bad as these close in suburbs.  Detroit's rate, while high, tends to have a more accurate "market value" of the property.

 

One way to solve the over assessing of values might be to have a "put" to the city.  For example, you can sell your property to the city at 70% of assessed value.  Perhaps that would make the assessments a lot more accurate?  Then if an assessor has more than a couple properties "put" back to the city, they lose their job?

 

I'll bring this up at the next city council meeting!

 

Sounds fair. If the city thinks its worth X surely they'd love buying it with 30% discount! ;)

[Spekulatius]

Interesting, in CA, I could simply get my tax bill lowered, when I filled out a form, that was backed up by an appraisal that I received when I refinanced my property) and which was lower than my tax appraisal at that time.

 

NY has dedicated companies that fill out grievances for you in exchange for part of the tax savings for one year.