California AB 1771 will charge an additional 25% capital gains tax on almost EVERY RESIDENTIAL PROPERTY sold within 3 years of purchase.
The additional tax would decline in annual increments until the property has been owned for more than seven years.
Legislators proposed AB 1771, also known as the California Housing Speculation Act, on the misguided notion that soaring prices of California homes are driven by investor-purchasers of residential properties in California.
In this webinar Nema Daghbandan is a Partner with Geraci LLP and Aaron Norris discuss the bill and what it could mean for “Main St” California investors. It is also a call to action. Here is what you can do to help:
Communicate your opposition to legislators via phone, letter, and email. You may download and customize the sample letters below to tell your personal story of how AB 1771 will affect you and your business.
VISIT: https://aaplonline.com/articles/advocacy/ca-flip-tax/
Episode Notes:
Aaron Norris  Hey everybody welcome to the Norris Group Radio Show. Today we are here with Nema Daghbandan. He is a partner with Geraci LLP. He practiced, his practice encompasses all facets of real estate, including transactions and he primarily represents lenders, brokers and loan servicers. I met him through I believe it was AAPL or the what’s that stand for the, American Association of Private Lenders. And he and I were on a webinar, if you will, covering A.B. 1771, which we’re going to talk about today. His practice revolves around the preparation of documents and providing compliance advice for mortgage professionals nationwide. And this is not the first radio show that Nema has been involved in when it comes to helping investors and private lenders stay clear some legislation coming our way. So, Nema thank you for joining us. This is such an important topic. And I think what we’re going to do, this is a little visual for those who are on the, for YouTube, there are going to be slides I’m going to give Nema. So, he’s going to walk through the presentation outlining, outlining basically the presentation. So Nema, how do I hand this to you?
Nema Daghbandan  I think I can just try sharing screen for mine and seeing if that works.
Aaron Norris  Okay. Yep.
Nema Daghbandan  How’s that working for you?
Aaron Norris  It says it started screen. There we go. Okay, let’s do it.
Nema Daghbandan  Alright, perfect and feel free Aaron at any time. You know, feel free to stop me here. Very nice to meet with your audience here today. I’m very thankful for everyone that is on here. You know, it’s, it’s an interesting thing. I think people oftentimes, whenever legislation comes up, people oftentimes think that the most powerful tool for legislation or combating legislation is lobbyists. As a person who has been involved with this for a few different instances, I don’t think it’s a good way to counteract proposed legislation. And what I mean by that is, is nothing moves politicians more than ringing phones. And so we have always tried to take an approach of when there is legislation that’s going to affect one or more industries, the participants who will be affected if they can cohesively tell their stories, and they can talk to their legislators, legislators are very interested to hear how this actually impacts because they have very good intentions, they’re trying their hardest. They’re, there, they’re in there, trying to solve a problem. They think this solves the problem. But they don’t actually know necessarily, and, and particularly when you get to the technical side of how the legislation is written, they don’t know the consequences. They’re not lawyers are not lobby, you know, they’re not in the industry themselves, right there. A person who’s going to talk about California real estate in one day, and then move on to health insurance the next, right? And have to speak with the same amount of passion on both issues, even though they know very little about either, right? So, that’s the, for those who are sitting on the sidelines of these issues. And thinking your voice doesn’t count or doesn’t matter, I cannot tell you from personal, is it. I’ve seen it change hearts and minds in real time. And there’s nothing that happens, like mobility and advocacy. And so there’s lots of ways to participate. And the nice thing about this bill is, it’s written so terribly that it affects everyone in California. So, you don’t need to be a private lender. You don’t need to be a Realtor you don’t need, if you own a home or might want to own one in the future in California, this affects you. So, without further ado, let’s get into it. So, actually, before is what is this thing called? It’s called the California Housing Speculation Act, what a noble name for it. What does this thing do? So, effectively is the, the bill as proposed would create up to a 25% California capital gain tax in addition to any kind of income tax or any other tax, and you sort of federal capital gains tax, any tax whatsoever, it’s just an additional tax that would occur if you sold or exchanged a property in less than seven years. It’s a sliding scale, but if you sold it in less than three years, it would be 25%. So, that is what this tax is. And what would they do with this money? They’re gonna create what is known as a Speculation Recapture Community Reinvestment Fund, tell you all about that in a second. It’s probably one of the more, the weirder things of this bill, as written. So, alright, um, why, why do this why are they proposing to tax 25% on the sale of the property? So, there, they’re citing research done by California Association of Realtors. Funny enough, we just signed off on a large letter with them. They are the lead advocates in this, in the anti, you know, trying to defeat this bill. And they will even say as well, that’s actually not what we said in our data point. But nonetheless, there’s a data point that exists and are they’re classifying this bucket of people who they’re calling investors, but they’re not actually say what an investor is? Is it an all cash buyer? Is it an iBuyer? Or is it a, you know, is it a wholesale purchaser? No one’s really defined in this term, but they’re saying is in California, for more data in the third quarter of last year, 51% of the buyers in California, were investors. And the national average at that time was 19%. Aaron and I have talked about that a little bit. And he’s like, that’s probably closer to about 19%, California, if you actually look through the data, but, you know, that’s not, that’s not where we’re at. So, and the key in this is, is, you know, the legislators being yelled at by the constituents, I can’t buy a house, I’m always getting outbid, you know, it’s impossible to get properties in California, you must do something and the prices are skyrocketing through the roof, you have to do something to help, right, that’s what is really driving this the any sort of push, right. So, and there’s belief that these investors are actually raising prices, in terms of the actual purchase price, so Well, versus a, you know, a person buying their primary residence. So, we talked about it earlier, there’s a sliding scale, it’s somewhere between as low as 5%, up to 25%, based on how long you’ve held the asset, right, so the first three years, it’s not 25%, down 5%, basically, every year, thereafter, seven years, no additional new tax. So, it also popped back on its net capital gains. So, for those who buy a property have carrying costs, you know, the fix and flip those sorts of things, it’s based on the net capital gain, not on the sale price, less sale price, or less purchase price. Um, so what