Friday, March 16, 2007

Affordable Housing Initiatives in South Florida: Part 6 - The Battle for Mordor Begins

The Sun Sentinel (yes ... it is one of my primary news sources as it is the best paper down here) had a great update on where the property tax battle is headed.

Basically the scene is set that the Republicans and Democrats agree (WHOA!) that something has to be done. They also agree that their plans both have merits (WHOA WHOA!)... but the biggest changes are just not striking the fancy of either side.

State Senators seem to be tense about the entire subject but only a handful are standing up for what could be the most important legislation of their term(s) in office!

Note, the (S) was not only for those incumbents.. but for the lack of incumbents should changes not manifest.

Oddly (for Florida) the Democrats seem to be the ones with the most ideas of compromise. They're dismissing the 2.5 cent raise in Sales Tax as too high. They're offering 1 cent instead. Their reasoning is that the State needs to make back some of the revenues it is giving up by rolling back taxes.

The Democrats want to cap property tax increases and increase Homestead Exemptions to 1/2 of the MEDIAN property value of all homes in the county. This is actually an amazing idea. In Palm Beach County with the median household over $400,000, it would definitely benefit a huge number of citizens... but more importantly it would benefit the RIGHT Citizens.

Anyone who owns a house under homestead which is valued UNDER the Median will be assessed taxes on HALF the value of the improvements! This idea definitely benefits the lower and middle income homeowners as well as the seniors.

The higher income homeowners will get a break - it just won't be equitable to their lower income neighbors. There is sure to be a stink raised about this - especially by lobbyists... but it should calm down once the higher income homeowners realize that 1/2 the median property value is considerably higher than $25,000.

There will also be a cap on ALL increases that will help snowbirds and other non-homesteaded property owners.

The biggest sign of bi-partisan politics was in the area of valuation. The war between Palm Beach County and Broward County appraisers Gary Nikolits and Lori Parrish has spilled over into the capitol. Senators side with Ms. Parrish in her war of words that you cannot assess or appraise a property based on Potential Use but on Current Use. Her idea is that it is not the County's job to speculate on HABU (highest and best use) but instead to assess what is actually drawing in dollars.

Millions of dollars would be lost in revenue under this plan though. The 1% hike in sales tax will make up a portion of it but lawmakers will have to make some other concessions to be able to fund cities, counties, public hospitals, school districts and state government. Some of the things that could be affected instead of or along side sales tax are Slot Machines, Bio-Fuels, and Off Shore Drilling.

The best quote thus far is by State Rep. Carlos Lopez-Cantera R(Miami) "As far as I'm concerned, they [public agencies] weren't supposed to have this money in the first place."

On a Side note.. us Cell phone abusing Realtors and Mortgage Brokers are likely to get as much as a 30% break in taxes on our cell service... the average $50 cellphone bill has $15 in taxes! That should be cut soon! Think of how that money would help the state!

But now its time for me to go...
the Autumn moon light my way...
But I know I've got one thing I've got to do...
Ramble On...

Led Zeppelin

Wednesday, March 14, 2007

Affordable Housing Initiatives in South Florida: Part 5 - The beginnings of a FIX

Legislators consider new proposals for appraising properties in Florida

Mark Hollis of the Sun Sentinel wrote an article today about the first step in changes in Affordable Housing - specifically in South Florida's hot climate...

Today, state officials made the first step in lowering property values and possibly kill an ongoing border war. They have decided that County Appraisers should be basing their appraisals on "as built" not "potential use"...

There are people with great properties that are "in the path of progress" or in "eminent domain" areas that are suffering higher tax rates because the Palm Beach County Appraiser Gary Nikolits has determined that their property value is some huge number not because of what the building as improved is worth but what it would be worth for highest and best use - despite the fact that someone might be living there for 30 years and maybe don't want to sell. In the meantime their house is being taxed to death and they're being forced to sell.


And the story is... the Broward County Florida Appraiser's scathing comments about Mr. Nikolits were JUSTIFIED according to State Officials.

The Benefit of this is that when the Legislators do roll back taxes to help taxpayers... the value will be rolled back AND assessed values will be restated as AS IMPROVED - not HABU (Highest and Best Use)

Friday, March 9, 2007

Florida Property Tax Update - Several New Ideas!

The news yesterday and today shows the heat is rising in the debate over how to "fix" Florida's property tax problems.

