Love That Prop 13

Many decades ago, California voters passed the infamous Proposition 13. This legislation froze property taxes at the rate of the price at acquisition until there's a change in ownership (they rise for inflation, though). So, if you bought a house in 1990, you'd be paying a tax based on the purchase price at that time. However, if you remodel and add square footage, your district may reassess your property to current value--bummer.

I've come to the realization that the states we've invested in don't have their own versions of Prop 13. It's probably due to the fact that most of them don't have the appreciation rate that California used to have (and, most likely, will have again one day). So, if you bought a home in California for $400,000, and Prop 13 had not been approved, your tax payments would be based on the value of the home as it skyrocketed to oblivion. You, quite literally, could have been faced with watching your tax basis double within two years after your purchase. This alone could cause massive foreclosures and tax liens.

Why am spending my valuable space and your invaluable time talking about something that A) is as boring a subject as property taxes and B) most of you probably have known about for some time?

Yesterday, I received the annual "Important Appraisal Information Enclosed" from the district for our house in McKinney, Texas. We bought the home in 2004 for around $174,000 (it's buried somewhere in my old blog, but I can't remember the exact amount right now). We bought in Texas knowing quite well that, out of the 50 states, it had one of the lowest appreciation rates at the time. We didn't care because we wanted cash flow. This house flows, but very little--I covered that story already, too, I think. But Texas takes it upon itself to reassess every year and pretend that real estate actually appreciates at a higher rate than it does.

Just six months ago, identical homes in the neighborhood were selling for as little as $150,000. It wasn't a surprise to us because the market is so bad here in California. I wondered how far they would fall and hoped that it wouldn't be lower than what we owed on it (something like $130,000). Our tenant renewed their lease and we receive the checks like clockwork every month from our PM, so I really haven't paid the property any mind, except for the hail on the roof, which I have not heard back about (yes, I just sent him another e-mail).

The reassessment form that I received states that the proposed 2008 value of the property is $203,365. Now, while I'm thrilled that the county feels my house has appreciated, I tend to live in the real world. I have an option to protest their overvaluation, which I intend to do, but I thought it might be helpful for me to do a bit of research first.

I went on Zillow.com, which sometimes is not based in reality. Either their assessments are too low or too high. It had the property value at $273,000. NEXT!

Realtor.com offers a "What's Your Home Worth?" link, but it uses comps from the last 18 months and, if you want recent sales, you have to be contacted by the dreaded RE agent. However, from sales as long as six months ago, it appears that it values the home at $193,000.

By now I'm feeling as though I'm in the Twilight Zone. How could the market in Texas have recovered and appreciated so quickly? So, I search the MLS on Realtor.com. McKinney is a very nice, new, up and coming area. Some of the homes are pricey and well built--and then there's ours. Three words. Fox and Jacobs. Need I say more?

Talk about your vanilla home. Fox and Jacobs (Centex Homes) built the largest houses in our area with the least amount of investment ever. We knew this going in and were happy to be spending less on a rental. It has a warranty, so we aren't worried about the major systems collapsing. The house is around 3700 square feet, but it doesn't comp with any similar homes in McKinney, except for the identical ones in that specific development. When I go to Realtor.com, I can tell by the names of the subdivision and streets, and by the picture, if it's a comparable property to our rental. At this moment, there are two for sale: one is $179,000 and the other is $205,000. I don't know much else about the properties and am not motivated to call the agents to find out. It would be helpful to know if they're REO's, how long they've been listed, and, of course, the real and accurate comps.

I will complete the form regardless. I want the county to research it and let me know what they find. Hey, if the home is really worth what I paid or more, fantastic. But, if not, I don't want to be losing what little cash flow we have there because the tax rate is inaccurate and inflated.