property? This is one of the more interesting things about this bill, you would think that, you know, what they’re really trying to do is, is help people buy their first home, right noble cause great, um, but in actual application, any residential asset, so it could be a multifamily, it could be a single family, it could be a duplex, they don’t care, any sort of residential property would qualify for this new tax. So, let’s talk about a few exceptions. Now, you can kind of start seeing what I would say it’s a little bit of pragmatism being applied and where they’re kind of thinking through this a little bit, but still missing a lot of key concepts. The first here is that, you know, California has been as you know, kind of heavily promoting affordable housing and try to find ways to create affordable housing. Aaron’s you know, an ADU expert and knows a lot about kind of the promotion of creation of ADUs are really creating additional inventory, which is great. Makes a lot of sense when can help you get more affordable housing on the market. And then what they’ve also happened as well as in the past couple years, we’ve had the deed restricted properties, right. So, providing an ability to develop more, develop more units, so long as some of these units were deed restricted, in which at least x percentage had to be held for affordable housing purposes. And that deed got recorded against the property so that if a future buyer came in, they’re also restricted under the same deed restriction. So, there’s a permanency of these affordable housing units, right. So, this kind of follows what California is already been doing. It makes sense. If you buy a more than one unit property, and you place a deed restriction on it, making sure that at least 15% of the units are going to be used for affordable housing purposes. And it requires within three years of the sale exchange this, this law will not apply to you. However, just note that it’s only going to apply to the first sale or exchange. So, if you sell to a subsequent owner, they end up selling the property within seven years, they will get it with this tax even though it already had a deed restriction in place for them. Exception to make sense as well. So, really kind of developer if you buy one parcel you subdivided out, also exempting the portions which have not been sold out similar makes sense to people that are creating housing stock, they’re not trying to hammer them any further. The third one here is the what again, a somewhat nuanced one, but a good strength and also probably the biggest weakness and still, the goal of this is to promote and help people buy their first homes, as many of you already know, you know, the institutional Buy Box right now is really that first time homebuyer home. That’s what Pretium and Invitation Homes that’s what they’re targeting, right, because those also make very good homes. To rent, as the market has already told us. And so what they’re saying is, hey, look, this is the market that we’re most concerned about is first time homebuyers. And so if you’re a first time homebuyer and you’re buying this property, this doesn’t apply to you. Great. But that’s not a corollary to who is an investor, right, because I already own my own first home, many of you own your own first home. So, if I go buy my next home, right, if I upgrade or downgrade my home, well, guess what, when I sell my next home, I’m considered an investor at that point. Even though I’m living in this property, even though it’s my primary residence, it didn’t matter whether I had to move jobs to Northern California, or move somewhere else in the state just to live too bad, so, sad, you’re paying a tax, because you’re now considered in this bucket of investor under this law. So, it only applies to the first home purchased, and that person has to reside in that property for all seven years, they are exempted from this tax, but all other homeowners are not. And so this really isn’t an investor tax, it’s a homeowner tax, it’s anybody in California, is who this is going to apply to. Other exceptions. So, for example, if it’s actual commercial real estate, it’s an office building, it’s you know, a warehouse, whatever you want to call it. However, even mixed use properties, if there is any residential component, it would apply to those assets as well. So it really has to be true only commercial use. And you’ve got units that have current existing units that already have housing, deed restrictions in place for affordable housing, they would also be exempt, you know, dedicated spaces where you know, you dedicate a park to a playground or park or whatever those sorts of things would remain in place, properties that are otherwise exempt from from transfer taxes, which you know, is nothing, right. So, it’s a rare exception. So, then, who are the people who would apply it to? We already kind of talked about this, but it’s any individual entity, it doesn’t matter to their corporate tax, you know, corporate capital gain tax for my pure individual capital gain, so depends on who owns the asset. The two only exceptions to this role, are the active duty military personnel, or if a person dies, and a transfer occurs as part of the estate transfer, so it will not occur there as well. But again, your average homeowner who has bought their second home and chose chosen to sell or otherwise transferred, that second home, will get hit with this tax. And so really is is it applies to every homeowner in California, as who it applies to. This is also another, what I would say is heavy flaw of the legislation, which was follow the money. And so in this situation, when you follow the money and where the money gets put into, at least 30% will get placed into an affordable housing fund, with the purpose of creating, creating affordable housing. I don’t know whether that means they’re going to start, you know, the counties we started developing, will offer credits, they don’t say, there’s no actual methodology in here for what they will do with this money other than create affordable housing. Aaron has some great anecdotes about when municipalities have tried to create affordable housing, and how effective they have been today. Certain things government’s very good for what I’ve understood is building affordable housing hasn’t been one of them to date. Yeah, that is that. And then so well, what about the other 70% right? 20% to the school districts, which we love schools, but again, that doesn’t create affordable housing, because the purpose of your bill. 40% for transportation, I also love public transportation. But again, doesn’t create affordable housing, doesn’t lower housing costs. That was the purpose of this bill. And the 10% is, is to pay to the actual government to implement all this. And here’s another really interesting wrinkle when you think through how this legislation is written, is that these funds are in terms of allocation, where does the money gets spent, right? It’s at the county level, which county, right? It’s at the county of the taxpayer. So, you know, many, many people who are the investors are not actually, you know, whether you’re buying the property, it’s not where they live, as you may or may not know. And so, really, what you’re probably doing is making some very nice neighborhoods have much better transportation. So, we appreciate the intent here. But they’re not spending the money where it needs to be spent in the first place, which is the the property where the wood that was actually sold, which actually probably needs more affordable housing, that’s not where this is being spent. So, that even that 30% is being spent in the