In short, the middle class is being choked out of Florida property. The reason is because there is no state income tax so there is a higher property tax. The Middle class is the upwardly mobile group that is upgrading from starter homes at 3bedrooms 2bathrooms to the family home at 5bedrooms 3 bathrooms... That jump in property NEEDS creates a new price point at which they can be taxed.

The method I've become comfortable with using to calculate property tax on a single family home is:

  • Purchase Price - 20% for land = Improvement Taxable Base - Homestead $25,000 = Taxable Base x 1.75% (millage) = Annual Taxes

  • For a condo, subtract only 15% for common area...

This debate is coming at a pivotal time for Florida and could cost the state hundreds of millions of tax dollars if instituted improperly.

What's on the Table:

  • Republicans in the State Senate have proposed to roll back taxes to the 2001 levels. This would bring the taxable bases down significantly AND take off the 3% max annual increase for the past 6 years for another 18% potentially. This bill is seen to be controversial because some areas would see bigger drops than others due to appreciation, local millages, and local improvement. This is an interesting compromise to what I will detail below in the unrealistic area.

  • Democrats are saying that the Republicans have a stupid idea and they need to have more time to review all options... Republicans are saying that further review increases suffering and stalling is actually hurting everyone. Democrats' assertions are that sweeping tax cuts will just hurt local services like libraries, police and an already hurting school system.

  • Democrats announced yesterday that their solution is to reduce property taxes 30% across the board and raise sales tax 2%. That would put sales tax as high as 8.5%... which while reducing PROPERTY taxes, Renters will suffer as will small businesses renting office, retail and warehouse spaces. Services across the board could remain unhurt but big ticket product vendors might get squeezed.

  • Republican Governor Charlie Crist wants to be very careful and look at other forms of income for the state so there is no huge drop in budget dollars. One thing that is in the works is a lawsuit against the US Government by the Seminole Indian Tribe. Currently gaming regulations have not allowed them the same gaming rights as their local competitors. In Florida, the Seminole Tribe owns 8 casinos - 4 in South Florida. Their most recent acquisition has been the entire chain of the Hard Rock Cafe, Hotels and Casinos brand. They have two such resorts in Florida - Tampa and Hollywood/Ft Lauderdale. In their casinos they are only allowed poker, video poker and bingo style slots - they are suing for equal rights to Las Vegas-style slots which will allow them to gain some of the casino-dollars lost to the local off and onshore slot machine venues like Gulfstream and Calder Racetracks. Gov. Crist is backing their claims of unfair competition and in return he hopes to work a deal to acquire tax rights to the new Vegas-style slot machines that they install. Currently the state has a 50% tax on Slot machine profits statewide ... except at Seminole Nation Casinos. This would be a first level of gaming taxation the Seminoles would accept but would ultimately profit their enterprises and the State of Florida.

What's Unrealistic:

  • Leaving taxes where they are is creating a brain drain in several ways. First, the middle class is creating a virtual exodus to surrounding states where they can be transferred and have more space and not be burdened by such high cost of living due to property taxes. It is also creating a drop in enrollment in colleges statewide due to high housing costs around college towns.

  • The first bill which saw praise but was incredibly unrealistic was to do away with property taxes altogether and just raise sales tax 2%. The estimated loss in revenue would be $800,000,000 to the state budget!! How much could 2% make up for that enormous a loss! That would require $40,000,000,000 in taxable goods and services sold just to come up with that many tax dollars....

What's an outside hope:

  • President Bush arrived in Sao Paulo, Brazil yesterday to widespread protest. One of the best bits of news for Florida in this trip is his negotiations to create a Bio-Fuel Alliance with Brazil - the world's largest producer of Sugar, a by product of production is Ethanol from the leftover Cane. In Brazil, I saw Ethanol sold at all the same stations that sold gas ... and for 1/2 the price. As Florida is also a huge Sugar cane producer, the alliance would provide the Ports of Miami and Port Everglades the opportunities to receive the importation of Ethanol fuels from Brazil to sell in the US. This will create a new Biofuel Trade Zone and Mini-Economy based in South Florida! Taxes could be levied to benefit the State and as the FlexFuel industry grows - so shall the tax dollars for Florida.

There is a lot at stake in these debates. The issues are stifling but the Republicans are seeing this as an opportunity to make sweeping changes prior to the 2008 elections which would not take effect until Jan 1, 2009. In the 1.75 years until then, the whole state will feel the pressure - and this is what lawmakers are trying to relieve.

