CHICAGO | Economic & Business Development

[Investing In Chicago]

Originally Posted by moorhosj

The real question is, what were the taxes on it when purchased compared to today?

I bought the House in 2014:

2013 Tax Year: $24,000
2014 Tax Year: $26,000
2015 Tax Year: $29,000
2016 Tax Year: $34,000
2017 Tax year: $38,000
2018 Tax year: $41,000

Below is an example of a house that is very similar to mine, same lot size, this one is slight bigger, but this is less than 2 blocks from where I live - look at their tax history, and notice the huge jump. It's all a racket.

https://www.zillow.com/homedetails/3...89929320_zpid/

My attorney said he would anticipate my taxes to reach 56-60K within 5 years, coupled with JB's tax plan, the state/city will continue to bleed, imo.

[Investing In Chicago]

Originally Posted by OrdoSeclorum

The pension issue is a problem. We should have negotiated a better deal. *That* was a government in crisis. But we also should have had a small tax hike 20 years ago! The Chicago Tribune and the Center for Growth and the Chamber of Commerce spent decades saying that we couldn't bear a small tax hike and that people would leave the city and so on. So every politician was afraid to raise taxes and now we need to pay for it all at once, with interest.

Wasted taxes are bad. But taxes also pay for the investments that create economic growth. If you're paying $40K a year in property taxes, you have a very nice home. If you take your professional skills and investments to Boston or New York or Seattle, you're not going to spend less each year on housing. AND if you wanted to save a bunch of money you could always move to a two bedroom. For me, personally, I could do my job anywhere in the country but I probably make $30,000 more a year than I would in Indiana due to productivity gains due to O'hare and Midway. And I could earn more in San Francisco or New York, but I probably save $40,000 a year not living there. Now, I could move to Dallas or Atlanta and benefit from those airports and save $10,000 more per year, but it simply isn't close to worth giving up all the great stuff about Chicago for $800/mo.

As for infrastructure and services in Chicago, I don't have any complaints, personally. The few times I've called the police I've gotten a rapid, professional response. My garbage is picked up on time. I move all about the city affordably and with ease. I feel safe when I walk and the environment I walk in is clean. My mailmain walks his route. The corner store is full of kids buying popsicles after school. It's not Singapore, but it's not a broken city.

I'm born and raised in NYC, grew up in Washington Height, Manhattan; I get it, cities are expensive. The issue I have is the city will continue to raise taxes on residents, but it is like pissing in the ocean, the city will not be able to fully fund the pensions, we will continue to see increases.

It is the uncertainty that is concerning, I know a lot of people in this city who are considering moving out, myself included. That was the initial point I was making.

[Baronvonellis]

Originally Posted by Investing In Chicago

I bought the House in 2014:

2013 Tax Year: $24,000
2014 Tax Year: $26,000
2015 Tax Year: $29,000
2016 Tax Year: $34,000
2017 Tax year: $38,000
2018 Tax year: $41,000

Below is an example of a house that is very similar to mine, same lot size, this one is slight bigger, but this is less than 2 blocks from where I live - look at their tax history, and notice the huge jump. It's all a racket.

https://www.zillow.com/homedetails/3...89929320_zpid/


My attorney said he would anticipate my taxes to reach 56-60K within 5 years, coupled with JB's tax plan, the state/city will continue to bleed, imo.

So you bought a multi-million dollar home at 31, and you have to pay a couple thousand extra in taxes a year, oh woe is me. That must be so distressing living in a mansion being super rich. Whatever will you do? Might have to not buy your 3rd porsche this year?

I'm 36 and can barely afford a 2 bedroom condo on the northside, give me a break.

[Investing In Chicago]

Originally Posted by Baronvonellis

So you bought a multi-million dollar home at 31, and you have to pay a couple thousand extra in taxes a year, oh woe is me. That must be so distressing living in a mansion being super rich. Whatever will you do? Might have to not buy your 3rd porsche this year?

I'm 36 and can barely afford a 2 bedroom condo on the northside, give me a break.

So that is the benchmark? If you can afford a massive tax increase, you shouldn't complain?

