Vacant Home and Rental Tax COMING FOR ALL HOMEOWNERS!

Well, I just learned something new and also very disturbing about empty houses. And did you know that you might not even be able to leave your house empty anymore without being severely penalized by your local government? I know I've heard about different things like vacancy tax that they implemented in California and in a few other places, but it seems like stuff like this is becoming more and more the norm. And I'm not even sure how to feel about this, guys. On the one hand, you know, a vacancy tax or charging people money to have an empty house, you can say, well, obviously, if this person can afford to leave their house empty, then they can afford to pay this tax. But it's also penalizing people for having wealth, just like states with really high income taxes like California. To me, that's a penalty. You know, it's a disincentive to do well because the more you make and the more they take. And it doesn't really make sense to live in a place where, you know, you're kind of penalized for being successful financially. As of right now, LendingTree determined that there's about 5.6 million empty homes throughout the country. And apparently, very soon, many of the people who own these vacant houses will be required to register them with local government agencies if they're not already requiring that. This is something totally new. I've never heard of this happening until now. According to Adam Data Solutions, they say that in the third quarter of 2024, about 223,000 zombie houses, which are ones that were abandoned before the foreclosure process began, were moving through foreclosure right now. So those were already abandoned houses that are moving towards foreclosure. Now, the local governments that enact these laws say that the reason for this is because they don't want these houses to become an eyesore. But the part of it that they don't tell you is that these regulations are usually a source of revenue for them. Surprise, surprise. And sometimes a huge source of revenue, which is especially important to cash-strapped local governments. In fact, in Henderson, Nevada, they are one of the worst offenders where they charge $848 just to register a short-term rental property. And they charge that $848 a year to renew every year as well. And they're probably going to continue raising that as time goes on. It's not going to get cheaper. And there's also penalties for failing to register these properties, whether it's being registered as vacant, registered as a rental, or whatever. Like, for example, in North Palm Beach here in Florida, failing to register a rental can result in civil penalties such as court costs and administrative fees. In Sarasota, applications cost $500 and renewals cost $350, but missing the deadline to register adds a $200 late fee to the tally. This is all a huge, huge rip-off for homeowners. And get this. Here's what they do in Washington, D.C., guys. This should be completely criminal and outlawed, but a lot of things they do in D.C. are criminal to begin with. But if you register a vacant house in Washington, D.C., your tax rate jumps from $0.85 per $100 of appraised value to $5 per $100 of appraised value, guys, meaning your property tax bill will go up more than 5x if this happens. How insane is that? How they're able to get away with stuff like this and implement this is beyond me. And some people will be like, well, what if I just don't pay? What if I just don't tell them that my house is empty to avoid this massive increase in property taxes? Well, apparently, they are known for checking water and utility and electric bills over there in an effort to find unregistered vacant properties. If they catch one, or if a place is considered blighted, the tax rate jumps to $10 per $100 of assessed value. So you get double penalized if you fail to disclose this and they catch you later on in the act, guys. How crazy is that? Now, obviously, the levels of severity with this are probably different everywhere, but I've never heard of anything like this where they can increase your tax rate basically tenfold just for not saying that your house is vacant. So here's the bottom line with all of this. If you have a vacant house anywhere in the country, or if you rent out your house on a seasonal or somewhat irregular basis, you need to find out what your local jurisdiction requires you to do in terms of registration or if they have anything about this. Because if you fail to comply, they can punish you big time, as we've seen right here. And to add insult to injury, the registration requirements change pretty frequently for a lot of these local governments, which means you always have to stay posted on what the newest requirements are. This has even got me thinking, because since I like spending my time in the summertime in California, about checking what the local laws are over there with this stuff, because, you know, one day I might want to buy a second home there instead of just going there and renting a place. But if I find out there's all sorts of registrations and penalties and this and that for doing it, I might as well just stay a renter forever, even though it's more inconvenient. It's not as nice to be moving in and out of places all the time. It might make more sense. But it goes beyond that too, because then you have code compliance, for example, in a lot of neighborhoods, where it's not just that you have to register your property for different things like being vacant or being a rental, but you also are required in many cases to keep the grass kept at a certain length or flower beds must be free from weeds. Other local rules could be things like requiring you to rake up leaves, clean up after storm debris, repair broken windows and fences, all sorts of things. And so having a vacant property can be very difficult to maintain from far away and make sure you're in compliance with all of these local rules and regulations. So your best bet and really only hope as a homeowner with all of this, the standard advice for this is that, you know, basically form a relationship with your local code enforcement agencies that handle all this stuff so that if an issue does arise, you can have better negotiating power with it. And also you may be able to lower the severity of fines if you do get dinged one day. So basically you have to kiss someone's ass who's in charge of writing the fines. It sounds just like being on the good side of the condo Karen or the HOA Howard. Now throughout the country, people have also a record amount of equity sitting in their homes. But the problem is a lot of that equity is untouchable for one reason or another. And so it's kind of ironic. This is like having a big trust that you can't