wrong County and being allocated to the wrong place. So, really unfortunate allocation of funds as well. So, not a particularly great bill when it would go in effect? It would go, if enacted January 1 2023. Next year, January one and then what’s happening? So, it was the bill was, the text was actually technically drafted in February sometime. But the, the way it worked that came out is I don’t know, it feels like an environmental bill or something like that, which is oftentimes the practice, they take a bill, they completely got it, they rewrite it, they create a new bill. That’s what happened here. So, on March 8, the this bill came in into was written, where it sits in the revenue and Tax Committee, and its assembly member Ward, who has proposed the revisions to this bill. It is a tax measure, and California requires two thirds of our legislators to pass a tax measure. In California, we have a Senate of 40 senators and 80 assembly members in this assembly. The current makeup, as you see on here is we have 31 Democrats in the Senate. So, we have more than three fourths in the Senate. And we have 60 Democrats in the assembly, we have exactly three fourths, which, you know, from a fractional math perspective means that they have the votes technically, on the Democrat side. However, California is we have a big big D party. And so you know, we have lots of what I would call business Democrats who often vote fiscally conservatively, even though they are socially liberal, right, it’s probably a better way to describe it, we probably call them, you know, Mitt Romney, Republicans in most other worlds, right. So that’s probably what they look like, it’s so this is definitely no walk in the park, as written, even with our current makeup, you need to lose, you know, at least four Democrats in the Senate, and at least six Democrats in the assembly, which is, you know, probably highly likely. And the very next step is it actually has to come up and be brought up in the revenue and Tax Committee, I looked at the calendars, and nothing’s coming up for the next few weeks here. So, currently, it’s not even being proposed. And oftentimes, these sorts of deals die in committee. So ,that’s our hope, in this situation in the first place, is that this thing never sees the light of day never sees a further vote, it just sits in a committee was a idea. And doesn’t become much more than an idea. So, we’ve already kind of identify militias kind of capsulate. Like why, you know, why such opposition? So, first things first is, you know, we’re not pro, you know, we want affordable housing, all of us do. And we really, really, and there’s lots of ways to do this. And the beautiful thing is, many states have demonstrated this right that the number one issue with affordable housing is the cost to build the housing, right? That’s not changed, and it’s not going to change. And so until there are measures directed at making it cheaper to build homes, you’re not going to make a house more affordable. So, you’re dealing with systemic issues altogether. So, what is, is this bill, as you already identified as there is nothing in it to create affordable housing, there is no you know, other than create a 30% pool of funds to allocate towards it. There’s nothing in it to actually create an affordable house or to to reduce the price of houses whatsoever. In fact, it will make it worse, because what will happen is me when I go buy my next home, I’m not going to leave that home, right? I have a pretty strong disincentive to not take the job in Northern California, not leave the state not do not otherwise be mobile, and place my house for sale, because I don’t want to pay 25% taxes on that sale. Is makes no sense either. So that we will actually reduce the housing inventory, which is really one of the biggest issues we have here. That’s also what was California Association of Realtors primary argument back, which was, by the way, we don’t have inventory, this hampers inventory. That’s the problem you have here. We already talked 30% of the funds is all that’s allocated and it’s going to the wrong place in the first place. And it’s targeting the wrong people. If you wanted to have a housing speculation bill, I don’t think people like you and I and who are buying our next house to live in? I don’t think we’re speculators, right. And so, pretty wide net being cast as the audience. So, that’s the you know, that’s in you’ll see, we’ve written a lot of letters and collateral. And we’ll talk about that in a second here of kind of what can you do, which all kind of identify these are the problems, right? And we’d love to have a conversation with Assemblymember Ward, about ways to promote it, you know, and I think, you know, I’m not the expert, I’d love to send Aaron down there and says, ‘Look, you know, me as someone who builds properties, and knows how to build properties and knows how to create affordable housing. Let me tell you what’s working”, right. Here’s some great suggestions. So, it’s, it’s not just No, it’s no, and here’s what else we can do, right? There’s some real tangible ways to do this together. So, you know, what can you do? You know, right now is, is, I doubt you need to talk to your Republican legislators. I suspect we know where they’re gonna fall on this bill. If you have one, you can make them aware of it. But you know, not particularly the odds. We need some defections here from, from the Democratic side, spreading the word. You know, it’s interesting, this has been one of those issues I’ve been involved with in a good number of mobilization efforts. And normally, they just affect private lenders. Because my way profession, that’s generally the demographic I’m representing. And so those are the pieces of legislation that I’m generally tracking. So, I was interested in the ADU stuff. But you know, it was more of just my general interest as a, as a person that likes real estate versus something that was very tangible to my client base. But the interesting thing is, despite the wide net of this thing, there actually hasn’t been a lot of pickup of this issue. I’ve seen, it’s really weird, because it’s actually a lot of new sources picking this up, you know, actually, you know, ABC4, and all these sorts of things. But I think, because this thing is called a speculation app, it’s talking about investors, that people don’t realize it just actually affects every homeowner. And I think that’s probably the disconnect. And so really trying to get the word out that this isn’t about private lenders, it’s not about real estate investors, it’s yes, you’re also picked up in this dragnet as well, right and have in for private lenders, the downstream effect. But in reality is this is bad for California residents, that’s what’s bad for so it really needs to get more attention. And the louder that, that contact base becomes, the less likely this comes into play. And then also to is even, you know, let’s just say it, they fixed the investor argument, right? Let’s just say as, hey, we’re gonna make sure that if it’s your primary residence and you live in the property, then we’re going to exempt that property altogether, right, as long as it’s it remains your primary residence, they get rid of the whole silly first time homebuyer aspect of it. It’s also misguided, right, because let’s just, you know, play this out for let’s say, let’s just say as they fix that, it’s just for real estate investment screening, your real estate investor and you sell the property the next seven years, what are you going to do? Right? And you all know the answer to this, right? Okay, well, I guess I’m not going to flip the