Property Tax Question Indianapolis

5 Replies

I have a quick question for anyone that is savvy about property taxes in the Indianapolis (IN) area. I am currently looking at a property in Indianapolis in the Bates Hendricks area that is a 4 bed and 2 bath property. The property looks good but not great on an IRR and COC basis selling at about $60K.

The problem is the property has a tax assessment of $14K and a property tax of $336. By comparison every other house I could find in the area has assessments that are much higher and property taxes that are at around $1k+. My assumption is if I go and buy the property at that price the property taxes would go up significantly. However, the broker says I am incorrect so I wanted to get a real answer from those who have more experience than I do or deal with this every day.

I don't have a ton of room for reduced cash flow on this one so going up to $1K would probably be a problem.

Your broker is partially correct. The taxes won't go up immediately. Marion County reassess every 2 years but it is not based on the most recent purchase price. It's based on what the assessor deems the values are based on comps and BPO's. Keep in mind that Marion County taxes 2% of the assessed value so if they reassess it at $60,000, the new tax could potentially be $1200 which is fairly typical for the area. Unless the deal can stand on it's own with taxes somewhere in that range, it's probably not a good deal. If you need $336 property taxes to make the ROI you need, I wouldn't count on it. I'm not surprised that it doesn't look great at $60K. I don't know what street it's on but that could be on the high end for the area. How much is the rent?

Your broker is not correct and is misleading you to close the deal. Taxes will go up to assessed value. The assessed value may not be your purchase price but it will never be lower. If you are buying at $60K they may assess as high as $80K (it has happened to me). Factor in $1600 in taxes and see if the numbers still work. And fire your broker.

@Anish Tolia  said although I can't see how the purchase price wouldn't in some way factor in even if they say they only use comps and BPO. I know in other places this has definitely happened a lot even if they said they were using market value through comps or other measures. 

I also agree with you both that it would be incorrect to rely on those lower property tax numbers and that I should at least use the purchase price but that wasn't as much of the argument it was more the reason I gave. 

The low taxes may be due to the property being sold at the tax auction - or possibly the neighborhood took a dive a while back, got reassessed super low, and it's now coming back to life piece by piece.  Check the abstract and see if you can find a tax foreclosure, might shed some light on the situation.

I'm not sure about Marion county (I haven't bought in Indy since late 2013) but in my hometown the county has access to the MLS and uses a mystical magical formula to calculate assessments.

Originally posted by @Anish Tolia :

Your broker is not correct and is misleading you to close the deal. Taxes will go up to assessed value. The assessed value may not be your purchase price but it will never be lower. If you are buying at $60K they may assess as high as $80K (it has happened to me). Factor in $1600 in taxes and see if the numbers still work. And fire your broker.

Actually, they would have a very difficult time assessing it over $60K unless it was a distressed sale. Indianapolis has a fairly new law that prevents assessors from making arbitrary assessments. The burden of proof is now on the assessor to support the value and if they can't, the assessment is thrown out. I would use $60K as your assessed value for tax purposes.

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