More Florida Mortgage and Real Estate News You Can Use From
David A. Podgursky, MBA
The Mortgage Go To Guy
Your Source for Residential, Commercial, Investment and Relocation Mortgages in Florida

Wednesday, March 7, 2007

Second Homes - What are they??: Lending Information from The Mortgage Go To Guy!

What makes a Second home a 2nd Home?

  • That it came in 2nd Chronologically in the purchasing order?
    Well... semantically YES... technically NO
  • That it isn't where you live??
    Well... technically YES ... Semantically NO
So we're fighting Technicalities and Semantics now, eh?

Why do I ask these tough questions?? Because - we Real Estate Professionals in South Florida are surrounded by Second Homes and sometimes the people that own them! Why sometimes? Well... they're called Seasonal because they're here for "Season"... Get it?

No?? People have different measures of season depending on the demographic... suffice it to say, Season here in South Florida is roughly September to April....sometimes more sometimes less - depending on the weather.

We call these people Seasonals or SNOWBIRDS.

In Charlevoix, Michigan, they call people with 2nd homes there FUDGIES. They claim that the out of towners only come for the fudge. Let me tell you this about Charlevoix's TOWNIES... they overestimate their fudge producers and underestimate the beauty of their Lakes, Sunsets and Stargazing places!

What are other names for 2nd Homes?

  • Weekend Homes
  • Weekend Retreats
  • Summer Cabin
  • Winter Getaway
  • House in the Hamptons
  • House on the Shore
  • Cottage in Maine
  • Ski Lodge in Aspen
  • Beach House

From a Lending standpoint - these names all have some commonalities that help us classify them as Second Homes and NOT Primary Homes or Investment Properties. Can you pick them out?

  1. First of all... notice LOCATION LOCATION LOCATION. Typically a Second Home is considered to be Fifty (50) Miles or further from your Primary Residence. So the person in Long Island that buys a Condo in Boynton Beach is further than 50 miles from their Primary during Season eh?
  2. Second of all... Notice Ski Lodge, Hamptons, Getaway, Beach... Those are descriptives that help qualify the property as SIGNIFICANTLY SUPERIOR. What? That 700 square foot hotel room that we bought in South Beach Miami is superior to our 5000 square foot Highland Park, IL house on Vine?... well...Superior means something different... it means BEACH. It means Room Service... it means maid service. Sure, you may have a chef and maid on the payroll but BEACH is locationally superior to Suburb! It doesn't even matter that the square footage or even amenities are less if it if a VACATION home the location makes it Superior.
  3. Third of all... and this is the tricky one... it isn't an investment property!!! What?! I can't Rent it? well... that's where things get grey. Can you rent it is what plagues the equation. The answer is technically NO. Could you let people pay you for staying there for a week or so at a time... well... that really depends on the deed restrictions and how many weeks you actually live there versus rent it out. Technically renting it makes it an investment property.
  4. Fourth... you're really committed to the property being a place that you will use for part of the year and set it up to use it like a second residence. If you buy it and someone else furnishes it for their use - not yours then it isn't right. Now, Condotels come furnished all the time... and some houses do and that's OK. Condotels are pretty much known to be partial year rentals anyway. This is hard to qualify but intent is intent.

What kind of snake oil and I selling?? Well... the type that will hopefully shed some light on this property type for Realtors and mortgage brokers and consumers!! Why? Because it is a


Eh?? What's that??

  • Rates are LOW!
  • Market is DOWN!
  • Plenty of Inventory to Choose from!
  • Your Baby Boomer friends are already looking! (gotta keep up with the Joneses)
  • Hurricanes are a figment of your imagination (riiiiight)
  • You've got that money sitting in your house as equity and it isn't doing ANYTHING for you. (and won't do anything for you stuck in the house!)
  • The dollar $$ is still weak to the British Pound and Euro (i.e. buy now, enjoy, when the dollar comes up and the market does your dollars appreciate as does your property!)
  • Latin American investors are looking HARD at South Florida again!
  • UPDATE: I forgot to mention - check with your CPA - most of them claim that you can deduct the Mortgage interest on a 2nd home - so long as you finance it within 90 days of purchase!

Look No Further than South Florida for a great 2nd Home Value!

More Real Estate News You Can Use from
David A. Podgursky, MBA
The Mortgage Go To Guy!
Your Source for Residential and Commercial Mortgage Loans in Florida