0:06

Are some states becoming uninvestable because of

0:08

politics? And a wave of

0:10

zoning law changes could have major consequences for

0:12

investors. You're

0:19

listening to The Bigger Pockets Daily, where we cover

0:22

the latest news in real estate and economics. I'm

0:24

your host, Matt Meir, managing editor of The

0:26

Bigger Pockets blog, and today's run of stories

0:28

is really important to your bottom line. So

0:32

in our first story today, we'll

0:34

talk about states that are basically

0:36

becoming completely unapproachable for investors due

0:39

to their internal politics. And

0:42

we're going to talk about specifically what

0:44

you should look for when trying to

0:46

avoid bad policies that will absolutely crush

0:48

your cash flow, your appreciation, and your

0:50

bottom line. So

0:53

there's really two main points that contribute

0:55

to the issue with some of these

0:58

unapproachable, uninvestable, however you want to label

1:00

it, these states. One,

1:03

high taxes. High

1:05

taxes are contributing to population loss. And

1:09

then two, there are a

1:11

ton of anti-landlord regulations that are

1:13

making the environment less than

1:15

ideal for investors. So we'll

1:17

start with taxes and population. I

1:20

think it goes without saying states like New

1:22

York and California have state

1:24

tax burdens that are astronomical. So

1:27

for instance, if you look at the state tax

1:29

burden of New York, it's 12%. California

1:33

is not far behind, around 10.4%. And

1:37

that tax burden is calculated

1:39

by the overall state income

1:41

taxes, plus the average property

1:44

tax, sales tax, and excise tax. So states

1:46

like New York and California lead the pack

1:48

with tax burdens in the 10 to 12%

1:51

range. Now, compare that to

1:53

states like Florida and Texas, where tax

1:55

burdens hover anywhere from six to 8%.

1:59

It's significantly higher. less in the grand scheme of things.

2:01

And you might think, okay, well, six

2:03

to 12%, like only a 6% difference.

2:05

This is that, is it that crazy? And

2:08

the thing is, is like when you're calculating your cash

2:10

flow and a property tax is a

2:13

whole percent higher in one state compared to

2:15

the other, that actually makes a huge difference

2:17

or in a state like Florida, where there's

2:20

no state income tax that

2:22

makes a huge difference when April comes

2:24

around compared to a state like New

2:26

York. But what

2:28

this actually in the grand

2:30

scheme of things does to a state

2:33

is it actually reduces the

2:35

population. So if we

2:37

link, think back to the beginning of the pandemic,

2:39

there was a lot of

2:41

news about how New

2:44

York, California, we're losing a ton

2:46

of people. Now there's a few

2:48

reasons for that. One, there was a lot of lockdown

2:51

information coming out about California and

2:53

New York that stayed around

2:55

too long to a lot of people. And

2:59

in many cases were a

3:01

little overbearing and they ended up believing

3:03

to go to less

3:05

overbearing states like Florida and Texas. That was

3:07

the sort of the political story of 2020.

3:11

But also these places

3:14

were already way too expensive to live in and pair

3:17

the pandemic, remote work.

3:20

It just made more economic sense. And

3:23

so if you go back

3:25

to look at all of these

3:27

states, plot their tax burdens

3:29

with population change on a chart,

3:32

you would actually see that tax

3:35

burden and population

3:37

change is highly correlated.

3:40

Now I will say correlation does not

3:42

equal causation, but when

3:45

you have a state like New York with a 12%

3:47

tax burden, also showing a

3:50

significant decrease in population, especially over the

3:52

last four years, you will see states

3:55

with the highest tax burdens are

3:57

losing population and states with the

3:59

lowest. tax burdens are gaining in

4:01

population. So in an interview with

4:03

Bigger Pockets, Alexandra Alvarado

4:07

with the American Apartment Owners Association said,

4:09

quote, higher net worth individuals are

4:11

most likely to move to states with low

4:13

or no income tax. It

4:15

may not be the primary reason they are making the

4:17

move in the first place, but it

4:19

does influence which states they're

4:21

moving to. Also companies

4:23

that are moving their headquarters to lower

4:26

tax states also influence migration patterns as

4:28

their employees tend to move with them.