touch because if you are somebody that lives in a house that's worth a lot of money, the only way to access the equity in that house is number one, you can sell that house and take the money off the table, but then you still have to live somewhere. And chances are wherever you're going to live next is going to cost more than what you're paying at the current property. Or you have to borrow against the property in order to pull money out and to be able to access that equity. But that also can be expensive. And now that I'm talking about this subject, it reminds me of something I want to clear up real quick because I mentioned in a previous video that property taxes are a tax on unrealized gains. Okay? Your property goes up in value and the government taxes you more based on the house's current value that they assess it at, even though you haven't sold the house and actually taken those gains off the table. And then you have a bunch of people who wrote very stupid comments that said something along the lines of, well, you can take equity out of your house. You can borrow against your house. So therefore you can realize the gain. Well, first of all, that's debt. When you borrow against your house, you're taking on debt. That is not income. Okay? When you sell the house, it's income. But when you borrow against your house and you take money out of the property, that doesn't count as income, guys. You don't pay taxes on the money that you borrow from the house because the government doesn't treat it as income. And therefore, you're not going to be taxed on that money. Just like when you go to buy the house to begin with and say you need a $300,000 mortgage, you don't get taxed on that $300,000 that the bank gives you to buy the house because it's not treated as income. It's debt. It's money that you have to pay back with interest. So saying something along the lines of property taxes going up and having that not be unrealized gains because you can borrow against the house is one of the dumbest things I've ever heard. And clearly, people who are saying this don't understand how debt and income actually works. So just wanted to clear that up real quick. Right now, homeowners are sitting on a record $35 trillion in equity. And you have about three different categories of people across the country right now. You have people that are locked out of homeownership completely because the cost has gone up too much. You have those that are stuck in their homes with golden handcuffs because they have too good of a deal right now that they just can't let it go. And then you have the people who have been able to benefit from decades of appreciation, you know, people in the older generations who are selling these properties for 10, 20, 30 times more than they purchased them for, you know, 30 years ago and taking all those gains off the table, which is probably going to be a once-in-a-lifetime opportunity for all the people taking advantage of that and good for them. So it's no surprise that because of how expensive housing has got, first-time homebuyers has dropped to an all-time low. And the problem is, in the past, traditionally, first-time homebuyers would buy a home in their late 20s, statistically speaking. But today, the median age of a first-time homebuyer is now 38 years old, which removes more than a decade's worth of appreciation that somebody could potentially take advantage of when buying a home, which is going to affect how wealthy they are in the future, especially as we see a giant demographic shift in this country and a lot of the baby boomers begin to die off without a big wave of new population to replace them. I mean, take a look at this chart going all the way back to 1985 that shows you the share of first-time homebuyers that purchase houses in this country. The highest that it ever was since then was back in 2010 when it was about 50%. And the reason for that, I remember very vividly because I was selling homes back then, and it was because there was a big tax credit for first-time homebuyers. There was a ton of different down payment assistance programs available, essentially, to help people get into homes at little or no cost to them up front, kind of similarly to what we're seeing right now, but on a much grander scale back then. And you can see, after a lot of people took advantage of that, there was a pretty sharp decline in the amount of first-time homebuyers. And even today, it is at the lowest level that you're seeing on this graph, guys, where it's barely 28%. Wow, take a look at this Mustang. I'm sure all the car people out there will enjoy that. I think it's cherry. Beautiful car. But here's the problem. When you have a lot of equity in your house, like I said, you're either forced with selling the house or borrowing against the house. Selling is not a very appealing proposition right now when 70% of current homeowners have a mortgage rate below 4.5%. And the average 30-year mortgage rate is still hovering right at 7% right now. And if you want to borrow against the house, that's definitely not cheap. It's arguably even more expensive when you look at the amount of interest you're charged to borrow against the house and keep the house, because the average rate for a home equity loan is sitting at 8.4% right now. And a home equity line of credit is even more expensive than that and fluctuates. So don't forget, as interest rates go up, so does your payment for the home equity line of credit. So the issue is that even though you have a lot of equity-rich Americans, the only way that makes financial sense to tap into that equity is to actually sell the house. And that creates all the new problems like we've talked about before. Where do you go next? Can you even afford to buy another house, which most people can't? You're going to pay capital gains taxes on the profit that you make from the sale, whether it's long-term or short-term. And a lot of people think, well, I'll just borrow against the house and worry about it later. But people fall into all sorts of traps with this, especially when it comes to getting a home equity line of credit. They say, oh, this is great. I can borrow against the house now. I don't have to start making payments right away. I'll just deal with it later. But that's actually one of the most irresponsible things that somebody can do as a homeowner. One thing that people think is going to happen is that their rate will continue to fall once they get to HELOC, especially in this environment where the Fed is lowering interest rates. We see inflation coming back and going back up, which means there's a high probability that interest rates on a HELOC could go up as well. All these houses with these massive price cuts, check out this one here. They