San Luis Obispo (SLO) County Real Estate Newsletter
Agent Owen Schwaegerle, Comments: 0, Last Update: 18 months
SLO County’s recent trend indicates a flattening out in pricing. We have only seen a 0.9% increase in prices County wide since September 2018. The steam seems to be running out as buyer’s optimism falters with uncertainty towards the economy, the trade war, and an election year looming. There were 324 homes that closed escrow last month, which was a significant rise of 14.9% from the 282 homes that sold in September 2018. In September 2017 there were 336 homes that closed escrow and September 2016 there were 330. This significant dip in the home sales volume last year was due to the rise in interest rates. The amount of sales we saw last month shows that the home sales have returned to the previous norm. There is currently 4 months of supply left on the market, indicating we are still in a seller’s market.
Assembly Bill 1482 – The Tenant Protection Act of 2019
The state legislature voted to pass Assembly Bill 1482 and now sits on the governor’s desk awaiting signature. This piece of legislation is the biggest form of rental housing restriction that has passed in our state in the past 25 years. It has sweeping consequences across the industry. The major impacts will be that rents cannot be raised more than 5% a year plus inflation which is about 3% a year (for a total of 8%) and landlords will need jut cause to evict their tenants.
The just cause eviction falls into two categories: at fault just cause and no fault just cause.
At fault eviction means that the tenant is in violation of the lease. They could have withheld rent payments, moved a dog onto the property when the lease says no pets, begun growing marijuana, committing waste, or materially breaching the lease in any way. If the tenant is at fault, you may issue a three day notice to fix or quit, and then an unlawful detainer as is custom currently. This seems to be a sensible way to protect tenants from being kicked out of their homes for no reason.
No fault eviction means that the tenant has done nothing wrong. You can issue a no fault eviction if you intend to occupy the home yourself, move a family member in, or do substantial renovation work which requires the tenant to vacate for more than 30 days. The catch is that per this new legislation, you need to pay the tenant relocation expenses or waive the last month’s rent. Given that property owners are still able to access their properties and pull them off the market, this seems to be another reasonable protection for tenants.
Overall, this piece of legislation is designed to protect tenants, and it seems like a good idea. Yet, at the same time it is placing more restrictions on property owners, making it less advantageous to own and invest in real estate in California. This type of sweeping legislation applies these rules to the entire state. Now the entire state has rent caps in place, which is one step closer to complete rent control.
The people voted No on Prop 10 at the ballots last November, indicating that they do not think rent control is the best approach to solving the affordability issue. The reason rents are so high is because real estate prices are so high. Could you imagine what it would be like if we put price caps on people’s homes in an attempt to make it more affordable to buy? Every home in California can only rise 5% a year in price, plus inflation. No thank you!
The beauty of the capitalist system is the freedom of markets to rise, fall, and correct as they see fit. Government intervention distorts markets, discourages investment, and makes it more difficult to run a business. Let’s focus on creating more affordable homes in order to decrease prices across the board for homes and for rentals instead of putting artificial caps in place.
We all know the reasons for owning a home: it’s a place you can decorate and fix up according to how you want it (inside, anyway) and no landlord can tell you no animals allows or that sepia walls are out of the question. The feeling of walking into a place that no one else is allowed to come into unless you say so is pretty powerful. Owning a home often gives people a feeling of power over their own destinies. Some even say that they didn’t feel like an actual adult until they signed those papers and got handed that key.
All these emotional reasons are important, to be sure, but in a financial sense, owning a home has its benefits too. For instance, you’re no longer giving money away to the owner of a place for the privilege of unpacking your Tupperware there. You’re no longer at the whim of an absentee landlord. And best of all, you’re building equity and you’ve made the biggest financial investment you’re likely ever to make, and it’s relatively low risk and high return. Plus you get to live there.
But there’s more. Tax benefits, and in these tough economic times, it’s nice to have a buffer between you and a growing tax burden. Mortgage interest, home equity loan interest and sometimes mortgage insurance premiums are tax deductible. What specifically does this mean? It means that paying real estate interest and insurance lowers your tax liability by lowering your income.
Also, the profit you make when selling a home is tax free up to $250,000 if you’re single and $500,000 if you’re married and file taxes jointly. Amounts over those are taxable (capital gains) at 15 percent, but that’s another article.
To spell it out further, here’s an example of how your taxes are affected by owning a home:
Vladimir is a single, childless guy who rents a house for $1200 a month. His adjusted gross annual income is $128,000. He has $3500 state income tax withheld from his paychecks during the year and qualifies for no itemized deductions. His federal income tax liability for the year:
Adjusted gross income: $128,000
Standard deduction: single $4400
Personal exemption $2800
Taxable income $120,800
Vladimir's 2018 federal income tax: $32,129. Ouch! That’s a lot of travel money!
But if Vladimir buys a house with a mortgage payment of $1200 per month, everything changes:
Adjusted gross income $128,000
Itemized deduction for state income taxes: $3500
Itemized deduction for real estate taxes: $1500
Itemized deduction for mortgage interest: $11,400
Personal exemption $2800
=taxable income: $108,800
=Vladimir’s federal income tax: $28,409. He just saved almost $4000 by buying a house instead of paying rent.