When our cat Miss Fluffy started exhibiting signs of social anxiety a few years ago, we had no idea that her emotional distress would lead to us forming and developing the premier pet therapy clinic in Palm Springs. But here we are, making a fortune on anti-stress merchandise and housepet counseling services, and now we’re considering expanding Chillpet, Inc. into a new market. But which new market to choose?
Well, one thing we can look at is an area’s real estate market tier.
“Real estate market tiers” are categories of real estate markets, and there are three to choose from: Tier I, Tier II, and Tier III. Not very exciting names, to be sure, but they do tell us a little something about the market they represent.
Tier I markets are very well-developed and tend to have high housing prices and an appealing infrastructure (i.e., there are good schools, there’s a good freeway system, the WiFi signal is strong, etc.). Think New York and Los Angeles. Those are Tier I markets, as are places like Phoenix, Dallas, and Denver. Tier II markets are maybe a little less developed and established, but they’re not exactly third-world countries. Think: Anaheim, Portland, Madison, or Scottsdale. They’re decent-sized cities with real growth potential; they’re just not New York or LA. Tier III markets are smaller and less developed yet, but again, it’s not like these places don’t have roads or running water. They do, however, tend to have lower housing costs, and out of our three tiers, they’re the most likely to be impacted by economic changes, like recessions.
It would probably be cheapest for us to set up our next Chillpet clinic in a Tier III market, but it’s also the most risky. A Tier I market would be the most desirable, but it would also cost us a fortune to get set up, and there’s probably a fair amount of competition. But we’ll have to weigh the pros and cons, do some research, and consult with Miss Fluffy (she’s very zen these days) before we make our final expansion decision.
Related or Semi-related Video
Finance: What is Real Estate Tax?9 Views
finance a la shmoop. what is real estate tax? own a home?
well you'll pay tax on it on a high-rise well congrats and you'll pay a lot of
tax on it. own an airplane well congrats again and yep you'll pay a lot of tax on [money stacked in front of a high rise building]
it as well. as if it was real estate more or less. so
how do you know how much tax you owe on a given home or building or property and
well the answer is each state is different, or at least has its own laws.
and generally speaking real estate taxes are local. ie local to your state and
sometimes to the county that you live in. they are not federal. for example if the
state of California is the one collecting your real estate tax the
federal government in Washington well I'm just kind of coughs and looks away
when you pay up. so how much do you pay? hmm?
well in most states the amount is based on the purchase price of the home or
property and then it carries an escalator or it goes up a little bit.
that is if you've paid a million bucks for this awesome Shuba a mansion in Palo, [shack pictured]
Alto yes this home sold for a million dollars in 2017. then you'd pay one point
two five percent of the purchase price of a million bucks each year for your
taxes or said another way you'd pay twelve thousand five hundred dollars in
taxes each year on that home, and those taxes would go up a little bit each year
such that they rose roughly along with the rate of inflation. so that's a real
estate tax set by the purchase price. well in other states like Texas home
prices are assessed regularly. whenever that means ,maybe every year maybe every
few years, or if the owner asks. you know maybe something like that? well why [calendar pictured]
wouldn't owner asked for a reassessment of taxes? well often homes are bought in
a hot market and then for awhile the value of the home goes down. so by having
a home reassessed likely for a lower price the owner saves money on taxes.
well commercial buildings have different tax systems but are more or less based
on the same parameters as homes. usually with a lot more zeros on the end.
so where does all this real estate tax go? well back to the state to you know
run things, but also to the local local authorities we're a big hunk of the tax
dollar goes to local public schools to pay for teachers pensions their
secretaries and yes maybe one or two illicit Bermuda vacations. [teacher walks out with bag of cash]
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