TL;DR
**NO*
This blog is in no way shape or form meant to be political. This blog is meant to be informative, add value & to offer a different perspective. You can have knowledge, but at the end of the day it’s what you do with that knowledge that counts. ~ Ray Martinez, founder Skyrise Real Estate Group
AB 1771
California Bill AB 1771 is proposing a 25% tax on the profit of home flippers which will have a tumultuous effect on the California Real Estate market. Meant to address the frustration people are feeling with rising home prices and rents, the reality is that investors (including flippers) are adding value to the market in ways that this bill will negatively impact.
Identifying the Wrong Root Cause
Although the Real Estate market has seen skyrocketing value increases, we have often pointed out that low mortgage rates and low housing supply have been key factors for this–especially during the pandemic.
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- Buyers Want To Know: Why Is Housing Supply Still So Low?
- Sellers: Don’t Wait Until Spring To Make Your Move
The Value Flippers Bring
Flippers are actually creating supply. Yes, a flipped home will be more expensive after the usual remodeling that’s involved, but buyers are indicating a willingness to purchase such modernized homes. This is especially true when we consider that many of these homes would have been unable to obtain traditional financing due to their condition prior to remodeling. The public will find that flipped homes come in all price ranges including those for first-time homebuyers.
Why Are Institutional Investors Not Included?
Institutional investors are not targeted with AB 1771 unfortunately because many are buying and holding Real Estate instead of flipping it. Big corporations are playing real life Monopoly while hurting market supply.
By The Numbers
Investors purchased one out of every three U.S. homes according to the below graph in January 2022. It is unclear how much of this increase represents flippers because not all investors are flippers (See Institutional Investors above).
Redfin–Investors Bought a Record 18% of Homes That Sold in the Third Quarter–indicates that investors purchased 18.2% of the national Real Estate market in Q3 of last year though.
Although AB 1771 states that there has been a 51% growth in investors in Southern California since last year, we still don’t know what part of that is actually representing flippers. In fact the dip in investor activity a year ago may help explain this crazy number.
Bottom Line
AB 1771 may actually be targeting a source of needed supply in California while failing to address the big picture of affordable housing and more supply.
As a broker and also as an investor I can see how passing this bill would cause more harm than good, however this is my perspective. ~ Ray Martinez, founder Skyrise Real Estate Group