property, I’m gonna hold it, I’m gonna turn into a rental, right, and I’m going to go get a loan on it, and I’m going to just do the cash play until I can make this thing play itself out, right? There’s other strategies that can be employed here, right, it’s not going to really stop the activity, what it’s going to do is it’s going to stop the inventory, right, you’re going to fix the prop, you’re going to flip the property, right, you are going to pick something that wasn’t livable, right? May have not a CEO, or really need a lot of work done to it, and you’re going to turn it into a unit that someone could actually live in, and probably raise the property values of the neighborhood make it a beautiful property live in really, you know, add value to the whole thing. And and you won’t, right, so, so what this really does is it effectively probably creates more rental properties altogethe, right? Um, and, and that’s not necessarily a good thing, right? We don’t really, you know, while we need units, period, more rental units isn’t necessarily the solution to this problem, right? Particularly when you’re talking about first time homebuyers trying to buy a property. So, you know, the good thing on this one is thankfully, that they actually kind of did a wide sweep on this one, you know, normally you don’t see this sort of roster of people working together. You know, California Mortgage Bankers Association, oftentimes is more fixated on the call to commercial multifamily world, right. So, but this attaches multifamily. This does this as much as it does single family. California Mortgage Association and American Association of Private Lenders are obviously mortgage lending associations clear, you know, clear interest, you know, although tangential, right, we make loans to the people who are in this business, so we make loans real estate investors, ThinkRealty is is, you know, obviously there on the real estate investor side, California Association of Realtors is really, you know, thankfully in this fight with us as well, and they have a, you know, an outsized voice in California. And so, you know, they’re up in arms over this thing as they should be. And so we’ve got a lot of positive momentum. And in terms of what’s happening in real times, is we just signed off, we actually just start pushing this on socials today. California Association of Realtors, along with these organizations, and a lot of other organizations just submitted their official letter over to Assemblymember Ward and all the members of the Revenue and Tax Committee. And this was not a, you know, recommendation letter of like, ‘Hey, here’s the ways to fix it.’ It was this is misguided, this gaming is to stop and just, you know, we, we don’t want to see a new and novel version of this, we want you to end this immediately. So, that was a letter that was being sent out. And that’s the status quo currently, as it sits. So that’s great that we’ve got kind of that mobility happening. But again, it’s primarily what I would say, as a lobbyist driven game right now. So, you’re seeing, you know, California Water Station, California Mortgage Association, they have lobbyists, they’re talking, that’s great. lobbyists have definitely a voice. But not a, not the compelling one, because I’m assuming because you know, who else has a voice is, is the people in Assemblymember awards jurisdiction, who are saying is bring down these house prices help me right, so there’s plenty of voices out there. And so just, you know, I think that people give more credit than credit’s do particularly in defeating legislation. lobbyists, I think, are very good at helping craft legislation because they bring a voice into the room of saying, hey, yeah, this works, but this but you know, here’s some minor tweaks, they’re really good at hacking away at legislation and making it making it make sense for that. The fact that trade organization, and they do a really good job and oftentimes help fill in the gaps when you’re creating legislation. When you’re, when you’ve got trying to defeat legislation, lobbyists are generally not the right tool for that toolkit, it is advocacy, and mobilization and phone calls and letters that moves that needle a lot. So, we’ll talk here in a second too, about what you can actually do. So, in this lecture, kind of be our last slide here, before we hit questions, which is, we’ve got a website up, and I think Aaron already kind of probably dropped it in, in various links here. So, here’s what you can find on that website, which is very helpful. There are three different letters, you can just download. And Aaron, thank you, because Aaron helped draft the real estate investor letter. And so if you go to this website, you can find one written from a private lender. So, if any of you are listening on here, and you’re ever, you know, a trustee beneficiary on any loans, you can write one directly on that behalf and explaining the role that, that, that private lenders have in this, you know, we give loans to real estate investors and real estate investors. You know, help stop this bill. Our real estate investors are out there creating housing inventory, we have one from the real estate investor standpoint as well, I’m a real estate investor, here’s what I do I employ this number of people, on an average job I develop in these areas, what is the role you’re doing? How are you adding, how are you solving the problem, realistically, not someone that should be taxed. And then lastly, is what I call the dragnet is you’re a homeowner, right? I’m a homeowner, and I want you know, I want to buy property and I want to be able to move, right? You, I can’t move because of this, this is crazy. And if you’re trying to create inventory, well, here’s a great way to do is lock up every person in their home for seven years, that’s a great way to create it. So, you know, that’s a those are a few different ways to and then lastly, is anyone listening in San Diego or, or have the connection into Assembly Member Ward’s office, we would love to just put together you know, a real meaningful discussion. And not a your you know, you don’t know what you’re talking about, I think we’d like to help us understand the problem you’re trying to tackle? Have you thought about these issues? Where do you want to? You know, what do you think about that second homeowner was trying to buy, you know, give me your understanding of what real estate investors are doing? Are all real estate investors the same, right? Do you think Blackstone is the same as the guy who’s flipped five projects in this last year, because of this legislation, they all treated the exact same, right, you’re gonna treat these two parties the same way. So, so really trying to get a good dialogue going there as well. So, but you know, the biggest thing you can do is, is take this share it, you know, on your own social media and your own, you know, your own REIAs is all this sort of stuff, is get that out that we’ve tried to provide as much collateral to make it as easy as possible. So, if you go to the website here, it there’s the letters there, there’s the contact information for the assembly members that are on the Revenue Tax Committee. I mean, you just got to pop in addresses of your address, their address, fill in some blanks, and you’re off. Better yet, if you want to give them a phone call. It’s 10 times better than that letter in the first place. So, um, you know, voice, you know, give, put your voice in there and spread the word, there’s nothing more that, that you can do. And if you do that, I’m telling you, it’s, you know, that is much, much more important. than anything else.
