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how to you value the appreciation in somebody's house when the only meaningful way to value a property is to sell it?

I think property taxes are fairly widespread in the US, actually. Your county has a group of assessors, who pick a SWAG based on comparable recent sales and -- ahem -- their desire to have the county generate tax revenue this year, and then you get to pay .8% or whatever of the assessed value in property taxes.

My father has drolly noted more than a few times that he wishes this assessment came with a shotgun clause (i.e. if the assessors tell you your house is worth $X, you could say "Sweet! I'll have the lawyer draw up the sale documents. You can have the keys tomorrow.")

Thanks for the clarification (you too gyardley!). I'm in the UK and we don't do that here. We pay 'stamp duty' when buying a house and capital gains tax when selling (or not as there are exemptions) but nothing on an ongoing basis for the appreciation in value.

In the UK Council Tax is based on the value of your property, based on some fairly informal assessments done years ago.

Challenging your Council Tax band is possible if you think the value assessment is incorrect.

It's not a direct tax on the wealth embodied by the property, but it is a way by which the wealthier pay more tax.

You have a point. I guess you can make a case that CT is an indirect wealth tax though it certaintly isn't intended to be. And of course the property value isn't re-evaluated on an ongoing basis so appreciation isn't reflected in the tax you pay during any given years liability.

In my original comment what I was really trying to get at is that, as an investment strategy, you would want to maximise your wealth by minimising your realisable income and that the typical way to do that over time has been to accumulate wealth in property. I guess I was wrong about this in the US but it's still a valid strategy in the UK.

No no, it's the same in the US and Canada. Wikipedia tells me it's around 1% for a £100,000 asset (in the UK). In Vancouver (Canada), I pay roughly 0.3%, so if anything the argument is stronger in Canada.

While you were _technically_ wrong that no one taxes on the entire value of the property, I think your point still stands, because the property tax rates are so low.

I believe that, in Canada, my trade-off looks like this:

On real estate, I'd pay a very low property tax (under half a percent?) on the principle, plus capital gains on the appreciation when I sell, plus income tax on revenue from the property.

On stocks, I'd pay some combination of capital gains on sale, and whatever the tax is on dividends. So the percentage on my income is higher, but it's only on the income.

The thing is, if you're gonna pay capital gains on the "wealth" (your definition) when you cash it out, the only reason it matters you're not getting taxed on the growth is that it compounds faster. So you get to ask yourself, which compounds faster, the non-realisable asset without tax, or the realisable one with tax.

Council Tax in the UK isn't a percentage of the value of the property. It's an annual charge which varies according to the bank your property falls in.

A local council sets the charge for 'band C' (I think) and the rest are calculated from that. (This then pays for rubbish collection, libraries, all that sort of stuff.)

If you're buying a property as an investment, council tax isn't hugely relevant. If the property is occupied, the occupant pays it. (Unless they're exempt, like students are.) If the property is empty you don't need to pay it for up to six months.

So the tax does scale according to the value of your property (ie, your wealth) and is an attempt at progressive taxation, but it's not a direct tax on that wealth.

If you're buying investment property in the UK, your tax liability is going to be income tax on the income and capital gains tax if the market value of the property has risen. In addition you'll have to pay Council Tax based on the property you're living in, regardless of if you own or rent it.

Ah, thank you for the clarification, and my apologies for only reading every other word in the WP article before posting. ;) I didn't realize it was on occupied property, my bad.

Based still on wikipedia, I would describe this as a regressive tax. The amount to pay increases sub-linearly with increase in the value of the thing taxed.

In Canada, property tax is paid by the owner, not the occupant, and it pays for the same things (garbage collection, libraries, schools, etc).

In California, Proposition 13 limits (among other things) reassessments to when the property changes hands or when there is new construction. Opinions vary on whether it's a good seal for the state. It's a great deal for me, though.

Doesn't it make it difficult to sell homes in high cost-of-living areas? Seems like you'd be taking a hit in the sale price to reflect the increased property tax burden on the new owner. I don't know whether you come out ahead, but it's probably more likely the longer you live there.

What it does do is create incentives for people to remodel extensively--keeping just a fraction of the house intact so it's legally not new construction--rather than move.