4:30

So that's just one example that

4:32

kind of paints the picture of the story. Now,

4:35

why does any of this matter? Specifically with why

4:37

population change is a big deal. We're gonna toss

4:39

it to a break and be sure to stick

4:41

around because even later on, we're gonna get into

4:43

zoning and why that makes a big difference on

4:45

your bottom line as well. Okay,

4:51

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4:53

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trial. Welcome

7:33

back. So, as a recap, we've been talking

7:36

about how some states are becoming very

7:38

hard to invest in because of their policies,

7:41

specifically tax

7:43

rates and migration patterns. Why

7:46

does any of this actually matter? Well,

7:49

it comes down to how

7:51

population changes impact the supply and

7:53

demand of a local housing market.

7:56

For instance, Orlando, Florida, it

7:58

wasn't nearly as populated. when I was

8:00

growing up there, as it is now. Large

8:03

part because there was a

8:05

massive influx of migration during the pandemic. People

8:07

were moving to Orlando because one Florida is

8:09

a tax-free state when it comes to state

8:11

income tax. And then on top of that,

8:15

Orlando, you can make the argument,

8:17

was undervalued. And people

8:20

moved in, bought up a bunch of houses. And

8:22

now, Orlando has seen pretty significant housing price growth.

8:24

Might be hard to invest there now. But

8:27

the fact of the matter is, over the last

8:29

four years, it has grown significantly, which is usually

8:32

a good indication for a housing market.

8:35

Meanwhile, San Francisco, and

8:38

I will say San Francisco is still

8:40

priced over a million dollars for the

8:42

average house. Despite that, it has

8:45

seen some of the largest raw

8:48

declines in prices throughout the

8:50

country. At the

8:52

peak of the pandemic, San Francisco was $1.6 million

8:55

for the average house. And

8:58

that came down to about $1.1 million. So that's a $500,000

9:01

loss over a two-year period, which

9:07

is insane. But if you invested

9:09

there, say you bought at the height

9:11

of the pandemic, a $1.6

9:13

million investment property, you lost $500,000 over the last

9:15

two years in equity, you're

9:19

underwater. Your mortgage is underwater, which

9:23

is obviously very bad. You're also probably not

9:25

cash flowing. A lot of this

9:27

is due to outbound migration. Less

9:30

demand for San Francisco, higher supply,

9:32

prices come down. The

9:35

opposite is true for Orlando. So

9:37

as an investor, population might

9:39

be the single most important metric to pay

9:41

attention to when you're looking at long-term assets

9:44

like real estate. Is

9:46

the population growing? Is it stagnant? Is

9:48

it declining? That all makes a difference.

9:50

And then obviously, the second factor with

9:53

why these states and cities are becoming very

9:55

difficult to invest in is just a simple

9:57

fact that a lot of them are passing

9:59

anti-Landlord legislation. So I think it's fair

10:01

to say ultimately that landlords have garnered a

10:04

lot of hate, especially

10:06

in the last few years, definitely

10:09

more than other professions. And

10:11

in response to the negative

10:14

rhetoric about landlords, many

10:16

jurisdictions have made it a priority to

10:19

make it as hard as possible for

10:21

investors to invest and

10:23

operate in their areas. It

10:26

started with short-term rental bans. The

10:28

argument being that vacation rentals take

10:30

up critical housing supply and they

10:33

push prices up, they prevent would-be homeowners

10:35

or long-term renters from getting access to

10:37

housing, and maybe that's a fair argument.

10:40

But then there's other things like the eviction moratoriums

10:42

that went on for way longer than they

10:45

should have. That was probably

10:47

the beginning of what

10:49

we now know is the political divide

10:51

over landlords and not so much

10:54

landlords themselves, because

10:57

many landlords are on both sides of

10:59

the political spectrum. But outside of the

11:01

landlord community, there is

11:04

a clear division over how to approach

11:06

landlords between left and right. And

11:08

then we even see today, all

11:11

eyes are on squatter rights and

11:13

what legal tendency is actually defined

11:15

by. And it's gotten so

11:17

bizarre that even a landlord recently in New York

11:19

City was arrested for trying to

11:21

kick someone out of their home to which

11:24

they had no right to be in. So

11:27

all of these issues, with the exception of the short-term

11:29

rental ban, as I think

11:31

there's once again a very plain economic rationale

11:33

for that in certain markets, all

11:36

of this comes down to ideology.

