Has anyone bought properties with high property tax? Regret it?

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Has anyone bought properties with high property tax? Regret it?

Rohan J.
Los Angeles, CA · Member since 2015 · 176 posts · 48 votes

hey BP - I've been looking around in Ohio for smaller multis and apartment buildings, and while the rents can be great, the neighborhoods that I like just have property taxes. 

For example, I'm looking at 4plex in a B- neighborhood that is listed for $140k and rents for $2400/mo, but annual taxes are $6100 (4.4%!) . 

In my calculations, I'm just allotting $500/month of rent purely towards taxes, so that I can stay conservative and see if the numbers still work (so basically I'm running the numbers assuming I actually get $1900/month in rent). Anyways, something still feels uncomfortable about buying a property with this high rates, and I'm worried things could increase in the future.

Anyone have experience buying a property with 4%+ property tax, or do you just avoid those?

If you did buy it, did you regret it? 

Did you find a way to bring it down? Would love to hear everyones thoughts on this.

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Franco Li
Vendor · New York, NY · Member since 2017 · 217 posts · 88 votes
9y

I've actually had this experience once. My first time investing, i didn't factor in the county/school tax in the area and was only looking at the local city tax, which was an additional $1000 per year. Ultimately the cash flow was still really good, but I did try to fight the county on the taxes - had a representative do a re-appraisal. At the end of the day, it still didn't matter because they gave every excuse to justify the tax $$ was correct.

After that, I typically am extremely conservative when I look at opportunities and do as much research as possible. When modeling these opportunities, I would use 5% of purchase price - even though it may not be realistic in different areas. 

Keep in mind please, that if you are buying the property at a premium to a prior sale - i.e. paying $100K vs previously sold at $60K - the taxes may actually increase, because the government may actually use your price as a justified appraisal value. 

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  • Jerry W.Pro Member
    Moderator
    Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes
    9y

    As to high taxes for folks who live in states with no income taxes, I bought a place in Toledo OH that had a value just above half of the value of my home in WY and the property taxes were about 6X the property taxes of my house worth twice as much as the Toledo house.  I believe it was mostly the school district taxes that raised it so much.

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  • Andrew FidlerBusiness Member
    Real Estate Broker · Toledo, OH · Member since 2011 · 386 posts · 434 votes
    9y

    Hey Jerry, throw me a PM if you want to discuss appealing your property values in Lucas County and Toledo. 

    We have till March 31st to get an appeal filed and the reduction will get you a refund for the prior years reduction. 

    I regularly buy my properties for $10k and reduce the tax value to my purchase price. One of my more braggable reductions is 3206 Brigham Toledo OH 43608 which I got reduced to $3,900 total value from a $47k 2006 value. That's an annual tax cost of $260/yr. 

    I always file appeals where I see they need adjusted and I always appear in front of the board to discuss the house and neighborhood. (It's actually very therapeutic to get to whine about the trashy neighbor next door, the shooting down the street, the challenged school system, then my favorite "the value is depressed because the neighborhood is predominantly rental properties")

    [email protected]419-410-3836
    LaPlante Real Estate
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  • Engelo RumoraBusiness Member
    Investor · Toledo, OH · Member since 2013 · 4k+ posts · 2k+ votes
    9y
    Originally posted by @Andrew Fidler:

    Hey Jerry, throw me a PM if you want to discuss appealing your property values in Lucas County and Toledo. 

    We have till March 31st to get an appeal filed and the reduction will get you a refund for the prior years reduction. 

    I regularly buy my properties for $10k and reduce the tax value to my purchase price. One of my more braggable reductions is 3206 Brigham Toledo OH 43608 which I got reduced to $3,900 total value from a $47k 2006 value. That's an annual tax cost of $260/yr. 

