Proposed House Flipping Legislation

[DavidSegal]

I'm likely to be introducing legislation that'd put a pretty hefty tax on property flipping. (Quick purchases and sales of investment property, and not owner-occupied.) What do you all think of property flipping as a phenomenon? Are there any upsides to it, for society at large?

(BTW, I'm a State Rep nowadays.)

[pete11]

I'm likely to be introducing legislation that'd put a pretty hefty tax on property flipping. (Quick purchases and sales of investment property, and not owner-occupied.) What do you all think of property flipping as a phenomenon? Are there any upsides to it, for society at large?

(BTW, I'm a State Rep nowadays.)

[TheAnk]

Dave,

What possible good can come of this? I can't speak for the rest of the state, but for Providence, there is plenty of dilapitaded housing that the only way these can become livable units is if there is profit incentive. You have your gov sponsored SWAP doing their thing, you have big biz smart money with their tax credits doing their renovation reclamation projects..

Why prohibitively tax the individual? Why the inconsistency?? It certainly does not make sense to let big business and the gov sponsored programs renovate for readaptive use on one hand, tax FREE in most cases, COST free in some cases, then levy a restrictive tax on the individual..

You see this is why I have to leave this state.. I really can't take it any more.. On one hand you have people like Mr. Segal here searching out ways to tax the middle class, while not even taking a peek at the rampant abuse of the benefits given to the welfare state.. Mr. Segal, I can tell you that 95% of tenants or prospective tenants have had some sort of gov assistance are doing so dishonestly. And when I call to report, I am told where to go.. No one cares.. Just tax the working fellows more.. I guess Chaz Palmieri said it best; "The workin' man is a sucker."

I feel that the people who are in charge of making decisions "for" the people don't even take the time to think through simple logic.. Its a maddening situation, where the middle class is increasingly levied to pay for the top and bottom.. And your seemingly harmless nonchalant post really drives this home for me.. Its not "I'm likely to be introducing legislation that'd put a pretty hefty penalty on welfare fraud." Or "I'm likely to be introducing legislation that'd would provide REAL job training and an exit strategy for people off the welfare rolls."

No.. Its "lets find a way to penalize the few hard working people left who take a chance, put up some capital and try to get ahead the way the capitalist system intended..

For once I agree to an extent with pete11.. It is increasingly difficult to turn a rehab renovation profit.. And this would be a bad idea, based on the things he stated (although, I feel as usual Mr. Chicken Little is a bit enthusiastic on his predictions).. Please think rationally and logically instead of trying to win votes and reelection.

[urbie]

I'm likely to be introducing legislation that'd put a pretty hefty tax on property flipping. (Quick purchases and sales of investment property, and not owner-occupied.) What do you all think of property flipping as a phenomenon? Are there any upsides to it, for society at large?

(BTW, I'm a State Rep nowadays.)

[Bil]

I'm likely to be introducing legislation that'd put a pretty hefty tax on property flipping. (Quick purchases and sales of investment property, and not owner-occupied.) What do you all think of property flipping as a phenomenon? Are there any upsides to it, for society at large?

(BTW, I'm a State Rep nowadays.)

[jencoleslaw]

David, can you tell me/us some of the downsides to flipping? I can probably imagine some if I try, but my initial reaction was that this phenomenon was mostly a good thing. But then, I watch a lot of TLC on the weekends...

[pete11]

Ank, I think we definitely agree on this. I would really hate for the fall out of this to be more beauracracy. You might not believe this but if you weren't so busy fighting with me, we agree on more than we disagree.

Now as for Mr. Segal, it seemed to me he was looking for some genuine feedback, and that is the great thing about these types of forums, real time feedback from a myriad of opinions. I really think hastily put together legislation could be a problem, and I am impressed with the research being done, and I am sure he is speaking to more learned people then us.

, well at least smarter than me.