Again, the city is pissing away money, and looking at every possible place it can to raise revenue - just to throw it at the Boondoggle that is the pension crisis, and any other program the city can make up.

it's a scam. Seems the only response is "if you can afford it, shut up and pay".

[moorhosj]

Originally Posted by Investing In Chicago

2013 Tax Year: $24,000
2014 Tax Year: $26,000
2015 Tax Year: $29,000
2016 Tax Year: $34,000
2017 Tax year: $38,000
2018 Tax year: $41,000

Lets use this and your example to work out the math.

Your property taxes have gone up 11.3% annually (CAGR) over this time frame.

The house you used as an example is priced at $3,095,000 today. According to the Zestimate (we can debate the accuracy of this feature later, but this is for discussion purposes), this home was worth $1,600,000 in January 2013. As of January 2018 (to match up with your tax years) it had a Zestimate of $2,700,000.

The CAGR of the home value increase from $1.6 million to $2.7 million from Jan 2013 to Jan 2018 is.......11.0%.

I'm not saying that you are wrong about how the city will continue to tap wealthy homeowners for property taxes to fill the un-fillable pension void. I do think you have likely benefited from a vastly more valuable home than when you purchased. I completely agree with that and blame it on our politician's refusal to discuss real solutions like taxing retirement income, extending sales tax to services, and an amendment to the constitution allowing for changes to the 3% compound growth rate would be nice too.

[Baronvonellis]

Originally Posted by Investing In Chicago

So that is the benchmark? If you can afford a massive tax increase, you shouldn't complain?

Again, the city is pissing away money, and looking at every possible place it can to raise revenue - just to throw it at the Boondoggle that is the pension crisis, and any other program the city can make up.

it's a scam. Seems the only response is "if you can afford it, shut up and pay".

Yes! You should be thankful your so rich, and stop complaining for paying your fair share in taxes. Plus, if your home has gone up $1 million or so since you bought it, you've made a million doing nothing, and the increase in taxes is a tiny fraction of your giant profit. Be happy you've been able to profit so much doing that. I will never see that money in my life.

Taxes have been really low for the past 20 years historically on the rich. They need to go up higher to reduce the widening income gap.

[the urban politician]

McDonalds benefiting from downtown HQ move:

https://www.chicagobusiness.com/joe-...ying-mcdonalds

[OrdoSeclorum]

Originally Posted by Investing In Chicago

So that is the benchmark? If you can afford a massive tax increase, you shouldn't complain?

No. If what you care about is the total obligate percentage of income paid in taxes each year, someone earning $30,000 a year probably has it much worse off than you or I. They pay Social Security taxes on their entire income and almost every cent they spend is subject to sales taxes. Healthcare and travel expenses are the same for everyone. The affluent can choose to simply not consume if they want to lower their tax burden and that capital is then taxed at a quite low rate, or can be passed on to heirs. It only makes sense for most of the tax collections to come from income above that which is required to meet basic life needs.

Beyond that, the wealthy benefit far more greatly from the fruits born of past investments. If one owns an industrial facility... good airports, security, schools, public health programs and whatnot allow your business to be competitive for just a small percentage of your profits. If you're dirt poor, that feels pretty similar in rural Arkansas, Gary, or Bulgaria.

I read a thought experiment years ago from John Rawls that I frequently think about. Let's say your'e a soul in heaven that's about to be sent down into a baby. You get to pick the kind of system you live in. Would you rather choose: a) If you make $600,000 a year, you get to keep $525,000. If you're born with a developmental disorder that prevents you from learning to read, maybe begging or prostitution are options? b) If you make $600,000 a year, you get to keep $400,000. If you're born with a serious disadvantage, the basic services to keep you from a life of misery and squalor are shared by the commonwealth.

If the about-to-be-born soul had no idea what the situation he was about to find himself was, I don't think many would choose option-A. I wouldn't!

[the urban politician]

Originally Posted by moorhosj

Lets use this and your example to work out the math.

Your property taxes have gone up 11.3% annually (CAGR) over this time frame.

