Tuesday, August 30, 2016

Only in New York is your home is not a wise investment

Common sentiment is that real estate – specifically the home - is one of the best investments that a family can make. For most of the country that’s true. Not here, though. New York is one of the few states in the Union in which real estate is not a wise investment.

That’s because, simply put, our property taxes are too high.

The onerous amalgamation of local, county, and school taxes strip real estate of any future returns it might have because your payment of these taxes must be considered a part of the investment in your home.

In Niagara County the median home value is $105,200 and the property tax burden on said home is $3,209. Suppose someone buys that median home as a starter home and hopes to sell it off in a decade or two. To come out even, based on taxes-paid alone, he would have to sell that home for $137,290 after 10 years or $169,380 after 20. That’s nearly impossible in the Buffalo-Niagara region.

Making matters worse, that basic analysis makes two major assumptions. One, taxes won’t rise in every one of those years. As we’ve recently seen, even the tax cap can’t stop them. And, two, the property owner will put absolutely no money into that home for remodeling or repairs. Those unaccounted-for factors – 100% guaranteed to happen – have the lack of a payback on housing set in stone.

This is a uniquely-NY problem.

Depending on what metric some real estate and good government groups use, property taxes in the Empire State are anywhere from 57% to 85% higher than the national average.

I’ll stick with the more reasonable – and realistic – 57%. For every $100 other Americans pay, we pay $157. That’s the average; let’s look at one of the extremes. I know someone from Tennessee who pays a paltry $660 per year in property taxes for his 2,800-square-foot suburban new-build. In comparison, my coworker who lives in North Tonawanda has a similar home for which he pays $6,800 in taxes annually. Another coworker pays $5,480 on his like-sized abode in Amherst.

Think about it: they will have paid $68,000 and $54,800 in property taxes, respectively, after just 10 years. They will never make that up in resale value. Never. But, the man from Tennessee will for sure; what he pays in taxes over 1 decade is even less than what the North Tonawanda resident pays in 1 year. For him, and many other Americans, it makes complete sense to invest in real estate, be it housing or land, because their taxes are so low.

It’s depressing for New Yorkers, because for most our homes are the single largest investment that we will ever make in our lifetimes; and it’s something that many bank on as the key to their personal wealth. This has taken on greater meaning since we’ve all lost faith in the stock market because of the Great Recession and the continued fiscal woes globally which are having a significant negative impact on the ag and manufacturing sectors here. As 401(k)s have ridden roller coasters and pensions ride a fine line of sustainability, we’ve all looked for other options to save for our retirements and our heirs, things like hard assets such as gold or real estate. Only in New York State is the latter an even poorer investment than down markets and low-yielding bonds and CDs.

Let’s put all this into historical perspective. A tea tax - but a pittance - was the straw that broke our colonial backs and jumpstarted the American Revolution. Our property taxes are far more extravagant. Will that someday ignite that same fire of change in New Yorkers? Let’s hope so, and soon. We’ll never be a rich people and a booming economy as long as the status quo is maintained in state leadership.

From the 29 August 2016 Greater Niagara Newspapers


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