Property Tax Doubled. Help!!!!

Chicago, IL · Member since 2017 · 141 posts · 62 votes

I bought a rental property in Cook County IL mid 2017 and 2016 property taxes was around $2000. It was a foreclosure and there wasnt any homeowners exemption. The property only needed a light rehab (paint, new flooring). It was vacant for years. I just got 2017 property tax bill and taxes has doubled ($4000). There isnt enough money in escrow to pay this tax bill. The seller only reimbursed me $2000 at closing based of 2016 taxes. This will wipe out my cash flow. Worst part is that tenant just renewed their lease i kept rent the same. I didn't know know taxes will skyrocket as I would have increased rent accordingly. What options do I have or what could I have done to avoid this?

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Jon Holdman

Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes

Originally posted by @Jay Thomas:

Worst part is that tenant just renewed their lease i kept rent the same. I didn't know know taxes will skyrocket as I would have increased rent accordingly.

Your expenses are irrelevant for determining rent. They can affect your cash flow, but market set rent, not your expenses.

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Dustin Beam
Kansas City, MO · Member since 2015 · 609 posts · 321 votes
8y
I've never done it, so take it for what it's worth, but I've heard of people making a case to the city and getting their taxes lowered.
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Brie SchmidtBusiness Member
Moderator
Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
8y
Originally posted by @Jay Thomas:
I bought a rental property in Cook County IL mid 2017 and 2016 property taxes was around $2000. It was a foreclosure and there wasnt any homeowners exemption. The property only needed a light rehab (paint, new flooring). It was vacant for years.
I just got 2017 property tax bill and taxes has doubled ($4000). There isnt enough money in escrow to pay this tax bill. The seller only reimbursed me $2000 at closing based of 2016 taxes. This will wipe out my cash flow.
Worst part is that tenant just renewed their lease i kept rent the same. I didn't know know taxes will skyrocket as I would have increased rent accordingly.
What options do I have or what could I have done to avoid this?
1. Your agent should have educated you about what the property is currently assessed at and what exemptions it received (I am guessing there was a vacancy exemption)
2. Your lawyer should have prorated the taxes based on the bill excluding exceptions
3. It is likely to go up next year as this is a reassessment year, so expect your assessed value to increase to the purchase price. You can contest it if it is assessed higher than that
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Jay Thomas
OP
Chicago, IL · Member since 2017 · 141 posts · 62 votes
8y
@Brie Schmidt there wasnt any exemption on the property when I bought it. The increase is as a result of the new property assessment conducted last year. They literally doubled my property value. even more than I paid for it. I initailly appealed it, they lowered it but new tax billed is still doubled previous tax bill. I am currently learning that landlords can apply for homeowner exemption if they add a clause to the lease saying tenant is responsible for property tax and their liability is included in the rent. Are you familiar with this loophole?
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Brie SchmidtBusiness Member
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Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
8y
Originally posted by @Jay Thomas:
@Brie Schmidt there wasnt any exemption on the property when I bought it. The increase is as a result of the new property assessment conducted last year. They literally doubled my property value. even more than I paid for it. I initailly appealed it, they lowered it but new tax billed is still doubled previous tax bill.
I am currently learning that landlords can apply for homeowner exemption if they add a clause to the lease saying tenant is responsible for property tax and their liability is included in the rent. Are you familiar with this loophole?
Yes I am. MACK companies did it, was raided by the FBI and filed bankruptcy because of it. The homeowners exemption is about $350 a year, not worth fraud.
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Jay Thomas
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Chicago, IL · Member since 2017 · 141 posts · 62 votes
8y
@Brie Schmidt Take a look a this forum https://www.biggerpockets.com/forums/664/topics/368227-homeowner-exemption-for-property-taxes. I am referring to what @Daniel Benoit was talking about.
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Brie SchmidtBusiness Member
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Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
8y
Originally posted by @Jay Thomas:

@Brie Schmidt Take a look a this forum https://www.biggerpockets.com/forums/664/topics/36.... I am referring to what @Daniel Benoit was talking about.
Yes, I know what you are talking about
https://chicago.cbslocal.com/2017/05/11/2-investig...
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Aaron Taylor
Olathe, KS · Member since 2018 · 148 posts · 207 votes
8y
It's definitely something to be aware of when buying a property. When things are rapidly appreciating, the property taxes usually lag behind, sometimes undervaluing a property by 50%. The problem comes when you plug in the existing property tax into your financial model and see "Hey, this will cash flow great!" but don't calculate the new property tax based upon your purchase price. There are lots of properties near me where on the surface they look good ($1000 property tax bill, cash flow very good) but the assessed value is 1/2 of the asking price currently, so the next year when taxes double to $2k, your cash flow goes way down.
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Account Closed
Rental Property Investor · Oakland, CA · Member since 2014 · 730 posts · 1k+ votes
8y
Sorry this happened to you. But it’s common in Illinois and Texas to have it go up fast, especially if you got a good deal. Another reason to invest in California. Our property taxes only go up 2% per year, mandated by law.
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Jay Thomas
OP
Chicago, IL · Member since 2017 · 141 posts · 62 votes
8y
@Aaron Taylor I estimated that the tax would go up based on past history. I was hoping it wont increase more than $1000 based on past assessments. Taxes on this property has historically gone up only by couple $100s. This $2000 increase is very unexpected.
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Aaron Taylor
Olathe, KS · Member since 2018 · 148 posts · 207 votes
8y
Originally posted by @Jay Thomas:

@Aaron Taylor I estimated that the tax would go up based on past history. I was hoping it wont increase more than $1000 based on past assessments. Taxes on this property has historically gone up only by couple $100s. This $2000 increase is very unexpected.
In my state of Kansas they usually increase to exactly what the purchase price was. So if it was a $50k tax appraised home paying 1k in taxes and it sold for $100k, the taxes would instantly move to the 100k appraised value and $2k tax bill. Other states may be different, I'm just relaying my experience. There's a lot of tax appraisals that are way behind right now in my area currently due to appreciation of the past few years.
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Caleb Heimsoth
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
8y
Jay Thomas places like Chicago, parts of New Jersey all raise taxes a lot because the state has huge financial issues. Likely your taxes will only be going up long term. Texas has high property taxes because there is no state income tax. To avoid these issues you want a state with a diversified tax structure who’s not running into massive budget issues. The Illinois pension fund is currently in some of the worst shape of any in the union. As that worsens over the coming years as baby boomers retire, your taxes will only go up more. Of course the mass exodus from the state is also not helping this as this lessens the overall tax basis even more
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Jay Thomas
OP
Chicago, IL · Member since 2017 · 141 posts · 62 votes
8y
@Brie Schmidt Please note that MACK properties fraudulently used tenants names and signature to claim homeowner exemption. The poster was not talking about fraudulently using tenant names. He suggested that tenant actually pay the property tax.
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Brie SchmidtBusiness Member
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Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
8y
Originally posted by @Jay Thomas:

@Brie Schmidt Please note that MACK properties fraudulently used tenants names and signature to claim homeowner exemption. The poster was not talking about fraudulently using tenant names. He suggested that tenant actually pay the property tax.
You do what you want
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George SkidisPro Member
Rental Property Investor · Belleville, IL · Member since 2017 · 875 posts · 529 votes
8y
In Saint Clair and Madison County Illinois the property taxes and assessments are handled at the county level. The county offices are where we file our appeals. Being as Cook County is allegedly part of Illinois it may be done the same way up there. They seem to have different laws than the rest of us.
In Madison and Saint Clair County, Real Estate taxes are appraised every four years. After the Appraisal is completed we receive a white post card in the mail letting us know what the new assessed value is. As soon as you get the card in the mail, go to the court house and file an appeal for every property you own in that county. For the years you do not receive a post card ask about filing an appeal when the first real estate tax payment is due. Two payment plan in Saint Clair County but a four payment plan in Madison county.
Since you purchased a foreclosure, the property was probably reassessed to match surrounding properties. The other possibility is that the original owner may have had some political connections that kept prices artificially low until your purchase triggered an "oh crud Bob isn't there anymore panic". It also may have had some type of discount on the tax bill that went away at the time of purchase.
The appeal process is simple but you need to pay attention. With an arms length transaction you can use the purchase price as the assessed value for 2 to 4 years based upon which county the property is located in. In many counties a foreclosure is not viewed as an arms length transaction because of the discount at purchase.
If the property is in poor condition take photographs of the defects and get estimates of the repair costs. Check the county records for your neighbors assessed value. Write down the tax parcel ID for properties of Like Kind and Quality, that have lower assessed values to use as comps. Take the sales contract in anyway.
After going through the county review process you can also file a Property Tax Appeal at the state level. "The Property Tax Appeal Board (PTAB) is a quasi-judicial body made up of five Members and a professional staff which serves the Board. The Board was created in 1967 to provide an unbiased forum for taxpayers and taxing bodies outside of Cook County that are dissatisfied with property assessments. In 1997, PTAB's jurisdiction was expanded to include all Counties in Illinois. The Board will only consider appeals after decisions from County Boards of Review. The burden of proof before the Board is "the manifest weight of evidence." The Board will only determine the correct assessment of property on appeal. The amount of the tax bill or the tax rate used in the computation is determined by local county officials and may not be appealed to the Board. Likewise, the Board has no jurisdiction to exempt property from taxation."http://www.ptab.illinois.gov/
File your appeals annually when you buy property, pay your first real estate tax installment or when you get the white post card of financial death.
About the only thing you could have done prior to purchase was check the assessed values of adjacent properties before making the purchase.
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Caleb Heimsoth
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
8y
I would recommend finding a good attorney or firm to appeal the taxes. I just did this today, off BP. The fee is 50 percent of whatever they reduce the taxes by. So if it’s not successful I pay nothing. Really have nothing to lose
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Jack B.
Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes
8y
Property taxes have nearly doubled in King County WA, Seattle area over the last few years as well. Sadly the idiotic government can only figure out how to tax and spend, not spend less. I say this as a former government employee. I've seen the waste first hand.
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Jon Holdman
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
8y
Originally posted by @Jay Thomas:
Worst part is that tenant just renewed their lease i kept rent the same. I didn't know know taxes will skyrocket as I would have increased rent accordingly.
Your expenses are irrelevant for determining rent. They can affect your cash flow, but market set rent, not your expenses.
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Jay Thomas
OP
Chicago, IL · Member since 2017 · 141 posts · 62 votes
8y
Originally posted by @George Skidis:

Thank you so much for your detailed response. I am going to start the tax appeal process.
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Jay Thomas
OP
Chicago, IL · Member since 2017 · 141 posts · 62 votes
8y
Originally posted by @Jon Holdman:

Originally posted by @Jay Thomas:
Worst part is that tenant just renewed their lease i kept rent the same. I didn't know know taxes will skyrocket as I would have increased rent accordingly.
Your expenses are irrelevant for determining rent. They can affect your cash flow, but market set rent, not your expenses.
It is very common around here for rent to go up when property taxes go up. Apart from that, my rent is aggressively priced, so, I can raise rent and still stay within market rate.
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Jay Thomas
OP
Chicago, IL · Member since 2017 · 141 posts · 62 votes
8y
Originally posted by @Jack B.:

Property taxes have nearly doubled in King County WA, Seattle area over the last few years as well. Sadly the idiotic government can only figure out how to tax and spend, not spend less. I say this as a former government employee. I've seen the waste first hand.
State of Illinois never seem to have enough money in their pension fund. They are always raising taxes to catch up with pension fund. I wonder if this catch up game is ever gonna stop.
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Jack B.
Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes
8y
Originally posted by @Jay Thomas:

Originally posted by @Jack B.:
Property taxes have nearly doubled in King County WA, Seattle area over the last few years as well. Sadly the idiotic government can only figure out how to tax and spend, not spend less. I say this as a former government employee. I've seen the waste first hand.
State of Illinois never seem to have enough money in their pension fund. They are always raising taxes to catch up with pension fund. I wonder if this catch up game is ever gonna stop.
Considering IL is losing population, I suspect they will have to keep raising taxes to make up for all of the people who are rightly fleeing the state. It's a downward spiral. But when you look at the corruption of the Mayors office and Police Department, it's no surprise.
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Michael Lee
Investor · Coppell, TX · Member since 2008 · 2k+ posts · 646 votes
8y
Hello and welcome to this site Jay! I just have one or two things to say. That should always be one of your pre-offer questions to the Tax Assessor and you should never buy a single unit rental. It is just too risky. Good luck to you!
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Caleb Heimsoth
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
8y
Jay Thomas knowing a fair amount about the IL pension fund deficit (have extended family form IL) I can probably tell you it’s not gonna get better anytime soon. The state of IL could declare bankruptcy in the future. I read an article recently of the 10k pensioners in IL making 100k a year, costing the state 10B annually. That’s why your tax dollars go up. Keep in mind these are often people like janitors and bus drivers who typically don’t make that kind of money.
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Donnie N.
West Hollywood, CA · Member since 2016 · 126 posts · 43 votes
6y
Does anyone have any recommendations for a tax appeal service/lawyer? I own a few SFH in the Chicago Heights area. The taxes are all over the place. Still have no idea how they calculate it and have that much variants block by block.
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Eric M.
Flipper/Rehabber · Louisville, KY · Member since 2008 · 1k+ posts · 1k+ votes
6y
You should start your own thread instead of reply to one that is 2 years old.
If you have a few houses it is worth your while to learn about taxes and the appeals process. I do all my own appeals. No need to pay someone else a third unless it is a very complex big money situation where you need some "clout".

It is not complicated. Take an afternoon and read the assessor website. If you know how to do comps, you can file an effective appeal in an hour.

I just filed one yesterday.

If you don't understand how they are calculated, call the Tax payer advocate to ask. If you ask, they actually will give you a lot of information.

That said, south suburban C and D areas like Chicago Heights are terrible for taxes. Their tax base is deteriorating and so the prop taxes as a percentage of value are often wayyyy out of whack. Some people are good about appealing and others are not, so you get a wide variation in assessed values.

The keys are:

-knowing when the appeal window is open. COVID is messing with those windows.

-being persistent. Appeal every time. Don't accept the first decision. Always ask for a hearing.

This is a game you will be playing with the assessor for the entire time you own the homes (I am still appealling properties after I have sold them) so it is to your advantage to get good and knowledgeable about the game.

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