The house you used as an example is priced at $3,095,000 today. According to the Zestimate (we can debate the accuracy of this feature later, but this is for discussion purposes), this home was worth $1,600,000 in January 2013. As of January 2018 (to match up with your tax years) it had a Zestimate of $2,700,000.

The CAGR of the home value increase from $1.6 million to $2.7 million from Jan 2013 to Jan 2018 is.......11.0%.

I'm not saying that you are wrong about how the city will continue to tap wealthy homeowners for property taxes to fill the un-fillable pension void. I do think you have likely benefited from a vastly more valuable home than when you purchased. I completely agree with that and blame it on our politician's refusal to discuss real solutions like taxing retirement income, extending sales tax to services, and an amendment to the constitution allowing for changes to the 3% compound growth rate would be nice too.

A factor that you are missing is the downward impact these rapidly rising property taxes will have on home values.

There is this assumption by a few here that a home's value will keep going up and up independently of its property tax.

But these are not independent of each other. At some level you reach a tipping point (and it's different for each home) where property taxes get so high that they dampen a home's resale value. So Investing in Chicago's home may look like it's worth $3 million on paper, or according to Zillow. But in the real market, if he lists it for sale he may never fetch that amount, or even close to it. And property taxes rising year after year with no end in sight could be one of the largest factors sinking his home value's potential.

[Investing In Chicago]

Originally Posted by Baronvonellis

Yes! You should be thankful your so rich, and stop complaining for paying your fair share in taxes. Plus, if your home has gone up $1 million or so since you bought it, you've made a million doing nothing, and the increase in taxes is a tiny fraction of your giant profit. Be happy you've been able to profit so much doing that. I will never see that money in my life.

Taxes have been really low for the past 20 years historically on the rich. They need to go up higher to reduce the widening income gap.

How do you define "fair share"? Based on how much the city wants to take? The majority of the money I'm paying in property taxes is being pissed away, and our pocket of the city can barely get any city services completed. How is that "fair"?

Where are you getting my property value increased a Million Dollars? How is that remotely possible? I'd probably break even on my property (before realtor commissions).

EDIT: You previously advocated for Mortgage companies being able to break a contract and increase payments if the owner has too much equity...You have no idea what you are talking about, not sure why i'm debating property taxes with you.

[Investing In Chicago]

Originally Posted by the urban politician

A factor that you are missing is the downward impact these rapidly rising property taxes will have on home values.

There is this assumption by a few here that a home's value will keep going up and up independently of its property tax.

But these are not independent of each other. At some level you reach a tipping point (and it's different for each home) where property taxes get so high that they dampen a home's resale value. So Investing in Chicago's home may look like it's worth $3 million on paper, or according to Zillow. But in the real market, if he lists it for sale he may never fetch that amount, or even close to it. And property taxes rising year after year with no end in sight could be one of the largest factors sinking his home value's potential.

The bolded is the problem...where does this end? The city can increase my property taxes 5x and it still wouldn't pay the pension debt. It's a house of cards.

[moorhosj]

Originally Posted by the urban politician

A factor that you are missing is the downward impact these rapidly rising property taxes will have on home values.

Based on the data I used, the home values have done exceptionally well (remember, this is the high-end of home values). I'm not saying you are wrong or that it won't happen, but we don't have evidence today that it has happened.

Originally Posted by the urban politician

There is this assumption by a few here that a home's value will keep going up and up independently of its property tax.

No, there is evidence that it has gone up along with property taxes (11% annually) over the past 6 years.

Originally Posted by the urban politician

But these are not independent of each other. At some level you reach a tipping point (and it's different for each home) where property taxes get so high that they dampen a home's resale value. So Investing in Chicago's home may look like it's worth $3 million on paper, or according to Zillow. But in the real market, if he lists it for sale he may never fetch that amount, or even close to it. And property taxes rising year after year with no end in sight could be one of the largest factors sinking his home value's potential.

The Zestimate is based on recent home sales, so it does factor the market at least a bit, but your overall point is correct that there is a tipping point. I just don't think anyone really knows where that is (similar to the Laffer Curve, which does exist but we have never proven where we are on the actual curve).