listed it back in April for 8.1 million and have since lowered the price more than a million dollars. Guys, we're talking half a million dollar price cuts at a time and still no takers. And it's not just the house for sale. There's a big lot next door, I guess, that's for sale too, right here by this fence. So pretty big property for sale here. And another one that they've owned for a very long time because their property taxes are only $9,500 a year. But it's like, who wants this, guys? This is a giant house, looks pretty old for the most part, probably needs a lot of work. And you're talking almost $7 million for a house like that. Even if I had the money to buy something like this, I wouldn't buy it. I would buy something a lot more modest, much easier to maintain, and much lower property taxes and yearly cost to own a property. Here's the other mistake that people who borrow against their homes fall into, okay? They think, and they always believe, that the value of their home will continue to go up no matter what. And they're using that as leverage into the future. Like, well, if I borrow against the house now, then it'll be easier to pay off this debt as the house continues to go up in value because then I can just use the house to pay off the debts, essentially. They're banking on the fact that the house will go up in value so much that they'll be able to pay off their current home equity loan by refinancing their home again in some way, or taking out more debt on the property. And this is just really poor financial behavior for the most part when you have people borrowing against their house and kind of just banking on the fact that it'll go up in value in the future and saying, this is what's going to get me out of this mess. I don't have any real ability or intentions to pay it off. I'm just going to wait till it goes up in value and pull more money out. If you're lucky enough to skate by life doing that and you can just get away with living off your house for decades at a time, then more power to you. But it doesn't really work out that way for a lot of people, especially when the house starts going down in value, like we're seeing in so many parts of the country right now. There's a couple other things happening in local real estate markets right now. Like here in Florida, they announced that they're going to have a My Safe Florida Condo Initiative, which was recently just launched this past week. And what it is, they're going to be offering free inspections and grant funding for wind mitigation improvements to help eligible condos strengthen their properties against hurricanes. So they have a similar program like this already for people who own single family homes. And now they're rolling it out to some condo buildings as well. The state recently just set aside about $30 million in funding. So this is just like the first annual budget for this. Whether or not this is something that will get renewed in the future, who knows. But basically how this works is they'll give condo associations within 15 miles of the coastline that are eligible a maximum grant of $175,000 for the whole building, not per unit owner, okay? And the grants are matched based on a $1 provided by the association for every $2 provided by the program. So the condo association has to match half of the money that they get as a grant. So if they get a $100,000 grant, then the condo association has to match that with an additional $50,000 to allocate towards these upgrades and repairs to make the building more hurricane resistant. And these things are going to be available for things like reinforcing roof-to-wall connections, improving the strength of roof deck attachments, secondary water resistance for the roof, opening protection, including exterior doors, garage doors, windows, and skylights. Basically just trying to reinforce the building so it can better withstand a storm. And you know me, I'm not a big fan of government giving away free money for anything, but they're already giving this to people who own single family homes. So why not give it to people who own condos as well? And of course, if my building ever gets anything like this, I'll be sure to let you guys know. I have no idea if we'll even get anything or what will happen with that. But I'll keep you posted. Over in New York City, for the longest time, it's been common for tenants over there, people looking to rent, to pay their broker that helps them find a place to live. But apparently just this past week, they got rid of that in NYC. Renters typically in the past would pay fees, which can be 15% or more of the annual rent. And that's kind of the fee that they were paying their brokers. I always used to wonder when I would get people coming down from New York, how much I would charge them as a renter to help them find a place. And then I quickly discovered after a few people asking me that, that this is common practice in New York. So I'd always tell them, well, my service is free, but if you want to pay me extra, I'm not going to complain. Because here and many other places, the landlord always paid the commission, just like when we're selling houses. And now all this got flipped upside down too. So this is set to go into effect in about six months from now. The median rent price in New York City is about $3,400 a month right now. And the cost to move into a new rental averaged about $13,000 in 2024, which is up 59% from 2019 guys. So it is extremely expensive to move into a rental over there. And they say the biggest chunk of that cost is actually the broker's fee. And of course you have your first month's rent, last month's rent and security deposit as well. And any fees that the building will charge you too. Some of the opposition to them getting rid of the broker's fee, people are saying that, well, this is going to cause rent prices to go higher now because landlords are going to be the ones having to pay to get the place rented. And therefore they're going to build that cost into the rent, which they probably will. Let's be honest. Of course, the real estate board in New York is totally against it as well. The real estate board is saying not only will it raise rents, but it's going to make it more difficult for real estate agents to find housing for tenants. But other people are saying, Hey, you know, this is making it cheaper for tenants now to move into a property. And when people are already strapped for cash and inflation has already taken such a big chunk out of people's wallets, then any relief we can get right now is a positive. So I don't know. You guys let me know what you think about that. So if you enjoyed this video, make sure you subscribe to the channel. 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