[DavidSegal]

I'll have time to respond in more detail in a bit. But the first misnomer here is that it's the middle class that engages in property flipping -- everybody thinks they're in the middle class, of course, but the middle class doesn't have the capital to buy up houses and dump them. Additionally, and I'm still working on these numbers, a huge percentage of flipping is being done by people from out of state. So, in large part, this'd be a tax on rich people from outside of Rhode Island, which seems preferable to me than most other potential revenue generators.

The bill that I'm talking about, which I should've clarified more, is intended to hit the really quick flips hardest -- the ones that don't entail much money being put into the infrastructure. (And it's based on a Vermont law that taxes only profits following from land values, not from structures at all.)

(Also, I've put a lot of time into job training programs and such, and have posted about such things to this forum. You weren't as excited to praise me then as you are to jump on me now...)

[urbie]

in my opinion the downside of flipping is that it artificially increases the property value, and makes it impossible for home ownership for folks who are looking for a place to live, not just as an investment.

In federal hill i've seen (not lately of course because the prices are pretty high right now) houses sell to one LLC for $50K, then sell to a "different" LLC three months later for $85K and then sell a few months later to "another" LLC for $150K. It artifically increases the value of houses around it too because of comps, again, making is unaffordable to regular homeowners.

I'd like to see tax sale properties not sold to the same person. I'm not sure what the benefit is but i can tell you that one scumbag landlord in particular in the city buys up property at tax sale, and the doesn't pay the following year's taxes on it once he owns it from the bank and it gets sold at tax sale again, to a different corporation under the same umbrella....

[DavidSegal]

in my opinion the downside of flipping is that it artificially increases the property value, and makes it impossible for home ownership for folks who are looking for a place to live, not just as an investment.

In federal hill i've seen (not lately of course because the prices are pretty high right now) houses sell to one LLC for $50K, then sell to a "different" LLC three months later for $85K and then sell a few months later to "another" LLC for $150K. It artifically increases the value of houses around it too because of comps, again, making is unaffordable to regular homeowners.

I'd like to see tax sale properties not sold to the same person. I'm not sure what the benefit is but i can tell you that one scumbag landlord in particular in the city buys up property at tax sale, and the doesn't pay the following year's taxes on it once he owns it from the bank and it gets sold at tax sale again, to a different corporation under the same umbrella....

[Cotuit]

I'd be interested in reading the Vermont Law if you can find a link to it, and the proposed legislation here in RI. But on first consideration I'm apt to agree with TheAnk on this one.

[TheAnk]

I think then a definition of middle class is then in order.. Because I define middle class as the working class.. People that have to work to support their living... The "rich" as I would define them, do not have to work, and would be involved in larger projects than the scope of what I perceive here..

And the reason this comes with such harsh critisism from me is that I work a 40 hour a week job.. then I come home a work nights and weekends manual labor improving houses and providing a nice place for the residents of Providence to live.. I keep rents low, as low rents more often than not equates to long term tenants who have a vested interest in their home..

And to see the tax credits handed out to big biz, and the monopoly SWAP has on tax sales... Well.. I'd say that invoking a tax on me while transferring that to others as a tax credit will be met with fierce competition at worst..

pete11, I'm sure there was extensive field research put into this.. And I bet it went something like this: Lets find a way to tax the middle, as they have no voice, and employ an income transfer model to give that tax to the poor through sustinance, and the rich through sweet heart tax deals..

I will say this.. The "democracy" you speak of is nothing more than combined socialism and monarchy..

Sincerely,

A Voiceless RI Serf

[TheAnk]

Well done Urb..

[jencoleslaw]

What, exactly, are you talking about?

Urb

[TheAnk]

"Reducing a big chunk of demand would reduce housing prices more generally. And it'd be a way of generating revenue largely on the backs of pretty wealthy people from out of state. "

You did say in a post here that democracy was the best form of government, and that if someone didn't think that, you would have little in common with them?? Correct?

This is not democracy.. This is socialism.. This is not the government of the people, this is government putting its witless hands into the free market.. I understand your desire to curb fluctuations.. But the bottom line is.. NO ONE knows better than the free market.. There is no government, no official, no entity who can successfully control a market.. And I am really surprised that people will never learn this..