11:38

Cities with dense regulations effectively

11:40

prop up a tenant's defense in

11:44

any sort of legal case beyond a

11:46

reasonable threshold. So for instance, I think

11:48

it's fair to say that the United

11:50

States is built on capitalism. It's built

11:53

on business, very

11:55

pro-business environment. Yet cities

11:57

with dense regulations are

12:00

a... effectively making it very easy for a tenant to

12:03

beat the landlord in a legal case. On top

12:05

of that, it's sort

12:07

of a conundrum for many

12:10

of these cities because at the same

12:12

time that they are making it extremely

12:14

difficult for landlords to operate, they're also

12:16

crying out for more affordable housing. They

12:20

suggest that quality housing is a

12:22

right, just as pure as

12:24

a First Amendment right to speech.

12:26

They deny the validity of rent price increases every

12:29

year to keep up with inflation. But

12:31

yet they're also making it very difficult

12:33

for investors to operate there. My

12:36

question is, how do you get more

12:38

affordable housing? How do you get quality

12:40

housing? How do you make sure that

12:42

this is a profitable business strategy unless

12:45

you make it easy for landlords to operate there? It doesn't

12:47

make sense. By

12:49

doing this, doing all of this bizarre

12:52

stuff, landlords don't want

12:54

to invest in these areas, especially the areas

12:56

that need the most help. I

12:58

want to be clear, I'm not suggesting that

13:01

everything landlords do are free of sin. I

13:06

know that there are certainly bad apples out there.

13:09

But unfortunately, too many landlords are

13:13

given the description of greedy and uncarrying.

13:16

But look, to a large extent, most

13:18

landlords are doing good work. Most

13:21

of them are looking for

13:23

financial independence, financial freedom through

13:27

real estate. And that's

13:29

largely what Bigger Pockets exists for. We

13:32

are trying to build and foster

13:34

a positive community of landlords that

13:36

are all doing good work on

13:40

their journey to financial freedom. So

13:42

why does it matter? It's simple.

13:45

Some places are becoming so unhealthy

13:47

for investors, whether through the law,

13:49

through the dynamics, all

13:51

of which brought on by the internal

13:53

politics of the area they're operating in,

13:56

that it's just smarter to avoid them altogether.

14:00

The Market. But. This is the

14:02

reality that we're living and worth. You

14:04

have to really pay attention to what

14:06

a city feels about your profession. Before.

14:09

You actually go there and this flows

14:12

right into our next story today. Know.

14:15

There's another piece to the investing puzzle that

14:17

varies from state to state, city to city

14:19

and is also somewhat political, but not nearly

14:21

as political as the other stuff. Or, and

14:23

that brings us to our next story, which

14:26

is about zoning laws, So. Zoning

14:28

laws across the country. Are.

14:31

Undergoing some massive changes that could

14:33

seriously impact housing prices. So the

14:36

main points in of here are

14:38

that on average American cities have

14:40

about seventy five percent of it's

14:42

land zone for single family homes.

14:45

This. Quite. Obviously has led

14:48

to a severe under supply. a

14:50

property. Meanwhile. Some.

14:52

Cities like Palisades Park in

14:55

New Jersey and Minneapolis, Minnesota

14:57

has resound for more quote

15:00

like Polish multifamily development. Like.

15:02

Duplexes enquire plexus when they say

15:04

like twitch what they mean is

15:06

not. Massive. Apartment

15:09

complexes, But. More of

15:11

the smaller duplex strike flexes quite

15:13

flexes. And. As a result, These.

15:16

Locations that have implemented. The Sages

15:18

had not only seen more

15:20

affordable housing prices. But. They've

15:22

also seen their property. Tax rates

15:25

decrease. Why? More.

15:28

People. In. More properties mean

15:30

that the government's in these areas

15:32

have more properties to tax, sometimes

15:34

to or two to three times

15:36

more degree. So why does this

15:38

matter? what? Because zoning makes a

15:40

big difference in how a city

15:42

develops. And especially on how

15:44

they're currently priced and the amount of

15:47

supply the disease have. So if we

15:49

look back, zoning has been around forever.