I still think the SALT deduction cap is a bigger hit as it both increases your tax burden and lowers your property's value.

[OrdoSeclorum]

Originally Posted by Investing In Chicago

The bolded is the problem...where does this end? The city can increase my property taxes 5x and it still wouldn't pay the pension debt. It's a house of cards.

Do you really believe this? I don't know the *exact* way the pension issue is going to be solved. And I'd prefer that it be solved soon and in the least painful way possible. Certainly sales tax on services is a good possibility to get revenue. And the gaming taxes from a city casino could make a decent dent. And I'm certainly expecting real estate taxes to go up to match the higher rates in the suburbs.

But if you believe that the city can raise your real estate taxes to $200,000 a year, you don't have a full understanding of economics. That wouldn't be revenue maximizing for the same reason that a 99.9% income tax isn't revenue maximizing. People would simply stop working. If my taxes went up high enough that either my home's value dropped by more than my equity OR if in a handful of years I paid out more in taxes than I had in equity, it would become an option for me to simply walk away. And for many others, this wouldn't be a choice. Tax rates that high would be devastating and foolish and it simply wouldn't happen.

Realistically, I think we can expect tax rates to stabilize at some level that's below the appreciation rate of the home you're in. If you have a $2,500,000 home and it goes up in value 3%, that's $75,000/yr in appreciation. If taxes matched that rate, most home owners would bear it, since they are in essence breaking even each year. Above that rate, I doubt that collections would increase with further tax increases.

[moorhosj]

Originally Posted by OrdoSeclorum

Realistically, I think we can expect tax rates to stabilize at some level that's below the appreciation rate of the home you're in. If you have a $2,500,000 home and it goes up in value 3%, that's $75,000/yr in appreciation. If taxes matched that rate, most home owners would bear it, since they are in essence breaking even each year. Above that rate, I doubt that collections would increase with further tax increases.

Don’t forget to factor in inflation of 1-2%, I think property taxes probably cap out at around 2% of assessed value before negative effects get big, like Oak Park is seeing. So, $50k for a $2.5 million house. That isn’t far off from the current rate (around 1.7 or 1.8% I think).

[marothisu]

Originally Posted by Investing In Chicago

I bought the House in 2014:

2013 Tax Year: $24,000
2014 Tax Year: $26,000
2015 Tax Year: $29,000
2016 Tax Year: $34,000
2017 Tax year: $38,000
2018 Tax year: $41,000

Below is an example of a house that is very similar to mine, same lot size, this one is slight bigger, but this is less than 2 blocks from where I live - look at their tax history, and notice the huge jump. It's all a racket.

https://www.zillow.com/homedetails/3...89929320_zpid/

My attorney said he would anticipate my taxes to reach 56-60K within 5 years, coupled with JB's tax plan, the state/city will continue to bleed, imo.

That sucks regarding your home taxes. Obviously I know you and your wife run some small orgs. I don't know if you're high up enough or mobile enough where you can live where you want including in areas where your company actually doesn't have an office. If you can live in a place where your companies don't have any employees then it's easy for you. If not, then it could be harder to move wherever without finding a new job. I'm sure you know this.

I also know you grew up in NYC, but have no idea if you've actually lived here as a tax paying post college adult having to pay rent/mortgage. Of course, the income taxes in NYC are over double what they are in Illinois (and thus Chicago). Even if the proposed income tax hike takes hold, you would be paying 2-3% more in NYC than Chicago. In California it's even worse and you'd be paying even more. If you are considering those areas, have you considered the cost of how much more in income tax you'll be paying vs property tax for a similar property?