    I always file appeals where I see they need adjusted and I always appear in front of the board to discuss the house and neighborhood. (It's actually very therapeutic to get to whine about the trashy neighbor next door, the shooting down the street, the challenged school system, then my favorite "the value is depressed because the neighborhood is predominantly rental properties")

    I second Andrew,

    We usually get our taxes lowered by around 30% when disputing.

    Have a creative attorney and you should do well.

    Had them lowered on 1 property by 80% lol

    Crazy stuff hehe

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  • Andrew FidlerBusiness Member
    Real Estate Broker · Toledo, OH · Member since 2011 · 386 posts · 434 votes
    9y

    I always self represent, can't say I've ever thought about needing a lawyer for the process. 

    I've acted as agent a couple of times for other owners who were out of state. Straightforward $200 fee for me and less than half of the usual refund check from the appeal. 

    [email protected]419-410-3836
    LaPlante Real Estate
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  • John Verduzco
    Naples, FL · Member since 2016 · 37 posts · 25 votes
    9y

    Good advice from most everyone here. My $.02 is look at as many commercial RE deals and financial statements as you can get your hands on. Get comfortable with % of Gross Revenue (Rental Income) analysis. You'll find that while certain line items change (vacancy, property tax, insurance, mgmt, repairs, utilities, etc), the Net Income to Cost (Purchase Price + Repair + Hold Time + Cost to Acquire) is really the first metric that matters. Commercial calls it a CAP rate (NOI/Purchase Price), but even the CAP rate gets wonky in who defines it and what they include, etc.

    Net, Net - Property Tax doesn't really matter. It is a cost and consequently just a % of Gross Rental Income (GRI) like everything else. To prove that, I pay an average of about $1400/year on insurance in Naples, FL for our SFR. My business partner pays about $400/year for insurance in Phoenix. Our CAP rates are similar (mine are actually better :). After you have the CAP rate you want, then financing is the last piece to make or break. Yes, a great deal cash, can be a bad deal without the right financing and vice versa. All the numbers matter, don't focus on just one.

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  • Neil Aggarwal
    Lender · Richardson, TX · Member since 2014 · 537 posts · 228 votes
    9y
    Originally posted by @Jamie Engledow:

    tax appraise it at about $100,000 more than my real estate agent says they can sell it for in todays market

     That is nuts.  Sorry to hear that.

    0Reply
  • Jamie Engledow
    Boca Raton, FL · Member since 2015 · 249 posts · 52 votes
    9y

    So am .I .....

    0Reply
  • Andrew FidlerBusiness Member
    Real Estate Broker · Toledo, OH · Member since 2011 · 386 posts · 434 votes
    9y

    guys if my board of appeals came back with a value $100k over market then I would absolutely appeal the appeal. 

    You should come to any serious appeal with comparables and recent sales. The purchase price of the house is normally all I need to bludgeon the price where I want it. 

    I've always found the Lucas County board here in Toledo to be made up of reasonable people who are appreciative we take our time to appear and are genuinely pleased that good landlords own in Toledo neighborhoods. 

    [email protected]419-410-3836
    LaPlante Real Estate
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  • Rohan J.
    OP
    Los Angeles, CA · Member since 2015 · 176 posts · 48 votes
    9y

    @Todd Douglas - I generally buy multis and small apartment complexes in Missouri, Ohio, Indiana . I tend to aim for under <$35k a unit in C+/B- neighborhoods, and then rent to blue collar workers for anywhere between $450-600 per unit. Hows Michigan for returns? :) 

    @Matt R. @Jason V. - thank you for all your insights! I think I should have clarified that I'm not actually investing in CA.... these properties with high tax rates are ones that I'm looking at in Ohio.

    Thanks everyone for all your help - I will definitely look at each on a case-by-case basis now! Just got a little shocked when seeing these 4%+ plus tax rates.

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  • Rohan J.
    OP
    Los Angeles, CA · Member since 2015 · 176 posts · 48 votes
    9y

    @Andrew Fidler - what kind of properties and neighborhoods do you invest in where it is $10k per rental? How much work do you usually put in?

