INCLINE VILLAGE, Nev. — The stock market rising to levels not seen since 2008 has encouraged a significant number of companies to move forward with initial public stock offerings this year. While the purported valuation of Facebook is hovering somewhere near the $100 billion range, there are also a number of smaller companies with fairly hefty valuations coming to market. The recent purchase of Instagram by Facebook for $1 billion in stock and cash is just one example of the amounts of money floating around Silicon Valley that is creating new millionaires on a rather frequent basis.
The last time that we saw these types of numbers being bandied about was during the dotcom boom from 1995 through 2001. In the past, some of the people receiving large rewards from their stock options realized the tax benefits of switching their residency to Nevada before monetizing their equity position. This influx of dotcom money some 15 years ago helped to fuel one leg of the real estate boom on the Nevada side of Lake Tahoe.
With California income taxes for high earning individuals having fluctuated between 9% and 11% over the years, anyone with a few million dollars in stock options can practically get a free residence in Incline Village or Crystal Bay just from the tax savings. The math is pretty straightforward. Relocate to Nevada and establish residency here. Live here for a long enough time to satisfy your accountant and the tax authorities, then exercise your stock options and you have magically avoided paying state income tax to the State of California.
This exact same scenario is starting to recur as employees and stockholders in firms that have seen substantial rises in their valuations consider tax planning strategies. Imagine being a longtime employee at Apple and seeing the price of your equity holdings rise over the past 10 years. The increase in the value of your stock options depending on your stake in the company could be pretty enormous. Now imagine how much the State of California is going to take in income taxes when you exercise your stock options.
With home prices in the more affluent parts of the San Francisco Bay Area being similar to or above real estate prices in Incline Village and Crystal Bay, there is no sticker shock factor like the kind that affects buyers from other parts of the country. And with the ability for high tech workers to do their jobs from anywhere they have a fast Internet connection, it's relatively easy for many of these folks to relocate up here and still perform their work. Highly paid workers moving up here and contributing to the local economy will have a positive impact across the board.
So, it is likely we will start to see a slow steady wave of dotcom workers exercise their stock options after their lockup period has expired. Generally speaking, there are restrictions on how soon a person can sell their holdings after a company has its initial public offering. If Facebook does go public at a valuation even remotely approaching $100 billion, there will be a lot of millionaires created in the following 6 to 12 months as people exercise their stock options. How many of these people are already doing their tax planning and contemplating establishing residency in Nevada is the great unknown. But you can bet that with real estate prices here being at their most attractive levels in a decade, it's rather enticing for a California resident to consider a purchase on the Nevada side of Lake Tahoe.
Since inventory levels in Incline Village and Crystal Bay have declined to their lowest point in six years, any significant surge of new buyers will create a positive dynamic for the local real estate market. There is also a tendency among affluent buyers to spend money on remodeling and even expanding properties. This will have a beneficial effect for the local businesses and will help to revitalize our economy. There are no guarantees, but it’s possible that IPOs in Silicon Valley could once again spark an uptick in real estate prices on the Nevada side of Lake Tahoe like they did during the dotcom boom in days of yore.
— Don Kanare is a Realtor at RE/MAX Premier Properties. Read his blog and weekly stats on his website at www.InsideIncline.com.