You made a statement regarding that you don't mind paying taxes if it's going to something good. I will say: grass is always greener on the other side and be careful what you wish for. I'll speak to my experiences here in NYC - I felt a more direct effect of my tax money in Chicago actually than in NYC. NYC is poorly managed from this perspective and orgs like the MTA can't even afford to put fans in most train stations and they're about 6 years late in getting to RFID fare cards even after multiple fare hikes. Illinois had lower income taxes than NYC but I felt the tax money doing more in Chicago than I do right now in NYC to be completely honest. Interestingly, I worked with a guy in NYC who was born and raised in west Texas and not until his 40s did he move anywhere else (to NYC). He was very conservative previously because he said in Houston and Dallas, he didn't feel like he could actually see any of his tax money at work so he didn't see the point. He got slightly less conservative after living in NYC for a little bit because he could see it at work. Case in point again, if these places aren't using tax dollars to bring new things you can actually notice and you have a problem with some places relying on more well off people donating their money to get various things, then take notice.

Other places could surely be better, obviously but be careful what you wish for and always do your homework. The one thing that's common amongst so many people is their inability to actually look into the total "costs" of where they're about to move to. Places will hook you with various great things but not let you know about other things.

If you find a place where you think you're going to get more money's worth then more power to you.

[Investing In Chicago]

Originally Posted by moorhosj

Based on the data I used, the home values have done exceptionally well (remember, this is the high-end of home values). I'm not saying you are wrong or that it won't happen, but we don't have evidence today that it has happened.



No, there is evidence that it has gone up along with property taxes (11% annually) over the past 6 years.



The Zestimate is based on recent home sales, so it does factor the market at least a bit, but your overall point is correct that there is a tipping point. I just don't think anyone really knows where that is (similar to the Laffer Curve, which does exist but we have never proven where we are on the actual curve).

I still think the SALT deduction cap is a bigger hit as it both increases your tax burden and lowers your property's value.

Where are you getting 11% per year increase? That ain't happening.

[Investing In Chicago]

Originally Posted by marothisu

That sucks regarding your home taxes. Obviously I know you and your wife run some small orgs. I don't know if you're high up enough or mobile enough where you can live where you want including in areas where your company actually doesn't have an office. If you can live in a place where your companies don't have any employees then it's easy for you. If not, then it could be harder to move wherever without finding a new job. I'm sure you know this.

I also know you grew up in NYC, but have no idea if you've actually lived here as a tax paying post college adult having to pay rent/mortgage. Of course, the income taxes in NYC are over double what they are in Illinois (and thus Chicago). Even if the proposed income tax hike takes hold, you would be paying 2-3% more in NYC than Chicago. In California it's even worse and you'd be paying even more. If you are considering those areas, have you considered the cost of how much more in income tax you'll be paying vs property tax for a similar property?

You made a statement regarding that you don't mind paying taxes if it's going to something good. I will say: grass is always greener on the other side and be careful what you wish for. I'll speak to my experiences here in NYC - I felt a more direct effect of my tax money in Chicago actually than in NYC. NYC is poorly managed from this perspective and orgs like the MTA can't even afford to put fans in most train stations and they're about 6 years late in getting to RFID fare cards even after multiple fare hikes. Illinois had lower income taxes than NYC but I felt the tax money doing more in Chicago than I do right now in NYC to be completely honest. Interestingly, I worked with a guy in NYC who was born and raised in west Texas and not until his 40s did he move anywhere else (to NYC). He was very conservative previously because he said in Houston and Dallas, he didn't feel like he could actually see any of his tax money at work so he didn't see the point. He got slightly less conservative after living in NYC for a little bit because he could see it at work. Case in point again, if these places aren't using tax dollars to bring new things you can actually notice and you have a problem with some places relying on more well off people donating their money to get various things, then take notice.

Other places could surely be better, obviously but be careful what you wish for and always do your homework. The one thing that's common amongst so many people is their inability to actually look into the total "costs" of where they're about to move to. Places will hook you with various great things but not let you know about other things.

If you find a place where you think you're going to get more money's worth then more power to you.

If I ever left Chicago, it would be to go back to NYC - I never owned my own residents there, but I own a building in Jamaica, Queens with my Cousin, and I do all of my parents finances, who live in Staten Island. I know what the reality is there.
My wife and I both have a ton of flexibility with our 9-5's but we doubled down in Chicago on investment properties due to obvious barriers to entry in NYC. That keeps us in Chicago, plus my wife's family is from Minneapolis, and they visit us often in Chicago.

