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this post was submitted on 15 Aug 2024
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Owner Occupancy credit against property taxes. Sometimes called a "homestead exemption".
Basically, if you live in a house you own, you pay a vastly lower property tax rate. If you own a house you don't live in, you pay a vastly higher property tax rate on that house, because you can't claim the exemption.
When we establish this, "landlords" stop "renting" and become private mortgage lenders. They sell their homes to their former tenants, or issue "land contracts" (rent-to-own arrangements), and enjoy the lower tax rate on the property.
If they foreclose or evict, they pay the higher tax rate until they get a new "buyer".
I like the general idea but how does rent to own work for multi family properties, especially in larger apartment buildings? I know condos exist already but that requires an HOA or something similar to provide upkeep for the building/property. I also wouldn't want to completely deincentivize renting because there are situations where it's a better fit for people as long as they are not getting gouged or kicked out needlessly.
Maybe instead of a credit for occupying a property you own, add a tax on income from rental properties that is earmarked for the kind of infrastructure that an area needs to accommodate a growing population including mass transit. There would have to be some protections in place to prevent landlords from passing that cost directly to tenants but I'm not smart enough to know how to do that.
Alongside that, offer a tax credit for rent to own arrangements that starts small and gets larger as the tenant gets closer to owning the property. Successful transfer of ownership gets the original owner a credit equal to the difference between the taxes paid and credits received plus interest and the new owner gets a reduced property tax rate for their first year of ownership.
Is rent to own that common? Is it a viable option? I have heard of owner financing situations, but they are generally looked down upon (risky).
No. It's extremely uncommon but the comment that started this discussion mentioned forcing landlords to adopt rent to own programs. Got me thinking about how cool it would be if that was a viable option.
That's a good point, having that option could be good if it was supported appropriately.
Owner financing is far less risky than renting from that same owner. For both the seller/lender/landlord and the buyer/borrower/tenant.
That could be, I'm only familiar with the negatives but in reality I know little about that option.
For duplexes, triplexes, and quadplexes, so long as the owner lives in one of the units, the whole property is eligible for the owner occupant exemption.
Land contracts will replace rental agreements.
A land contract is (initially) a rental agreement. The rent price is the monthly rate of a 30-year mortgage. The agreement is recorded with the county, like a deed, and for our purposes, this tenant would be considered the owner.
If you walk away in the first three years, the contract never becomes anything more than a rental agreement. You forfeit any equity you would have built, but you can walk away without additional repercussion.
If you stay for three years, your previous "rental" payments convert to "mortgage" payments, and you gain equity in the home. That equity becomes your down payment on the mortgage, and the agreement converts to a purchase contract with a private mortgage from your landlord, with 27 years left on the mortgage.
With the tax system I described, landlords will be fighting tooth and nail to convert tenants to buyers under land contracts. Short-term tenants won't see any significant difference, but long term tenants are helped into home ownership.
You get the reduced tax rate if you live inside the building. If the owner of an apartment building has to live inside the apartment building then the overall quality of the facilities is going to be better maintained.
That does nothing to answer the question of how a single building with multiple occupied units could be converted into a rent to own property.
In most states that have a program like this the property tax exemption is laughable compared to the average annual income from owning an apartment building with 10+ units. For example, in California you get $7000 towards your annual property taxes for living on property. The average rent for an apartment in San Francisco is right around $3500/month.
Apartments get converted to condos all of the time. I don't necessarily agree about a rent to own mandate, but long term renters ought to see something back.
In the system we have right now the owners take the profit, keep the equity, and have very few (if any) constraints on how much they can charge. Modern software allows even small landlords to collude and price fix just like the big guys.
Condos are deeded properties. Convert the building from apartments to condominiums, and use land contracts instead of rental agreements. Anyone who stays longer than the initial period of the land contract begins to gain equity in their property.
The "stick" is the massively increased property taxes on residential properties, so that the exemption can be larger. I would say that San Francisco is an outlier, and should not be used as an example when considering a general rule. They will require special consideration.
I think landlord income should be taxed differently from actual income. We tax people differently for investment income (and it's lower). We could make up a separate category for this as well.
There is a tax where I live if you rent your place out, and it's so common in my units that they just assume you are and have you prove you aren't, but it was a whopping $60 a year. 🙄