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How private equity is changing housing

theatlantic.com

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Re: How private equity is changing housing

#191

Post by quesera »

UncleMeat wrote: post #176
quesera wrote: post #154

Earlier quoted context omitted.

That's a very strange way of looking at property taxes.

I do not see the difference between property taxes on my home and property taxes on my stock portfolio. What makes wealth taxes bad?

A corporation does not provide services to shareholders.

A municipality is charging residents for services. Obligations are progressive (by necessity), and indexed to assessed property value (as a practicality), rather than equity or income.

Municipal operations get more expensive with inflation, and with resident demands (ballot initiatives, etc). They are never zero, and must be tied to something in the real world.

These payments are collected as a tax, because that is the only lever available to municipalities.

I see your point, but I think it's a category error.

You are taxed on realized property capital gains, beyond a certain amount ($500K?) for principal residence (anywhere you've lived two of more of the last five years). And for a non-principal residence there is no threshold.

Re: How private equity is changing housing

#192

Post by ssl-3 »

malfist wrote: post #160
ssl-3 wrote: post #134

Earlier quoted context omitted.

From individuals? Anecdotally: I've rented 5 different single-family houses in my life. All of them were rented from individuals. Only 1 out of the 5 had a landlord that owned some other stuff that they also rented out. For the remaining 4 out of 5, the landlord only had that singular property to rent: They lived wherever they lived, and they also had an extra house for whatever reason that they rented to me.

I'd be willing to bet the majority of those "individuals" were incorporated as an LLC to limit liability, thus making them corporations.

I knew these individuals (no scare quotes required) personally before I rented from them.

But sure: If you want to bet that you're right about a very specific situation that you have no specific knowledge of, then don't let me stand in your way. A fool and his money are soon to part.

Re: How private equity is changing housing

#193

Post by raw_anon_1111 »

triceratops wrote: post #104
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.

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…

You can only deduct passive income losses for depreciation if you aren’t a real estate professional of up to $25000 and that’s only if you earn less than $100K. It starts phasing out between $100K and $150K

Re: How private equity is changing housing

#194

Post by javascriptfan69 »

danesparza wrote: post #122

Corporations shouldn't be allowed to own residential properties. Period.

Sorry, but this is just a bad idea. It's classic populist slop.

The biggest driver in housing prices is under supply. The main source of under supply is individual home owners who consistently vote against good zoning to protect their economic interests.

Corporations do not have the votes to strangle supply like individuals do.

Re: How private equity is changing housing

#195

Post by guyzero »

ahmeneeroe-v2 wrote: post #179
guyzero wrote: post #106

Earlier quoted context omitted.

Framing foreign-born residents as "artificial demand" is definitely a thing you can do, but it doesn't align with reality. Some portion of the foreign-born population are naturalized or are family members of US citizens, so it's not like waving your magic racist wand would actually solve the problem.

It's weird that immigration and housing is an off-limits topic for you that you're not able to discuss it objectively.

I just said you're wrong, not that you're prohibited from discussing it.

Re: How private equity is changing housing

#196

Post by BeetleB »

triceratops wrote: post #104
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.

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…

> They can sell a house and pay no taxes on gains as long as they buy another property.

As long as they buy another property at least as expensive or more, within a certain time period.

And it's not that they don't pay taxes, it's that the cost basis gets reset. That is the benefit.

Re: How private equity is changing housing

#197

Post by postflopclarity »

quamserena wrote: post #73
postflopclarity wrote: post #12

build. more. and this problem will go away.

this sounds nice, but neglects the fact that (1) materials cost has gone up and (2) zoning requirements exist. (1) means its just more expensive to build overall, and (2) means that a lot of proposals for apartment complexes get voted down.

I'm not neglecting those facts. 2) is almost the entirety of the problem. the call to action of "build more" is not wishful thinking that someone will donate free houses to the public. the call to action is to vote for politicians who will remove the near-universal smothering red tape that prevents any kind of meaningful new housing construction

Re: How private equity is changing housing

#198

Post by jeffbee »

gnatman wrote: post #165
jeffbee wrote: post #137

Earlier quoted context omitted.

There is absolutely nothing wrong with institutional investors buying tract homes and renting them out. Nothing! It brings the benefits of living in such homes to people who otherwise would be excluded from them by the financial credit system.

The article linked in the OP, and many posters in this thread, present arguments to the contrary. The main one seems to be that although institutional investors are happy to let people “benefit” from renting their homes, they are precluding many from ever owning those homes themselves.

I understand the arguments, and I understand that they are morally vacuous arguments. It is simply an advancement of the interests of the bourgeoisie. They are annoyed that renters are effectively able to influence the market, even if by the second degree through large-scale renting. They believe that having scraped together a quarter million dollars for the down payment makes them a special class of people. It is a stupid position to defend.

Re: How private equity is changing housing

#199

Post by BeetleB »

PopAlongKid wrote: post #170
CGMthrowaway wrote: post #95

Earlier quoted context omitted.

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…

>create a $70-80K writeoff on a $120K asset, which often larger than the check they cut for the property in the first place They're only deferring the tax on $70-80K, correct?

> They're only deferring the tax on $70-80K, correct?

Yes, if they sell normally. But usually capital gains tax is lower than that on the income so overall they're saving.

To be explicit: They use the $70-80K depreciation to offset their rental income (which often means they pay no tax on the income for that year and several years after). They'll pay it eventually when they sell, but at a (usually) lower tax rate.

There are tricks like 1031 exchange to avoid paying taxes when they sell, but I don't know how depreciation benefits factor in to those.

Re: How private equity is changing housing

#200

Post by raw_anon_1111 »

oldjim798 wrote: post #189
tptacek wrote: post #173

Earlier quoted context omitted.

I love that there are people that can't even conceive of the idea that entities that let out apartments are providing a service to residents. In their view, the natural state of every resident is a desire to own their home. A fun knock-on effect of this policy proposal: it would effectively halt all new development of dense multifamily.

Yes, the natural state of every resident is to live in their own home. To be clear by home I don't mean "single family detached house on a suburban street", I mean a place to live with water, electricity, and a roof. Landlords provide no 'service'; they are merely an existence tax. The market already does not build dense multifamily; what is there to halt?

There is absolutely no way I would have wanted to be tied down to buying a house when I was young.
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