On November 3, 2020 the most significant Proposition to happen since Proposition 13 was enacted in 1976 is up for the vote.
This Proposition 15 will reassess your property to current market value and not the value of the property when you purchased it under Proposition 13.
A great example of this illustration is that the writer of this blog constructed a warehouse in 1977 at a total cost of $600,000. Under Proposition 13, the State
has the right to increase its value annually not to exceed 2% of the current tax bill.
In 1978 the value under Proposition 13 would be $612,000 and my tax bill at that time would have been $6,732. These real estate taxes would be part of the rent which each tenant pays. In this case the rent each tenant pays would be equated to $6,732 divided by 12 months = $561 each month.
Now 42 years later the current tax bill under Proposition 13 is $20,000 per year or $1,666 per month. This real estate tax bill is divided by 12 months and the two tenants combined pay this amount which is part of their rent. Now the building is worth $8,000,000. The new tax bill is $88,000. This increase to $88,000 cannot be absorbed by the tenants and therefore, the landlord would have to absorb all or portion of such a huge increase in expenses. This absorption of $68,000 per year, utilizing a cap rate of 6% would decrease the value of the building by $1,350,000 or 17%.