We're so far off from the original point I was making, but I fully understand the reality of Chicago's financial situation, and understand there is a high cost to living in world class cities, but this mindset of continuing to tax the "wealthy" (whatever that means) is going to cost the city long term, in my opinion. I honestly could live with my property taxes doubling if the money was going to anything to make the city better, but it isn't, it's going to funding pensions and lining the pockets of corrupt politicians. Coupled with the uncertainty of how long this increase will go on (are my property taxes going to double every 5-7 years?!). The wealthy will vote with their feet.

[marothisu]

Originally Posted by Investing In Chicago

If I ever left Chicago, it would be to go back to NYC - I never owned my own residents there, but I own a building in Jamaica, Queens with my Cousin, and I do all of my parents finances, who live in Staten Island. I know what the reality is there.
My wife and I both have a ton of flexibility with our 9-5's but we doubled down in Chicago on investment properties due to obvious barriers to entry in NYC. That keeps us in Chicago, plus my wife's family is from Minneapolis, and they visit us often in Chicago.

We're so far off from the original point I was making, but I fully understand the reality of Chicago's financial situation, and understand there is a high cost to living in world class cities, but this mindset of continuing to tax the "wealthy" (whatever that means) is going to cost the city long term, in my opinion. I honestly could live with my property taxes doubling if the money was going to anything to make the city better, but it isn't, it's going to funding pensions and lining the pockets of corrupt politicians. Coupled with the uncertainty of how long this increase will go on (are my property taxes going to double every 5-7 years?!). The wealthy will vote with their feet.

Oh, I totally agree regarding taxing the wealthy. It's not going to fix most problems. The main issues are systemic and will just continue to be there regardless unless they're addressed. We're both in agreement on that. I would have expected someone like JP to understand this, but sometimes people like that surprisingly are naive.

I was just saying that even if/when Illinois increases taxes for things like income, it'll still be better than the likes of New York City, everywhere in California, Minnesota, etc. I can safely say that I completely miss the taxes of Chicago after having lived in NYC as a tax paying adult. In NYC itself the property taxes are lower, but the housing costs are also much higher so the property taxes don't end up being as much of an issue - if you make a bit of money after a certain point of income then it becomes less of a problem anyway. Interestingly, the property taxes in New Jersey are terrible. I showed some of the property taxes for houses in Chicago to some co-workers who own property in NJ and they were marveling at how "cheap" it was LOL. Not the size of house you own, but just regular homes/condos. Kind of funny when you hear the perspectives..

[pip]

I got caught up on the whole property tax thing a couple of weeks ago after Cook County's tax bill came. I live in Lakeview East.

I'm from Boston originally. If I were to duplicate my lifestyle in Chicago in Boston with an equal priced place in the same type of neighborhood as Lakeview I would pay less property taxes by half, all other taxes are about the same. But there are no condos in Boston worth the place I paid in Lakeview for the same thing especially in equivalent neighborhoods as Lakeview. And it can be argued that there is no place like Lakeview in Boston and if there is its much smaller. If I were to get an equivalent place in a similar neighborhood in Boston my condo value would triple, no joke. So I would end up paying $1600 a year more in total taxes in Boston and that does not include the extra mortgage costs - which would be triple. Also for my profession wages in Boston are not that different than Chicago.

For a tier city such as Chicago the only city that would be cheaper would be Philadelphia. I assumed Philly has equal property costs as Chicago. The property tax rate in Philly is indeed less than Chicago but they have a city wage tax. At the end of all taxes Philly would be $600 less a year than Chicago. But Philly isn't that big in my field and of the jobs there that are the same they pay less but not by much. Does Philly have a pocket the same size, amenities, transit, walkable and density as the Northside Lakefront neighborhoods? All other same tier cities or higher are way way more when you consider property costs to maintain a similar lifestyle.

[pip]

In defense of Philadelphia, it has some large contiguous beautiful neighborhoods that are not anywhere to be found in Chicago or any but a very few American cities, they just look just great.