How to best estimate after-purchase property taxes - Ohio

18 Replies

I've been analysing a ton of deals in Cleveland area for buy-and-hold and the biggest variable that I have not been able to efficiently estimate is the property taxes.  I notice that on some sites, they estimate taxes as low as 1.5% and it can go all the way up to nearly 5% (even within the same zip code).  I realize some areas have crazy taxes, but how do I know for sure which ones?

In Southern California, where i'm currently located and have a few rentals, it is much easier to get property tax to within a few bucks per year (I use 1.33% x purchase price) and it pretty much doesn't deviate from that by much, even going from LA county to San Bernardino or Riverside county.

Thank you in advance for your help!

Check out this site. You can also visit the county auditors page and have a look at the current assessment vs the tax rate. Cross multiplication with the new purchase price should give you a rough estimate of the post-purchase rate. If you purchase above the assessment, most will automatically increase. If you purchase below, you normally have to appeal to get it lowered, funny how that works.

http://www.cleveland.com/datacentral/index.ssf/2017/01/compare_new_property_tax_rates.html

@Jeff Brower

@Federico Gutierrez

Thanks for the heads up, I had tried to look on one of the county assessor's site but didn't have much luck.  I must have entered in the data wrong because I tried it again and it worked.  However, I am not sure how to interpret everything that is on there.

I've attached a screenshot of the 2016 taxes - I can see the standard taxes due at the top but what is the rest of that junk?  Is that the previous owner not being able to pay their bills and the city attaching liens to the property?  My main concern is what are the REGULAR taxes that will be due after I purchase the property (ie. will the street "Lites" and sewer stuff still be there after they are caught up)?  It would be nice to know the % that I can multiply to my purchase price so I can estimate taxes.

It appears there were some special assessment as in street lights, but the owner didn't pay their water and sewerage bills so they were put on their property taxes. That is not normal to have water and sewer on property taxes

@Federico Gutierrez

So for this property, my math to estimate looks like this:

Property Taxes = $1370.30 x 2 = $2740.60 for the year

Property Tax Rate = Annual Taxes / Assessed Value = $2740.60 / $35,180.00 = 7.79%

Property Tax on Purchase = Property Tax Rate x Purchase Price = 7.79% * $100k = $7,790

This number seems really high, but then again I'm not that familiar with Ohio.  I've seen estimates in the 1.5% up to 4.5% but almost 8% seems really high so I wanted to double check.

@Federico Gutierrez I see, so they base the taxes off of the market value and not the assessed value.  I could be mistaken, but they do things different out here on the west coast, this is great information to know.  So just to make sure we are both on the same page, it doesn't really matter what the purchase price is as they will base the taxes off of their "market value"?  They don't care about the purchase price?

I suppose I worded my response incorrectly, my apologies. They base the taxes off of the 'appraised value' from the county site. The assessed value is 35% of that. The appraised value is what the city says it is worth, but that is rarely an accurate 'market value'. The city appraised value will normally be increased if the purchase price is higher (they want their tax dollars). On the flip side, if your purchase price is well below the city appraised value, you can petition to have it lowered. For that to happen you usually need some solid proof such as a sale and/or actual appraisal to justify your request.  

@Jeff Brower

Okay, it makes more sense now.  So when I'm estimating my future property tax bill, it's safe to use their number if the purchase price is lower and 100% accurate to use the new purchase price if it's higher than their previous market estimate?

Side question: is it ever worth trying to petition their numbers or is it a fruitless endeavor? (Not so much the obvious big errors like market value of $200k when the house clearly is in the $100k range, those I would fight tooth and nail, but the smaller, off by $20k etc.)

Yes, that is correct. If your purchase price is higher than city appraised value, account for it going up.

I petitioned and won on a SFR personal residence a few years back in Lake county. City valuation was 140k and my purchase price was 75k. I had the sale and appraisal to back me up and they dropped it with just my letter and form submission. Most times they will make you appear in front of the board to state your case. If it were a smaller discrepancy, then it may not be worth it.

P.J.

If you don't want to bother doing it yourself, there are any number of firms that all they do is appeal property taxes. They do it on contingency and take 30%(?) of the first years savings. 

Think of it this way; for each 10K 'market value' they can get the property taxes reduced, you save a couple of hundred (or more) each year going forward.

The way I calculate property taxes for any property I am evaluating is:

    Purchase Price / Current County Market Value * Current Annual Taxes = New Annual Taxes

As mentioned, if the purchase price is higher then the county market value, they will catch up with you in due course but you have to take action if the purchase price is lower then the county value.

Oren

@Oren K.

Very interesting business model!  Yeah I can definitely see the value in a company that handles that for you assuming you keep the property long enough to recoup the cost (reminds me of the conversation most lenders have with their clients about paying points on a loan).

PJ,

There are not 'costs' to you. 

The whole point of the contingency is they take a share of the first year savings, you keep the rest and all the savings going forward. If they do NOT succeed in reducing the taxes, you pay nothing.

Oren

PJ,

The one I use is a 3 lawyer shop that does all of Ohio. As they are before the BOR or appealing BOR cases all the time, they know all the other firms, the BOR members, the appeal members, etc. They just sent out a marketing blurb on how they won a case that made it all the way to the Ohio supreme court.

As is usually the case, the more specialized you are more connected you are in the 'that' world and they are affiliated with other firms US wide. I'm sure they would be happy to introduce you; not sure if the fee arrangements are the same in other places. If you would like an intro, send me your direct email address and I will send out an eIntro to the partner I worked with.

Oren

@P.J. Bremner

Check out this page as well: http://fiscalofficer.cuyahogacounty.us/en-us/prope...

It lets you get an estimate of property taxes for a property in any taxing district in the Cleveland area by providing an assessed market value. If your property is currently assessed higher than the purchase price, as per the county auditor's records, there's an appeal process through the Board of Revisions that was discussed above in this thread. If your property was assessed at a lower value than your purchase price, keep your mouth shut about it until the county catches up. If you're dealing with larger value properties that are dramatically undervalued per the assessments by the counter, there are a few tricks that a savvy closing attorney can use to help delay that tax reassessment too. Not necessarily worth the trouble for smaller properties, but when you're dealing with higher value commercial properties, it makes sense to consider.

@Timothy Murphy III

I have a 10 unit in Lakewood and the property tax estimator gave an estimate $4k over the previous owner's property tax bill. It was purchased roughly $20k more than the previous owner. I understand it's an estimate but are there other ways to estimate the tax for small commercial properties?

Thanks,
Another Investor named Tim :)

@Tim W.

For a property of that case, it's probably best to hire an appraiser if you're challenging the valuation. Ideally, one that has experience testifying before the Board of Revisions. They'll probably use an income based approach to valuation for that property.