Market Watch: The Future for Flippers in SF?

As the city of San Francisco has proven time and time again, voting for change provokes public opposition. Next on the ballot this November is the huge tax that is being proposed on flippers. The tax rate, should it get approved at the ballot in November, starts at 24 percent, if the sale takes place in the first year, and falls to 14 percent after five years.

But why such a huge tax and why now? San Diego house flippers grossed an average of $113,800 per home in 2013, according to real estate firm Redfin. But San Francisco turned out to be in a league of its own. There the average house flipper gained just under $200,000—which is to say, a better payday than the total annual earnings of 95% of households in America. Seems amazing doesn’t it?

The measure, placed on the ballot by supervisors John AvalosDavid CamposJane Kim and Eric Mar, is designed to deter house flipping. Why do they say flipping is bad for the Bay area. According to the supervisors, the practice of buying, renovating and then quickly selling property they say is reducing the amount of rental properties on the market at a time when demand is increasing.

Opponents said a tax on housing will not make housing more affordable or plentiful. Is such a high tax the right answer? Other objections, voiced during a rally on City Hall steps recently, include that some people flipping property are “mom and pop” investors, not just big-money speculators.

“It’s the wrong thing to do at a time when there is a shortage of housing,” said Noni Richen, president of Small Property Owners of San Francisco Institute. “Raising the cost of housing raises the cost of rent.”

The idea of imposing an anti-speculation tax was first backed by former Supervisor Harvey Milk in the 1970s. It was one of the final pieces of legislation he was working on prior to his assassination, according to the San Francisco Anti Displacement Coalition, a group of tenant organizations backing the measure.

The idea got new life recently amid the rising outcry over escalating home prices and renter evictions that sometimes precede home sales. Also helping fuel the outcry were the recent reports from Redfin spot lighting the high returns investors gained in 2013. Supporters hope that curbing the financial incentive for flipping may help slow the forces that are helping to drive up property prices. What do you think?

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Erik Hitzelberger has been Real Estate Investor since 2007. While learning the ropes in the market down-cycle, he now teaches others how to use his systems and leverage other people’s expertise to achieve their own goals.

Erik Hitzelberger – who has written posts on Part Time REI.


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About Erik Hitzelberger

Erik Hitzelberger has been Real Estate Investor since 2007. While learning the ropes in the market down-cycle, he now teaches others how to use his systems and leverage other people's expertise to achieve their own goals.

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