15:51

Ah, But. When I say forever,

15:53

I really mean nice. And sixteen when New

15:55

York City pass it's first zoning laws. Limiting

15:58

skyscraper lot size and the you allow like

16:00

to pass through the streets below. Now that

16:02

was the issue. Baghdad today the issue New

16:04

York is at the just don't have enough

16:06

properties to go around for. Since then. Several.

16:09

Cities have taken up their own

16:12

zoning requirements and zoning laws, largely

16:14

implementing single family development zones. But

16:17

as we know now. We.

16:19

Have a massive million plus shortfall

16:22

of housing, and United States multifamily

16:24

properties are basically the only solution

16:26

to that. Because there's not enough

16:28

land to go around, they're not

16:30

making any more of it. Multifamily,

16:33

Properties in particular. Do.

16:36

A great job at increasing housing is

16:38

by but also makes it more affordable

16:40

to buy rental properties and maximize potential

16:43

rental income on top of multifamily though.

16:45

A lot of city specifically Minneapolis

16:48

are making a concerted effort to

16:50

increase Edu zoning, so accessible dwelling

16:52

units is what Edu means. This.

16:55

Is basically a small.

16:58

House you can say that's

17:00

on a. Single. Family

17:02

property own. That.

17:04

You could also. Read. How.

17:07

To. Someone else. Accessory dwelling

17:10

units are. Very helpful

17:12

for offsetting your cost of living

17:14

there. Also called mother in law

17:16

sweet as it gives the homeowner

17:18

a chance to offset their housing

17:20

costs by any be additional revenue

17:22

by renting out that piece of

17:24

property. To. With senate. What's.

17:27

The take away their well. If

17:29

you have a city like Minneapolis

17:31

that is making an effort to

17:33

increase Edu availability. That's.

17:36

A pretty pro landlord piece of legislation

17:38

which after I just sat here and

17:41

talked about all of the issues with

17:43

the other states big basically making it

17:45

harder and harder for investors to actually.

17:48

Be. Landlords In those areas, you have

17:50

a place like Minneapolis that is

17:52

actively looking for more landlords. Because.

17:55

The second you beat you have a tenant on your

17:57

eighty. You. Your. Landlord? So

17:59

really what? You. They'll be looking for. Is.

18:03

Areas. Where to Zoning law constraints

18:05

are being reduced? Now.

18:08

There is sort of of a mix

18:10

of here because even California because of

18:12

their huge housing supply issue. They.

18:14

Are also actively making it. A.

18:17

Little bit easier to to

18:19

build and develop properties but

18:21

California so long way from

18:24

actually being made. A

18:26

positive way. boarding states so to speak.

18:28

We really should be looking for places

18:31

where one, it's not overly expensive to

18:33

build property to. The. Actual

18:35

permitting requirements don't take. Multiple.

18:38

Months just to get. For. Instance

18:41

at Harrods have a property in

18:43

Asheville, North Carolina and their try

18:45

to build a house near a

18:47

lake. In their permitting took

18:49

five weeks. Wise. Little

18:51

late, counting five weeks to permit

18:53

a property. California's even worse. See.

18:56

So look for places that are. Pretty. Faces.

18:58

And. Then on top of that, if they're allowing

19:00

a to use, that basically indicates you that they

19:03

are actively looking for more landlords and that is

19:05

a great place to be. So. Those

19:07

are two stories today. Will concede

19:09

to keep you updated with all the

19:11

issues and anti landlords legislation, many of

19:13

the tax rate problems that we're having

19:16

and really just internal politics of the

19:18

city's it's been a major major conversation.

19:20

and twenty twenty four, as I would

19:22

assume, it's going to continue as time

19:24

goes on. We live in a crazy

19:26

time and it's also an election year.

19:30

You can read all of these

19:32

stories. On the bigger part it's

19:34

blog he can go to pickapart.com/blogs

19:36

three Them that is Bigger pockets.com.

19:39

Flawed. And also if you want to read

19:41

the actual articles I'm referencing today, you can

19:43

find the links to those in the description

19:45

below was get My name is Matt Mirror

19:47

On the managing editor of The Perfect Spot.

19:49

I come on his bike as every two

19:51

weeks to give you the big stories that

19:53

were talking about and I will see you

19:55

in the next one.