Aaron Norris  Very cool. I really appreciate that. And I’m going to take over a little bit and I’m going to give you a little bit of nuance on how to play this, and if you ever taken an improv class that there’s a rule and improv. It’s Yes, and you never say no on stage because it shuts the other person down. I’m going to slightly tweak that it’s going to be no but and what I want you guys to do is really focus on SB 9, SB nine is where we’re able to do lot splits in California, or we’re able to basically turn a single family residence R-1 lot into four units under current ADU Laws, I think there’s a significant opportunity to separate ourselves from Wall Street. But I want you to understand the data that a lot of these legislators are looking at. And I told ATTOM Data this two years ago, they haven’t listened. I emailed them again today. I emailed Oscar and Jordan again today at the California Association of Realtors, telling them like I don’t know anybody who’s separating iBuyers from the data, and let me walk you through what they’re doing wrong. They’re not meaning to it’s just been this way. And so anyway, it ATTOM Data puts out something called the Home Flipper Report, probably a lot of you are signed up for it. They define a home flipper by somebody who non owner occupant who buys and sells something within 12 months. Here’s the problem with that. iBuyers in California, especially last year decided to completely switch gears, they’re not renovating homes for the most part, what they’re doing is they’re buying a house that needs very little work. You’ll notice in most areas, it’s houses that are post 1980. Very similar, you know, square footage, bedroom bathroom, and you’re lucky these days if you get new paint. What’s really interesting is before the webinars with Nema, I found Zillow said on average, they spent around $5,500, I can’t find it now I wonder if they updated the investor letter, but I’ll find it again, open to where is not sharing that information on average how much they spend. But these guys are not flippers. And here’s the problem with that ATTOM Data is actually picking them up as flippers, which is, is not good, because they’re not, they don’t add value, what they’re adding is transactional speed. They’re not doing what investors do, they don’t do the ugly ones. They’re doing the easy ones, which means very little work on the inside very little repairs, and they don’t want to deal with people problems. If you’re, if you use PropertyRadar, I want you to do something very specific. In PropertyRadar, you can actually select location I was, go to the county level, there’s a quick list within PropertyRadar where you can say, hey, I want to look at flippers, and there’s this really cool way in PropertyRadar that actually defines market flip, short sale flip and REO flip. Unfortunately, PropertyRadar also says, hey, look, they’re only looking at six months. And the reason is PropertyRadar said Hey, you can’t flip a house in six months, you must be terrible. And you know, once upon a time, that was really true, true. The problem is lately, we have more ADUs built being built. And we also have supply chain disruption. But I want you to see I pulled this list all, all over California. Hopefully, you can’t see that on the, move that, hopefully you can see my screen I want you to show the over here is the purchase seller and who bought them. I’m just going to scroll through really quick so you can see Zillow purchases who it went to, and I want you to try to spot entities if they’re flipping directly to entities. I see people okay, I see one entity. But for the most part, all the stuff they bought last year, the vast majority is going to owner occupants. So, these guys Zillow, in particular, in this case is being shown up as a flipper when 90% of the time it’s going to an owner occupant eventually, very quickly within typically 60 to 90 days to putting new paint really good vacuum job and they’re putting it back in the market to be sold to an owner occupant. Why? Because they’re making money on every piece of their transaction loan closings, you name it. Okay. Um, another point of if you need fodder for how terrible government is at creating affordable housing. This is want you to notice the, the address lamayor.org and under summary of HHH pipelines, HHH was a $1.2 billion tax that they implemented in 2016. The goal was for them to create 10,000 affordable units, but I want you to look right here I can’t select it, but it says the average total development cost per unit almost $600,000 You’re not reading that incorrectly. I think there’s been a little over 1000 units and five years that have been implemented. And the Turner school has put out some data on 2018 and 2019 ADUs are crushing this, absolutely crushing this, and it’s led by owner occupants. So, if you need an example of local, a Southern California government that is doing a terrible job of creating affordable housing, all you have to do is look at the summary of the HHH fund and the government is actually giving you the data to show them how bad they’re doing. It’s hard, it’s not easy to do in the chat, and I’ll post it on our website is as well. I’ll post this one because this has the three different letters. This was what he was talking about the sample letter for real estate, you’ll see the email has the webinar here, you’ll of course have access to this one. And this is the one that I participated in. Last week, just talking about all the data, Darren Bloomquist is on there from auction.com as well. But I wanted you to get a sense of some, some of where they’re pulling the data from. This is not your meaning. They don’t mean to be terrible. They just are. They’re just not understanding Main Street from Wall Street. If you can do me a favor, provide data to your local market, lead with data. Data is not emotional. It’s just data. And then I want you to, if you flip houses, provide pictures, show them before and after possible. Because some of you guys do hoarder homes, you’re adding accessory dwelling units. And guess what? They have to meet their RHNA numbers. If you’re not familiar with RHNA numbers. Last year, in October, every city within the state of California got their allotment of affordable housing numbers that they have to build the next eight year,s talking to local development professionals, they have to build if they were to do it alone at rates that they’ve only accomplished once for the next eight years. They cannot do it without the private sector. And right now SB 9, which went into effect in January, is not available for investors. SB 10 is however it gives the city an option. SB 9 is where you’re able to basically turn a single family life before, SB 10 is where you’re able to turn like an R-1 lot and the city designates where they want them. But you’re able to create a 10plex plus 2 ADUs and 2 JADUs for a total of 14. So, it’s where they want density. But not all cities are going to play ball. So, if they really want affordable housing, they would give the private sector access to that. We have the skill, we have access to private capital like hard money lenders, like Norris Group. And we know what we’re doing, we can get these done. They don’t have to do this. We can help. So, with that, I’m going to start let’s, if you have questions, go ahead and put them in the chat for me. The first question is investors into opportunity zones, designated areas not exempt. I’ll take this, you only get the full benefit of opportunity zones, if you hold it for 10 years. So, no, it falls outside the guidelines. If you sell it early, you would. Nema, are you thinking the same thing?
Nema Daghbandan  Yeah, that’s correct. I mean, and the other answer to is it’s not exempt otherwise, right. So, there’s not a special exemption for opportunity zones.
Aaron Norris  Would a nonprofit be exempt?
Nema Daghbandan  That’s an interesting question, right? Which is, I assume as much because, can they? That’s a great question. I don’t know, individuals it’s attack. You know, like I this is my lack of knowledge of nonprofits like, what? Do nonprofits filed taxes? I’m sure they do. Right, like, and so like…
Aaron Norris  They do, they might be exempt entities. And the only reason I bring it up is because SB 1079, if you’re not familiar with Califonia SB 1079, is where California is really bad data. To implement a, if you’re buying at auction, somebody can raise your hand, a government entity owner occupant or non a nonprofit can raise your hand in fist within 15 days and buy it for you for one more dollar.