    0Reply
  • Todd Douglas
    Realtor · Detroit, MI · Member since 2017 · 184 posts · 33 votes
    9y

    @Rohan J. On multiunits it depends. I usually only deal with Single family properties at the moment. I have some in each of the markets you listed: MO, OH, IN. I will phase off into commercial and mf soon though.

    0Reply
  • Rohan J.
    OP
    Los Angeles, CA · Member since 2015 · 176 posts · 48 votes
    9y

    @Todd Douglas I'd be interested in hearing what avg prices are SFHs in Kansas City . lets chat more - i will PM you

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  • Andrew FidlerBusiness Member
    Real Estate Broker · Toledo, OH · Member since 2011 · 386 posts · 434 votes
    9y

    @Rohan J.,

    I seem to have specialized in 43608 which is in my opinion the Wild West of Toledo. Definitely not the neighborhood for an out of town owner to buy as their first rental. 

    I own about 20 houses and five multi family apartments in this zip code. The houses have been bought over the past seven years but all were bought for <$11k and many for about $5k. 

    Rehabs are totally individual. I buy and hold and my company self manages so I do not bandaide. I renovate to create a bullet proof, durable dwelling and always include a few basic frills (tiled tub surround...refinished hardwood floors...mini blinds on the first floor)

    I always remove obsolete items like gravity furnaces (love used 80% efficient units and used gas water heaters...I'd drive a hundred miles to pickup a truckload at the right price) and definitely remove cast iron tubs with those silly ring shower curtains for new tubs with a shower head. 

    So I probably do $10k in renovation which costs me 40% of that number. 

    The resulting house rents for above the average rent. ($700 for a 3/1)

    Don't get hot to trot about 43608 though it's a challenge and you have to be willing to force your will on the tenants to take care of the place. (Yes I've had updates from my team just this week about a tenant finally taking out her trash like she should be doing innately)

    You watch The Super on Netflix? I'm a miniature version of Dave Paladino. 

    [email protected]419-410-3836
    LaPlante Real Estate
    WebsiteView Page
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  • Peter B.
    Investor · Ogdensburg, WI · Member since 2016 · 273 posts · 351 votes
    9y

    @Rohan J.

    I think a lot of people have on here... They just don't know it yet.

    Assessments usually lag until they do a revaluation. 

    @Andrew Fidler

    Do these boards lower the entire block of houses you are referring to when you get these massive reductions?

    In Wisconsin that is the law. The assessor will not generally do this until revaluation is scheduled. (If they value their license)  There have been some recent court cases on this in southern wisconsin.

    Just curious.. I know laws very state to state... But the goal is always equality, and if they are just dropping yours...

    Peter

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  • Andrew FidlerBusiness Member
    Real Estate Broker · Toledo, OH · Member since 2011 · 386 posts · 434 votes
    9y

    43608 is pretty notorious for having stagnant values...I buy there for $700 * 12 months not to buy at $15k all-in cost and sell at $30k in five years. 

    In five years I will have cleared $42,000 but probably still have a house valued at $15k. 

    Oh and you are correct - the reductions reflect the value of the house at the time of purchase (a no-utilities on bank foreclosure with ratty yard and zero appeal and prior owner theft and vandalism). I have absolutely no intent to press the board for a value "increase" after renovation and the values should creep up slowly over time. 

    Property taxes are my largest standing cost on most of my buildings so I get that cost reduced and want to keep it low. I don't really sell but if and when I did I would laugh if a buyer tried to tell me my tax value of $4k should be the current value. :)

    [email protected]419-410-3836
    LaPlante Real Estate
    WebsiteView Page
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  • Neil G.
    Investor · Socal · Member since 2015 · 222 posts · 34 votes
    9y

    Most every improved lot in CA seems to be taxed at the rate of (at least) around 2% of the most recent purchase price =(

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