By Ryan Craig

Real estate inheritance is one of the greatest strategies for preserving generational wealth.  Our clients commonly share their well-intentioned plans to pass down their portfolio to their children, leaving them in a fantastic position to benefit from income properties.  However, this once great idea has become an unachievable dream, even a recipe for disaster, for countless families across the state of California.

The election of November 2020 had the potential to drastically change the California real estate market in more ways than one.  Luckily nearly all were declined, but Proposition 19 was accepted with just over 51% of voter support.

Proposition 19 gives eligible California residents the opportunity to transfer their Prop 13 tax caps to a new primary home anywhere within the state up to three times.  However, as part of the measure, there are now immoderate limits on parent-child property tax exclusions if the properties were not already gifted in an irrevocable trust before February 16, 2021.

As a result, all inherited properties in the state of California will be reassessed and given updated property taxes based on the current, fair market value.  The only exception to this will be any real estate worth less than $1M and used as a primary residence by the child.

Sadly, many investors believe they are giving their children economic stability through real estate inheritance, when in reality, it is setting them up for potential economic chaos.  All inherited income properties will have their cash flow severely cut, but those with below market rents will be hurt the greatest.  Underperforming assets could have their cash flow completely eradicated by updated property taxes: the complete opposite situation you would want to leave your children and grandchildren with.

In the meantime, it is now more important than ever to stay active as an investor.  There are many creative ways to offset the negative impacts of Prop 19.  Connect with us to find out the best strategy to preserve your family’s generational wealth!

Ryan Craig is an Associate at Kirklen Investment Group with over 3 years of experience in the commercial real estate multifamily industry.

Ryan assisted in real estate transactions during his undergraduate years at California State University, Fullerton and has since maintained his efforts to provide his own clients with the highest level of service.

Prior to joining Kirklen Investment Group, Ryan was introduced to the extensive world of multifamily real estate while working at Morgan Skenderian Investment Real Estate Group. His early experience at the firm gave Ryan the fundamental skills of underwriting and marketing apartment properties in the Orange County and Long Beach areas. Ryan then took his talents to Vantis Capital Advisors, working diligently to identify clients and relevant market research before becoming a Junior Associate.

Ryan has enjoyed life in Orange County for the last several years. When he is not watching a Laker game, Ryan enjoys going to the gym, hiking the Laguna Canyon trails and making time for beach days with friends.