I've heard proposed property tax systems that work that way: you pick a property value on which you'll pay taxes, but you give the government the right to buy your property at that value.

Is there a name for this kind of game? I think the most common example I've heard is "you cut the pie, I pick who gets which slice (assuming everyone wants the largest one)".

"honor among thieves"

also, "fair division": http://en.wikipedia.org/wiki/Fair_division

As patio11 mentioned, it is called a "shotgun clause". We share a ski condo with another family and we debated using a shotgun clause to help figure out the sale price when we decide to sell.

For what it's worth, my assessment went down this year (suburban Western Washington state).

Regarding my assumptions, you're largely right... Though I take issue with:

"(2) That you would invest your $4m in a low-return investment."

My assumption is that you'd invest in a BALANCED PORTFOLIO. What sort of return do you think a balanced portfolio would get you?

A balanced portfolio is a very inefficient portfolio.

Many people would be willing to take risks, or don't want/need to hedge against everything. His real estate example is a good one - you are at the mercy of housing/renting markets. But over the long term these have been quite steady and wouldn't be outside most peoples' risk thresholds.

No, a balanced portfolio aims to balance risk and return. If you put all of your cash into one (or many) high-risk-high-return securities, you run a meaningful risk of losing a big pile of your cash.

There's a pretty well-understood playbook for wealth management. You SHOULD be willing to take risks (with a very specific % of your portfolio)... But at any given time some of these risks will have gone south, some will have gone north, etc. Feel free to find me a wealth manager who offers big double digit returns over multiple decades.

The Warren Buffet school of thought on the issue is put your money into a few things you understand really well, and he is one of the better managers of our time.

I understand the 'balanced' wealth management approach - I am just not sure it is the ideal way to go. Is pg better off dumping money in mutual funds, real estate, commodity index funds and bonds - or driving the majority of his wealth into YC? He lives and breathes startups - so even trusting the best managers I would say he would be foolish not to invest a lot into YC himself.

I also would like to see the results of how bubbles, world wars, massive inflation, depressions and other difficult to hedge against events impact balanced portfolios vs someone dumping all their money into a single apartment building. My instinct is both would be equally screwed. And an event like that is almost certainly going to happen during the next 50 years.

I don't disagree with you at all - there are just several angles.

When I read your comment I realised that I had made a rather foolish assumption myself - that most people would want to take risk. In practise most people do the opposite and seek to minimise their risk.

Then again, your article was talking about startup founders, who (in general) presumably are quite willing to take risk!

The goal is to retire though, have a steady source of income. It would make sense to have low risk in this scenario.

I've no idea how the govt would be able to do this in a workable way though - how to you value the appreciation in somebody's house when the only meaningful way to value a property is to sell it?

A bureaucrat called a 'tax assessor' makes an assessment - which may or may not be fair - of your property's current value. You're then charged a percentage of this assessed value in taxes. That's how property tax works across America today.

>I'd actually take a guess that a typical family wouldn't be able to spend $200k in a year if they did not make purchases whose primary purpose was to display status.

Mortgage + 3 cars + 2 kids in college + 1 in a private high school + 1 family vacation = ???

I don't think any of that stuff is a status symbol, or excessive. And it seems like that would easily exceed 200k a year, and that's excluding utilities, food, etc.

Well, were talking about somebody with $4m to play with. Unless they expect to get a better return from investing the money than the rate they are paying for their mortgage it makes sense that they would have bought the house.

You don't think three cars is excessive? We'll have to differ in opinion there.

A lot of your costs depend on location obviously but, yes, I stand by my hunch.

> it seems like that would easily exceed 200k a year

it seems to me like that wouldn't exceed 100k a year, and "2 kids in college, 1 in private high school" is probably your highest consumption year. Seems like we have vastly different expectations as to what's reasonable to spend on those things. See also my comment [0] and kscaldef's [1] on the previous thread.

I'd also assume you don't have mortgage/car payments with a $4.3m buyout, but instead pay those things in full but amortize the costs in your budget spreadsheet.

[0] http://news.ycombinator.com/item?id=1627640 [1] http://news.ycombinator.com/item?id=1627551