underwriting tax increase post acquisition

8 Replies

How should I underwrite tax increase post acquisition? The sales price is 2x the current appraised value of the property. I'm afraid that the next time county assess the property, property tax will double. What should I expect?

Find out How and When they do updated assessments. Look at other comp properties. Take into consideration any existing exemptions….homestead, disabled, etc. 

@Allen L.

You need to figure out how and when your state and county does reassessments. Is it upon sale or on a default schedule? Annual? Every 3 years? Every 5 years?

If you are paying twice the current assessed value you can safely assume property taxes will double soon. The question is when?

As others have noted most counties have online tax estimator tools you can use. 

Get online or on the phone - call County Assessor or Tax Collected and ask questions and get answers. 

Good luck! 

@Allen L.

You need to learn about how property taxes work.  take a look at thread:  https://www.biggerpockets.com/...

I don't know what State you are looking at or which tax system you are accustomed.  Furthermore, some States really do it differently where the discount the assessment 25% to 50%.

Anyway, take a look at the neighboring properties' assessment.  Are they about the same ratio.  So, if the assessment doubles, thats fine since probably all the assessed values will probably double so your tax will be about the same.

Good luck.

@Allen L.   the taxes will increase, check when they re-assess and plan accordingly.  You can appeal any increase but if the sales price support it I have not had good luck. 

Ok, thank you all. This property is a 30+ unit townhome complex in a rural area so there will unlikely be other comps to go by for the tax assessor other than its own sales price, so I'm expecting tax to increase post acquisition. I'm taking the advice and calling the county to see what is their exact approach.

@Allen L. , I know you have your answer, but I will add that with the varying answers, it depends on how aggressive you want to get with your underwriting.  The most conservative, and possibly most likely scenario, is to underwrite from day one the new tax rate, then grow that number in line with how the assessor's office typically operates.  

The aggressive way is to bank on them staying the same until the next reassessment, then adjusting accordingly, based on their reassessment schedule.

I will note, that in my experiences, when county budgets start getting pinched, property taxes, primarily reassessments, are the first thing that start changing.  Adding millage typically needs to be passed by voters, but unless this is in an area with legislatively set value increases, county governments can normally get more aggressive on assessed values to help boost their coffers.