Nema Daghbandan  Yeah.
Aaron Norris  The dirty facts are, there’s some very big companies that opened a nonprofit. Oh, yeah. And they’re pushing the small guy out. So, the very thing that they tried to stop, and again, it wasn’t a winning. They even talked to a legislator trying to get them to understand the data. Yeah, it’s, it’s terrible. Can I buy in an entity and sell the entity and not the property?
Nema Daghbandan  Yeah, you know, so the technical answer is no, because it would it’s sale or transfer, right. And so I think that, that if you were to talk to the Franchise Tax Board on this issue, as well, now you transfer the property, right, regardless of whether you sold it that in that instance, and obviously it’s very hard to track in that situation. So, you know, what, you know, it’s ultimately a question of whether the taxing authority was able to pierce through and understand whether a transfer actually occurred. Hey, if they were able to do that, then yes, they would qualify at that point of the transfer. But again, you know, depends on how disciplined the taxing authorities are going to be in that situation.
Aaron Norris  And the truth of the matter is, from what I’ve seen, you have to take things out of entities. The state of California has been really picky about wanting the underlying people’s name. I’ve seen that quite a bit, so I knew it was going to come up. So, I decided to ask him. Um, and they’re keeping track of this by you have to file the affidavit or something to say that you’re going to live in it right? That, that’s how they’re going to keep track of it somehow.
Nema Daghbandan  Yeah, my assumption is that that upon sale, there’s a form and the form says, I’ve lived in this property. No, I have to attach. You’ve lived in the property for the preceding seven years or my first property that I ever purchase. And it’s done through at a station on some sort of government form.
Aaron Norris  Okay. Mark is asking how likely is the bill author to amend the bill by exempting owner occupants to make the legislation more appealing to the general public?
Nema Daghbandan  You know, never say never, because I guess, you know, anything can happen with legislation. I can’t imagine a world in which it passes as is right. It’s just too wide. It’s without exempting owner occupants as a general rule. I can’t imagine a world in which this actually moves forward. And but that is a really good question. But what if you fix that, right? What if because now, it’s just the boogeyman of real estate investors all its leftover, and it’s a much less sympathetic audience. And so the good thing is, at least from a coalition perspective is no one is asking for amendments right now, there is no one is saying is this this, ‘Yeah, I get this legislation to make sense.’ But it could use a little bit of finessing the current position is, this makes no sense.
Aaron Norris I’m trying to think, I’m trying to think of amendments midweek and promote like, okay, maybe 10% of the sales price has to be put into repairs into the property to account. To your point, what is an investor? I don’t consider iBuyers at this point in investor, because they, they’re not putting money back into the property. I don’t know, I we’re not funding any loans as an example, where the investor is only putting in $5,000. A good vacuum job and some new polls and some cabinets.
Nema Daghbandan  I mean, this is this is the interesting, first step that’s actually been on the right path or on a better path recently, right. We’ve seen this, loosen attention. You know, this happened in New York recently, where they tried to do the exact same thing, this flip tax, liens. States are terrible copycats, but another, it died in New York, that it did not move, which is great. And hopefully it doesn’t do anything here either. But, but you know, and similarly, as I was there, you know, ancillary stores I was in Florida for a while was effectively mortgage lender licensing issue, but the crux of it, and the reason why we became eligible is they were passing it for their affordable housing legislation. But if you went to Florida, what they did there was brilliant, they basically says, I don’t care about the county’s rules related to the permitting process, the state is going to mandate to the counties, the maximum time period, you have to, to either deny the permit or to you know, to to offer a manager, and in his took, they took the control out of the county’s hands, right. And so, that sounds like a great idea to me, like there’s many things we could do. And so it’s the, you know, you can do a tax credit, there’s lots of things that would actually, if the goal is more housing, and more affordable housing, there are other ways to get there. Generally speaking, the government spending money doesn’t do it., right. That’s, as you’ve already demonstrated, the few case examples we have where, and California has money, we have, you know, whatever it is right now $40 billion surplus, we got plenty of money to try to build houses. But no one’s trying to build houses. That’s not what, that’s not what the government is good at doing right?
Aaron Norris  They could have turned that, that HHH fund into like a credit line for ADUs for owner occupants, I don’t care. They made money…
Nema Daghbandan  You want to build affordable housing, and we’ll give you a 1% line. That’s a lot of ways to do you know what I mean? Like…
Aaron Norris  Yeah
Nema Daghbandan  Give them a reason to build it. Give them a reason to build it, right. That’s what they’re looking for.
Aaron Norris  Yeah, I just think it’s such a huge opportunity for investors to say no against this one, but to bring up SB 9 and to make it affordable. And you can’t take anything for granted the this stuff if we don’t say anything, if we don’t educate our legislators it can go through. And I think for the most part data is a very non emotional way to do it. And a great way to do it. And it’s visual too if you armed them with the data and visuals, you’re doing their job for them. Nobody else is going to come up with that. And I’ve already shown you the data that they’re likely pulling from. I did check with Darren, he used to work for ATTOM Data. I emailed Rick Sharga as well. And Mike is still how you’re doing it. But I just showed you on ATTOM Data, what they’re considering a flip. So, we know that’s typically the most quoted data source when it comes to investors. I’ll see what the car comes back with because they, they might be looking at only all cash deals. But even iBuyers have a huge line of credit. So, I don’t know how they’re separating that. But I the problem with including iBuyers too is it messes up the average profit and it messes up the holding times big time. So, investors if they’re taking over a certain amount of time, they’re not showing up on the list, iBuyers will more often, which is just a shame. And unfortunately, Zillow just announced that they’re they sent 2000 properties to Pretium. When they close shop, when they’re closing down the Zillow Offers, 2000 went to them. And this drives me nuts. So, the way that the national media covers this, and iBuyers almost seem more than happy to let them do it as they’re like, Oh, we’re only 2% of the market. No, you’re not in every market. And you’re not in every pie box. You’re in, I think, Openedoor’s in 41 markets at this point, but they’re in a very particular buying arena, you know, FHA and under, for the most part, so when they’re buying that those are houses that millennials will never get a chance to own. So, we’re blocking a very specific category of buyers out of homeownership, which is not great. So, and builders are not building for the most part in that range, because it’s not as profitable. Yeah. So, anyway, any other questions for Nema about this? Trying to think of if there’s any questions, I haven’t thought of that keep coming up.
