INDCJournal: Little Annoyances

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February 02, 2005

Little Annoyances

Posted by Bill

I hate to break out snark-blogging, but articles like this work my nerves:

Reverberations Of a Housing Boom
North Capitol Street Corridor Experiences Growing Wealth -- and Pains
"It's exciting to see that you have an investment that's increasing in value faster than your 401(k) plan at work," (The understatement of the decade - Ed) Leonard-Chambers said. "But the downside is that as it appreciates, so does your tax burden. You know that it's difficult for many of the seniors."
...
City officials say the valuations, which have risen sharply in recent years as the city has emerged from fiscal and political turmoil, will continue to climb -- especially in formerly working-class neighborhoods such as Bloomingdale and nearby Eckington and LeDroit Park, all rapidly going upscale.
...
"Either you sell, or you make do," said Cleopatra Jones, president of the Bloomingdale Civic Association and a resident of Eckington and Bloomingdale for 40 years. She said she scrimps and saves monthly to keep up with taxes for her home on R Street NE and a rental property she owns nearby. "You wink and you go eenie-meenie-minie-mo and you decide which bill is going to be paid."

(Emphasis mine)

Oh, for the average homeowner to have such problems. The poor dear, struggling to keep up with the still amazingly underassessed DC taxes (trust me, they are a steal) on her home and rental property that are appreciating by six figure leaps in rapidly gentrifying neighborhoods.

Lean in and listen close, lady: take out a miniscule low-interest home equity loan on all that appreciation so that you can pay your taxes and afford groceries, and watch as the 30-40%+ gains in appreciation outpace the 4-6% interest on your small loan - which you then turn around and write off on your taxes.

This isn't sophisticated financial planning, yet half of the theme of a newspaper article bemoans the relatively small tax burden of people that are in fact reaping the fortuitous benefit of vast increases in property values. This appreciation is relatively liquid, and the problem in the article is essentially an illusory construction of perception. It's like indulging children. Revamped headline:

Reverberations Of a Housing Boom
North Capitol Street Corridor Experiences Growing Wealth -- and Pains (as newly wealthy residents that own half-million dollar properties are too lazy - or ill-informed - to visit a bank)

Posted by Bill at February 2, 2005 01:11 PM | TrackBack (2)

Comments

I should have such problems...

Posted by: Fuloydo at February 2, 2005 03:00 PM

Another headline: "Woman discovers rich gold deposits in her backyard: shine hurts her eyes."

Posted by: Bill from INDC at February 2, 2005 03:04 PM

"Boston Residents Bemoan Loss of Beloved 'Curse of Bambino' as Sox win World Series"

Posted by: T Marcell at February 2, 2005 04:13 PM

Rising property values can be a problem for some people, particulary those on a fixed income who are not interested in moving. And it's also a problem because governments getting sudden increases in tax revenues tend to spend it (and grow to rely on continued increases to fund pet programs).

Posted by: Pat Curley at February 2, 2005 05:32 PM

Pat -

Rising property values can be a problem for some people, particulary those on a fixed income who are not interested in moving.

As I mention in the post, there is no need to move - just tap the vast increase in equity in the house for cash. As a loan secured by a an asset, even individuals with low fixed incomes and bad credit can get cash to make relatively trivial payments like property taxes. How trivial? Taxes on a DC condo worth 240,000 are less than $1,500.

That same condo probably appreciated almost $100,000 in the past 2.5 years. In addition, the assessments always lag FAR behind the real growth, so there is plenty of time to tap the equity.

Carping about taxes when your rowehouse just appreciated $150-200,000 is silly. And there is no reason to move.

Posted by: Bill from INDC at February 2, 2005 05:47 PM

Considering that I'm moving to the area this year, I'm heartened to hear that the property taxes are lower than what I pay in exclusive (/sarcasm) McHenry County, IL. About 50%, actualy.

So as I move into a townhouse that costs double my current unit out here... at least my property tax bill will look familiar.

Posted by: eLarson at February 2, 2005 05:55 PM

Yeah, no one said that buying IN to the market is fun.

In a nice area, $190-200 for a nice studio, $250-300 for a nice one-bedroom (in the city).

Posted by: Bill from INDC at February 2, 2005 06:00 PM

Stories like this are usually the result of a PR campaign. I smell a "tax relief" proposal coming soon.

Posted by: PJ at February 2, 2005 10:32 PM

I'm not sure I get it. Even if she does take out a loan, she is going to have to pay it back, and if she can't afford the taxes how's she gonna make the payments? Eventually she's going to have to turn the house itself into cash, either by selling or getting a reverse mortgage or something.

I still agree with the first comment, tho.

Posted by: Matt Moore at February 3, 2005 05:42 AM

Matt -

1. Yes, eventually. But when your taxes are only a couple thousand dollars a year, and you just made $150-200,000-300,000 in appreciation, and the house continues to appreciate, that "eventually" is essentially "never."

2. She makes the payments on the loan and the taxes by drafting off of a lump sum of money she borrows, for years and years. In addition, some home equity loans have very very low minumum payments, with a lump sum being due affter a certain period, say 7 or 10 years. When that happens, her house will be worth even MORE, and she can refinance with a new loan in perpetuity. Even if it stays at the same value, the loan amount she would need is so small (to pay the small texes, she can keep refinancing the loan)

3. Average real estate appreciates (in conventional wisdom) at about 6% per year. This appreciation over the long term will outpace the 4% she can get on a home equity loan right now. In DC, she will experience 20-45% appreciation in a hot fringe neighborhood. So even though she is borrowing money, she is actually MAKING a lot of money.

If the property keeps appreciating, even as normal, she'll be able to come up with the pittance of the tax money by tapping the equity in her house forever. And write off the interest on her taxes.

Also, don't forget - the woman featured in the story owns an additional rental property.

Posted by: Bill from INDC at February 3, 2005 07:54 AM

Okay, those are pretty low taxes. Wish the article had quantified it like that.

Posted by: Pat Curley at February 3, 2005 12:12 PM

First there are complaints that the area is in bad shape, the city's gone down hill. Then as an area gentrifies and cleans up, oh the wailing and agony. Just like the stories complaining that the roads are full of potholes only to be followed by the stories griping about road construction.

Can't stand those sort of articles myself.

Posted by: Mikey at February 4, 2005 08:54 AM