[jencoleslaw]

i think there's a HUGE difference between buying a house, fixing it up, making it up to code, putting on fresh paint and paper and then selling it for more than you bought it for (ie.INVESTMENT), and FLIPPING which is buying a house, landlording it for two months, and selling it to yourself (in one shape or form) for well more than you bought it for, without actually doing any work on it or increasing its value at all, except artificially. Or do you not agree with that either?

[TheAnk]

and selling it to yourself (in one shape or form) for well more than you bought it for

[jencoleslaw]

this is the kind of flipping i'm talking about, and i quote from wikipedia's section on flipping:

Criminal real estate flipping

Flipping may also be a criminal scheme. Illegal property flipping is a fraud for profit scheme whereby recently acquired real property is resold for a considerable profit with an artificially inflated value. The real property is resold within a short time frame, often after making only cosmetic improvements to the real property. Illegal property flipping often involves collusion between a real estate appraiser, a mortgage originator and a closing agent. The cooperation of a real estate appraiser is necessary since a false and artificially inflated appraisal report is required. The buyer (ultimate borrower) may or may not be aware of the situation. This type of fraud is one of the most costly for lenders because the loss is always large.

The following is an example of an illegal property flip: A buyer contracts to purchase a property in his name for $30,000. Before closing the deal, he draws up a second contract to sell the property to a co-conspirator at $70,000

[JJK5]

i think there's a HUGE difference between buying a house, fixing it up, making it up to code, putting on fresh paint and paper and then selling it for more than you bought it for (ie.INVESTMENT), and FLIPPING which is buying a house, landlording it for two months, and selling it to yourself (in one shape or form) for well more than you bought it for, without actually doing any work on it or increasing its value at all, except artificially. Or do you not agree with that either?

[eltron]

Dave,

What possible good can come of this? I can't speak for the rest of the state, but for Providence, there is plenty of dilapitaded housing that the only way these can become livable units is if there is profit incentive. You have your gov sponsored SWAP doing their thing, you have big biz smart money with their tax credits doing their renovation reclamation projects..

[TheAnk]

This is pump and dump.. Not flipping.. Apples and oranges.. And the collusion on all levels required makes this a freak occurance, definitely not worthy of a law penalizing the rest of us lot...

[eltron]

This is pump and dump.. Not flipping.. Apples and oranges.. And the collusion on all levels required makes this a freak occurance, definitely not worthy of a law penalizing the rest of us lot...

[urbie]

Well done Urb..

[dgreco]

If you buy a house renovate it and then flip it, is that against the new legislation? Thinking of those shows on A&E, HGTV, TLC etc that do the house flipping.

[DavidSegal]

Again, the new legislation hasn't been drafted yet, so everything is on the table.

Here's Vermont's law.

Vermont's law taxes only profits on land values -- profits only. I'm trying to understand the implications of including the values of some structures too.

It'd be easy to write this such that it wouldn't have an effect on new housing starts, by exempting land on which new units have been constructed. The purpose of the bill would be to reduce the number of (and generate revenue via) people who are buying houses, putting little or no work into them, and dumping them at huge profit, without concerns for the ramifications of doing so. Riding the market, driving up costs for others, increasing crazy fluctuations in their neighbors' property taxes, and making life a lot harder for tenants. This is less of a problem now than a couple of years ago, but it'll come around again soon. People who are renting to people wouldn't see any new tax, so long as they're holding onto their property for a few years. And Vermont's law completely exempts owner-occupant to owner-occupant transfers.

To Urbie- the people you describe wouldn't be affected by this law at all (Even if their properties were in RI, I mean.) Except that they'd have more stable taxes, and might've bought those homes at lower costs, because there'd have been fewer speculators playing the market and driving up prices.

To TheAnk- this isn't socialism. (And plenty of people would of course disagree with the notion that socialism is anti-democratic. Some would argue that it's quite democratic. It is, of course, an economic system, often instituted within democracies, by democratically-elected representatives.)