Joey Romero  Aaron, can ask question?
Aaron Norris  Sure.
Joey Romero  So ,what is the goal of what we’re doing today, activating them to do what? Is it really to, you know, be at the table of affordable housing, or is just hey, let’s, let’s find a way to kill this bill, because it’s just going to hurt everybody. Because if they were really serious about affordable housing, they would do a lot of things about, you know, the barriers too, you know, make things pencil, right. So, what are we asking, you know, the people on this call, people are gonna listen to the radio, what is it truly that we want to happen?
Aaron Norris  I would love to see more investors in general, be activated. I mean, not all investors, especially Mom and Pop belong to a local, they don’t belong to CAR, maybe they don’t have a license, meaning they’re not a private lender, so they don’t belong to the California Mortgage Association. Maybe they don’t belong to the Builder Association, because they’re just, they’re not doing enough volume. The truth is, these organizations take a lot of the heat, and they spend a lot of money educating our, our legislators, but we can do that, too. We don’t have to be a member of anything, we just have to know in matters. And we have to show up, when you’re not at the table, you’re on the table. And this definitely affects you. And at the same time, your legislators should start to learn to trust you as the local expert, they should, you know, why not show off your work, show that hoarder house the worst houses in the neighborhood, you turned around into something wonderful. And let them know, Hey, you’re interested in building and the play ball with SB 9, you just right now you don’t have the opportunity, because it does not include you. SB 9 by the way, it doesn’t mean, the state has set the guidelines, but it doesn’t mean that localities can’t play ball and make exemptions for you. So, the state is one that sets the bar, but the local localities are the ones that are deciding which rules play for you.
Nema Daghbandan  And if I could jump on that, too. I mean, it’s, it’s very, it’s a steep point, which is that the the legislators are expecting the trade associations to get involved. And that’s great. And they have a voice and they particularly have a great data voice. Right is hey, let me help you. Let me just educate you. And that’s really the primary role of trade associations, I good intentions, but let me educate you on results. And that’s fine, has a role to play. When we were in Florida, and, and an issue came up for mortgage lender licensing, you would think that the person should should be speaking with the mortgage lender? Not at all, we had the local reassure, and the local reassure and the guys were trying to say, look, I cannot obtain bank financing. It does not exist for this asset. Right? So, you’re putting me and my crew out of work. That’s what you’re gonna do. That’s your, that’s what you’re gonna do. So, you think you’re harming what you think is predatory lender, that predatory lender is the only guy who’s going to give me a loan, right. And it was just this lightbulb that occurred in front because this was happening in committee. And they were standing up there one on one explaining their personal experience. And you just saw it finally clicked going, oh, like, that’s who’s being hurt. And I think that’s what you’re really seeing in this situation as well, which is a real estate investor is just this thought in their head of what that person is, right? It’s greedy landlord who’s kicking out tenants all day, right? That’s the one thing that’s all they know about you is you’re kicking out tenants, right? And trying to get in, it’s dispelling that myth, right? And I think that the more that is just, oh, I, you, I now get a rumor. One day health insurance, the next day real estate the next day, you know, whatever the issue of the day is, that’s what they’re talking about. And so if you can help them understand, because they don’t understand real estate, at all.
Aaron Norris  Yeah.
Nema Daghbandan  If they did. They wouldn’t propose this. That’s what we’re saying. So, if you can actually help explain the role of the real estate investor and how this actually benefits, um, you know, your, your voice is much more compelling than the trade association.
Aaron Norris  I, I’m part of something then an affordable Housing Coalition that’s going through the Council of Governments put together SCAG. And I believe in Southern California, it’s everybody but San Diego. So, there’s a course that 40 of us out of 400 were selected to go through this course. I’m one of two private sector, individuals and last Monday, we had our session, and they brought up this issue. And I’m like, Guys, I’m going to tell you now I’m going to beat you guys up. I’m all the data is wrong. This is how wrong and she shared a Washington Post article. Washington Post did not source their data. Um, I don’t know where they’re pulling from, but I bet you anything I know where they did. And if so, this is how we’re doing it, they’re doing it. And here’s why it’s wrong. And they had never heard that before. I was like, ‘When is the last time as an example, in Riverside, I pulled this data because I was part of another Housing Coalition. Because I’m a nerd out here. And I was like, okay, when’s the last time you’ve talked to landlords about what you want? About what’s possible?’ And like, ‘Well, we haven’t’ I’m like, ‘Exactly,’ they already own inventory. Have you told them that you want ADUs? Have you talked to landlords with lots over 10,000 square feet, that could clearly fit an ADU? Of course, you haven’t? Guess, I think the average circulation of the press enterprise is something around 100,000. We’re not like Palm Springs, or San Diego or LA, we’re a secondary beauty market, we don’t matter. I guess, the problem is that the majority of landlords, you know, a huge portion of landlords live out of the county, so they’re not paying attention. So, unless you mail them something, or they happen to be a subscriber to the Orange County Register, or the press enterprise. Third, we’re gonna hear it. So, who would you also start letting them know like, you’re already creating this letter, sample of your work, some pictures, who else would you send it to that you think would be impactful in government?
Nema Daghbandan  Yeah, here’s what I was saying, the interesting thing is, if I hate what I do, meaning I hate, my job primarily is reacting to legislation, right? That’s really, it. It’s the most annoying thing because it’s like, it’s your it’s a fire drill every time and you’re fighting. And it’s so hard to do well, right. And I you know, that’s awesome. I saw, you know, in the chat box here is one of the people here, right. Like, I think the challenge thing is so many people can be very political in their approach this it’s not a politics issue at all, like, truly, I truly believe Assemblymember Ward is doing the right thing in his own eyes. I don’t think that’s an ounce of ill will here.
