Carol Becker states, in part: > In actuality, it isn't the renters that pay the property taxes. It is the > business that owns the rental property that is paying the property taxes. > That property is a commercial, revenue producing asset and as such, the > higher tax rates reflect both the cost of taxing the property as someone's > home and taxing the profits being made by the business, something > I do think > is appropriate. > > Now it is true that the renters are paying the total rent. But I think > people often forget that rent is set on what the market will bear > and not on > the cost of providing the property.
[MH] Carol is correct in her description of the influence of supply and demand on rental rates in recent years. However, she misses the mark when describing the situation faced by rental property owners (or business owners in general). A business owner (rental property owner in this case) includes all capital, operating and maintenance costs, including taxes, in the cost of doing business. Yes, rental property rates are based upon what the market will bear, but they must also cover the total cost of doing business. And the business owner should be making a profit, above and beyond the wages earned for managing, operating and maintaining the business. Most business owners could be earning a wage working for someone else, with no risk to their personal savings, etc. Instead, they choose to invest their savings in their own business and should therefore expect to earn a competitive return on their investment (above and beyond their wages). The rental property owner, pays taxes on income earned (wages), and if there are business profits, there are business taxes due in addition to income taxes. The higher property taxes are on rental property, the higher the rents will be in order to cover that portion of operating costs-- simple as that. Supply and demand also figure into the equation-- if there is a shortage of rental property, rents will rise; if there is excess rental property available, rents will fall. If rents fall to such an extent that they no longer cover operating expenses and an adequate return on investment, the property will likely deteriorate because of cutbacks in maintenance, etc. The property may be sold, as market values drop due to excess supply and lower rents, etc. If there is a shortage of rental property, rents will rise, and more investors will consider investing in, or building additional rental units... eventually placing downward pressure on rents. It's a dynamic marketplace; what contributed to a profit one year may represent a loss the next; uncertainty is the only constant. When government starts funding construction of new rental units, in response to historic trends, while simultaneously altering rental property tax rates, it undoubtedly adds additional uncertainty for private rental property owners. What to do? For there are always alternate options available; for widget makers, and even for those in the rental housing market. Michael Hohmann Linden Hills www.mahohmannbizplans.com > -----Original Message----- > From: [EMAIL PROTECTED] [mailto:[EMAIL PROTECTED]]On Behalf Of > Becker > Sent: Sunday, December 08, 2002 11:59 AM > To: [EMAIL PROTECTED] > Subject: Re: [Mpls] Casinos Here, There & Everywhere > > > From:Terrell Brown > snip > > > > Explain to me why a renter in Loring Park, Philips or Central should > > have his or her home taxed at a higher rate than a home owner living on > > Lake of the Isles. The owner of the little coffee shop at 29th and > > Lyndale pays an even higher rate. Incidently in most states those > > properties would be taxed at the same rates. > > In actuality, it isn't the renters that pay the property taxes. It is the > business that owns the rental property that is paying the property taxes. > That property is a commercial, revenue producing asset and as such, the > higher tax rates reflect both the cost of taxing the property as someone's > home and taxing the profits being made by the business, something > I do think > is appropriate. > > Now it is true that the renters are paying the total rent. But I think > people often forget that rent is set on what the market will bear > and not on > the cost of providing the property. We have seen substantial increases in > rents at a time when there have been substantial decreases in the > tax rates > of rental property. Why is that? One of the big factors is that > from 1990 > to 2000, the population of the region grew 15.4% while the supply > of rental > property increased only 3.9%. Other factors also contributed like the > number of people employed grew substantially, household size went down > somewhat, suburbs seemed to only want single family detached houses, etc. > The demand for rental property grew at a much greater rate than > the supply, > driving up the rents that people have been paying. > > At the same time, the costs of providing rental property have > increased but > the tax rates for rental property have decreased. The difference has gone > to the property owner's profits. Because of the tax rate > decreases, rental > property ownership has become more lucrative, which has driven up > the values > of rental properties. So if you owned rental properties say ten > years ago, > you have seen a double bump, one from the icnreased value of your > properties, and one from the increased rents that you can charge. > snip > Carol Becker > Longfellow snip _______________________________________ Minneapolis Issues Forum - A City-focused Civic Discussion - Mn E-Democracy Post messages to: mailto:[EMAIL PROTECTED] Subscribe, Unsubscribe, Digest, and more: http://e-democracy.org/mpls
