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How private equity is changing housing

theatlantic.com

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Re: How private equity is changing housing

#111

Post by triceratops »

gjsman-1000 wrote: post #61
orwin wrote: post #58

Earlier quoted context omitted.

If the tax is set at say 2% of wealth (excluding primary home and _displayed_ artwork/collectibles), and that's above your income, just pay with your stocks at the valuation they have at tax day.

This assumes everything can be paid in liquid public equity, which is often not the case in any private or offshore investment. Additionally, the government now owns stock they can't realize without by definition causing a stock market decline. Sell stock that previously wasn't on the market, you exhibit permanent downward pressure.

Why can't the government just own stakes in private and public companies? Put them into some kind of sovereign wealth fund. No need to sell at all.

At scale the government's holdings will be very diversified and relatively low risk. Almost like an index fund, but for the entire economy. They can use the dividend payments from these holdings to reduce income tax.

Re: How private equity is changing housing

#112

Post by potato3732842 »

nradov wrote: post #25
potato3732842 wrote: post #11

Earlier quoted context omitted.

>and skimping more on maintenance/landscaping I.e the kind of stuff everyone wants to do but can't justify flying so close to the sun on because they don't have a legal army say "we are in compliance and here's why" on their behalf when the municipal government comes looking for fine money or the slip and fall lawyer tries to make something their fault. In "reasonable" (note for the bottom feeders, I did not say "fre…

It's usually the opposite. In a lot of rental markets the small time landlords do even less than the minimum in terms of maintenance and upkeep, whereas the big corporate landlords at least have some basic level of organizational competence. Most local governments don't have the resources to do much enforcement so only the most serious violations are ever punished.

Eh, toss a coin. I've seen it cut both ways. Corporate can be "is sending someone to fix it" for months just like a slumlord.

Re: How private equity is changing housing

#113

Post by CGMthrowaway »

stock_toaster wrote: post #29

Wild idea... Maybe tax wealth instead of income? Tax break on single home ownership, but significantly increased tax on multi-home-ownership? It would be interesting to see comparisons between PE ownership in markets with property tax vs markets without.

Lots of jurisdictions have higher property taxes for non-owner occupants

Re: How private equity is changing housing

#114

Post by bpt3 »

HexPhantom wrote: post #77
hardtke wrote: post #18

One of the issues the article doesn't mention is that these houses are effectively cheaper to purchase for corporate owners. Generally they can borrow money at a lower rate, but the ability of corporate owners to use depreciation on a new purchase to offset profits from previous purchases is more significant. Effectively they are redirecting money that would be paid in taxes into the payments on the new purchase.

It's wild when you think about it: a family scrapes together a down payment and pays full freight on property taxes, while a corporate landlord can roll one property's paper losses into the next deal and keep building their portfolio, tax-deferred

In many states, there's a homestead exemption on property taxes that doesn't apply to non-owner occupied properties, so the opposite is true.

Also, I don't know what you mean about rolling paper losses into the next deal, but I suspect it's not accurate either.

There's a reason this non-existent loophole wasn't mentioned in the article that was looking for reasons to hate on corporate landlords.

Re: How private equity is changing housing

#115

Post by Ekaros »

swat535 wrote: post #86
api wrote: post #37

Earlier quoted context omitted.

PE buying real estate is a long bet on housing prices. If supply increases enough, prices flatten out and then fall, and the longs get crushed. These investments are a bet on continuing to under-build and under-densify.

If they buy out all the supply, there will always be a shortage.

So build so much they cannot rent all of it. Over supply will eventually drive down prices.

Re: How private equity is changing housing

#116

Post by pempem »

CGMthrowaway wrote: post #109
triceratops wrote: post #104

Earlier quoted context omitted.

What is this special depreciation corporate owners get? IIUC any landlord can use depreciation to lower their tax bill. Wouldn't the depreciation from a new purchase also apply to the rents from that new purchase? Somewhat more outrageous is the 1031 exchange. Sell VTI at a profit to buy VOO and the government hits you with a capital gains tax. Sell your primary residence for $250k more than you bought it - same thin…

It's not special, just requires scale for it to make sense. E.g. Cost segregation studies and UPREIT transactions are cheaper on a neighborhood level. And you need enough passive income to absorb the depreciation losses

^ This

And the scale applies at every single step of the process. A citizen homebuyer is playing a oneshot game. There are few discounts to be had and every single fee is its own battle.

A corporation/PE is playing a multi-shot game. There are bulk discounts, relationships, and scale that is applied to everything from title insurance and inspections to cost segregations to filing all of the paperwork.

Re: How private equity is changing housing

#117

Post by gruez »

djoldman wrote: post #44

> The United States is short 4 million housing units, with a particular dearth of starter homes, moderately priced apartments in low-rises, and family-friendly dwellings The number cited links to here: https://upforgrowth.org/apply-the-vision/2023-housing-underp... Which has this as the report: https://upforgrowth.org/wp-content/uploads/2023/10/2023_Hous... The number is driven by this definition: > Missing Household…

Did you intend to add something after the definition? For better or worse, "moving out once you reach 18" is widespread enough of an expectation that it can be used as a yardstick for housing shortage.

Re: How private equity is changing housing

#118

Post by welshwelsh »

TheChaplain wrote: post #66
stock_toaster wrote: post #29

Wild idea... Maybe tax wealth instead of income? Tax break on single home ownership, but significantly increased tax on multi-home-ownership? It would be interesting to see comparisons between PE ownership in markets with property tax vs markets without.

I've had the same idea, but with no property tax on ownership of a single dwelling place. If the burden is lessened to have your own place, hopefully we could see less homeless on the street or living in cars when times are tough. However if you have more than one, then you pay significant property tax on all of them. I would hope that could free up more places for more people getting a home. But of course if you ear…

That sounds like it would penalize renting in favor of homeownership. I'm not in support of that, renting offers people flexibility and is not inherently worse than owning.

Re: How private equity is changing housing

#119

Post by JumpCrisscross »

CGMthrowaway wrote: post #95
zipy124 wrote: post #53

Earlier quoted context omitted.

This is not true at all. Corporate loan rates are generally pretty damn high, only exceptionally can they borrow for low rates. Mortages however are a special case since they are basically mandated to be low and safe by most governments in exchange for letting banks exist. Or in the US explicitily guaranteed through freddie mac and fannie may.

You whiffed on the point (note the word "but" in parent comment). The depreciation strategies are where the real benefit is. PE buyers use 60% bonus depreciation and cost segregation studies to create a $70-80K writeoff on a $120K asset, which often larger than the check they cut for the property in the first place The final phase is to exit via UPREIT for OP units rather than cash, with the REIT getting a step up in…

> PE buyers use 60% bonus depreciation and cost segregation studies to create a $70-80K writeoff on a $120K asset

Source? That looks like a juicy target for state taxation…

Re: How private equity is changing housing

#120

Post by mikeg8 »

api wrote: post #37
ryanmcbride wrote: post #22

Earlier quoted context omitted.

Not if private equity just snatches it all up. Yes build more. Also regulate the oligarchs until they no longer exist.

PE buying real estate is a long bet on housing prices. If supply increases enough, prices flatten out and then fall, and the longs get crushed. These investments are a bet on continuing to under-build and under-densify.

its a good bet on their part (although i hate it). we obviously can't increase supply fast enough to keep up with demand in the current regulatory climate and with an existing shortage of skilled tradesmen and ratio of tradesman retiring out vs newcomers entering construction, there doesn't seem to be a feasible way to meaningfully increase supply.
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