Aaron Norris  Agree.
Nema Daghbandan  I think he’s got he is he was elected to try to help people and he thinks he’s helping people. That’s it. And so, um, the, it’s really getting more involved in general with local politics, right? As silly as it seems like, this is what happens when you’re in a vacuum. And no one knows, like, this is the stuff that comes out of it. And so I think it’s even if you’re not an assembly member in our district is having conversation be like, hey, like, I just want to dismiss off, like, I’ve noticed that there’s a you know, I think California’s got a really big housing affordability problem. What are your thoughts, right? Like, I’d love to talk to you about it, cuz I’m an in real estate, I would love to give you some ideas and like some things that California’s done really well. And I think there’s some things that might be able to help you a little bit. Any sort of, of connection at that level. Really will, you know, the big picture of this thing is, is what is ProAct? You know, what’s another SB 9 that we could do whatever improvements that we can do, or maybe tax credits or other things we could do that would actually generate real inventory and help right that’s, that’s the, that’s that love to see. Right?
Aaron Norris  Yeah. And they’re motivated they need to I didn’t explain this what happens if they don’t meet their their RHNA numbers in the next eight years at the state can takeover which has never happened before, but the state can take over planning departments and just say you are not getting that done. So, we’re gonna do it for you. And then you lose complete local control. But they also lose access to funding for transportation, CDBG funds, which go to nonprofits that help a lot of support local projects, fordable housing projects, you don’t want to lose that money. So, they’re motivated to work with you. But we need we we need each other to really show up some of the places that I think can show up everyone smile. You can show up at council meetings at the local level.
Nema Daghbandan  Yes.
Aaron Norris  And share your ideas. You can show up as a local chamber and start to get known as you know, let people know what you do. You don’t have to show up all the time. If you’re in an area that’s county driven, and a lot of money lands of the county, so show up your county version of council meetings and let them know what you’re doing for affordable housing and building ADUs and it never hurts to show up and tell them about timelines like let them know how they’re doing. When it comes to build permits or turnaround time, with under ADU law, they’re supposed to be hitting a 60 day maximum timeline or it’s considered approved. I don’t necessarily go for that strategy. They can make your life very difficult. Don’t want to play ball that way. But that’s definitely something. My council member asked me last year like what do I tell my constituents about ADUs? I’m all it’s out of your control. You don’t have any say so and the state regulated and sorry.
Nema Daghbandan  Aaron you, you’re you’ve led the fight on call Yimby right? Like there’s to like a philosophical shift that kind of needs to happen here, right? Like that’s, that’s the real challenge we’re ultimately facing here. I mean, I live in Mission Viejo and like, I’m getting flyers right now because like, oh my god, they’re planning on developing some, you know, real estate in this dilapidated, like, shopping centers. That is just, you know, an eyesore, candidly, I don’t like guys like, there are giant for the love of God, let someone move here. This is crazy. This is crazy. This cannot be forever. We have to, at some point recognize that people should be able to live in this place. And if, if you don’t, you’re not gonna be able to be there, right? Like this is gonna be a weird place. If we continue to let status quo occur it already is.
Joey Romero  Aaron. Somebody asked, what would Assembly Member Ward’s district is, its coastal San Diego from Solana Beach to Mexico. And including parts of downtown.
Aaron Norris  And San Diego is one of the most cutting edge. I didn’t create YIMBY, by the way, there’s a whole club of yes, in my backyard. But there’s a big movement around ADUs. And I think we should really be pushing SB 9, because it’s such a creative way to get more inventory. But anyway, any other questions for Nema while, we got him on the phone, I know we’re, I’ve, I’ve run out my clock and I’m not paying for your time, I feel so bad. And I, and I just want to thank you for your time too. I know you, you’ve worked so hard, and I don’t think people know some of the things that you’ve helped stopped including in MLS, NMLS rules in Florida, I got my NMLS license thinking that you are going to have to in Florida or you couldn’t do hard money out there. You were instrumental in getting that stop. So, it’s, it’s everyday folks leading with data leading with visuals understanding what you do, and you become the trusted. And that’s how you play the game. And, again, I don’t think any of this is real meaning it’s just, you know, you’ve got a, an intern that pulls bad data when it came to SB 1079. The one with the trustee sale, the redemption period, they were using, they were comparing California to, I forgot if it was Detroit, or it was some some city that was losing population for the past 50 years, and they use their TARP money to tear down houses, California really has never done that. And as of two years ago, they were still spending some of that money tearing down houses. So, it was completely inappropriate. But unless they have somebody that they trust that’s presenting that data didn’t go with the intern. So, when you’re not at the table, you’re on the table, you know, where can people find out more about you, and the law firm?
Nema Daghbandan  Sure, appreciate that. You know, the on LinkedIn, probably primarily from a social media perspective. And so you can look at my name as easiest way to probably grab a hold of me there. Alternatively, you know, we’ve got our website, we’ve got Geraci, and my, my name here, so GeraciLLP.com. I work at GeraciLawfirm.com, you know, I would be happy to chat with anybody after the fact, particularly for people to want to get mobilized. And that’s really a good way to get plugged in and loved to be a part of it. Any person. Like I said, if you have a, an ability to get a meeting with Assemblymember Ward, I’d love to get a group of people going down to the for that. That is the you know, winning heart in mind is the ultimate battle. And if we can do that, then you know, you’ve really, you know, helped out a lot of people.
Aaron Norris  There are a lot of people on this call that were from the San Diego market. So, if you need to connect, I will, I will definitely I’ll have them reach out but let me know.
Nema Daghbandan  Thank you.
Aaron Norris  Nema, really appreciate it. Thank you so much for joining us.
Nema Daghbandan  Take care Aaron.
Aaron Norris Okay, bye. Bye, everybody.