Thursday, January 31, 2008

One way Mn Real Estate Taxes have Changed

I got into real estate shortly after getting out of school. Bright eyed and bushy tailed, I wanted to get started investing.

I bought a duplex near Macalester College on Ashland Avenue in Merriam Park, Saint Paul. I paid $86,000, assumed a mortgage used my commission for a downpayment,financed the balance with a contract for deed with no interest for a year.

It was a big investment for me. One reason I could finance essentially 100% of the purchase and still bring in enough rent to make the payments was that I had a financial advantage.

I was going to live there. For that reason my taxes would be homestead, one third of what a non owner occupant would pay. That financial break allowed me to repaint inside and out, refinish floors and do some minor renovation in the first couple of years.

I enjoyed the fact that I had that break and used that same scenario to sell run-down homes to owner occupants who would fix them up.

Through the years the Realtor Association, of which I am a member, has sucessfully lobbied against the homestead/non-homstead system arguing that it discourages investors from buying single family homes. Today the difference between homestead and non-homestead taxes is so minor it hardly even matters.

I beleive that single family homes and duplexes are not well suited to absentee ownership. The maintenance is high and they can become run-down very quickly. Some people do a very good job renting single family homes, but its not an easy gig.

The event of a home switching from homestead to non-homestead status used to be feared by the owner of a home who had moved out. Owners would say, "If we can't sell it we'll just rent it." Upon finding out what would happen to the taxes that plan would change and the house would get sold.

Non-homestead taxes were an easy thing to hate, but they helped to keep the quality of all neighborhoods up. Think of the social costs of neighborhoods full of run-down rentals verses the advantages of having a part of the rental market being duplex, triplex and fourplex owners who live in their property and manage it.

It's hard to imagine that system ever coming back.

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