Michigan "Uncapping" Strategy: How are you making cash flow work in Year 2?

Question

Hi everyone,

I’m a new investor targeting small multifamily properties in the Metro Detroit area (specifically Roseville and Eastpointe). I’ve been analyzing deals using the "Proposal A" tax guidelines, and I’m hitting a wall that I’m hoping experienced Michigan investors can help me climb.

The Issue: Almost every deal I underwrite looks great on paper using the current owner’s taxes. But when I model the "Year 2 Uncapping" (where Taxable Value resets to match the SEV/Assessed Value), the tax jump is massive—often tripling the tax bill and wiping out the cash flow entirely.

For example, on a recent duplex lead in Warren Mi:

• Asking Price: $235k
• Current Taxes: ~$3,200 (capped for long-term owner)
• Est. Year 2 Taxes: ~$9,000 (based on SEV resetting to 50% of purchase price x ~76 mills)

My Questions for the Community:

• Purchase Price Allocation: Has anyone successfully used a "Personal Property" allocation in the purchase contract (e.g., assigning value to appliances/goodwill) to keep the recorded Real Estate transfer price lower? Does the assessor actually honor this, or do they just set SEV to 50% of the total sale price regardless?
• Appeals Strategy: Is it standard practice to appeal the assessment immediately in February/March after purchase? If I buy for $235k, is there any realistic path to arguing the "True Cash Value" is lower than my purchase price?
• The "Spread": Or is the reality simply that I need to offer way less (e.g., $170k) so the deal works post-uncapping?

I want to make sure I'm not being overly conservative, but I also don't want to buy a deal that turns negative in Year 2.

Thanks for any insights!

Jose N. · Answer

You have to look at projected market rate rents in the upcoming 2 years. This is part of the reason why rents shoot up to compensate. Michigan real estate investing is a long term game because of the tax capping, even on investment properties. So you buy the building and you may break even the first several years, but then things will diverge.

Chuck Gibson · Answer

Hi Drew,

Thanks for the feedback.

Since you’ve been doing this for 25+ years, I’d love to dig a bit deeper into the predictive modeling side of things. If I can't lower the tax bill after the fact, I need to be 100% accurate on the front end right.

A few quick follow ups:

The 50% Rule: In your experience, do Roseville, Warren and Eastpointe assessors strictly use 50% of the actual sale price for the new SEV, or do they ever stick to their own "mass appraisal" formulas even if the sale price is higher?

• Variance: Do you find that the "non homestead" millage rates listed on the Michigan Treasury site are reliable for underwriting, or are there hidden local fees/assessments you always tack on as a "buffer?
• The "Motivated Seller" Talk: When you share your numbers with sellers to justify a lower offer due to tax resets, do you find they are more receptive if you show them a side by side of the Capped vs Uncapped NOI?

Variance: Do you find that the "non homestead" millage rates listed on the Michigan Treasury site are reliable for underwriting, or are there hidden local fees/assessments you always tack on as a "buffer?

The "Motivated Seller" Talk: When you share your numbers with sellers to justify a lower offer due to tax resets, do you find they are more receptive if you show them a side by side of the Capped vs Uncapped NOI?

I really appreciate the offer to DM. I’ll reach out once I have a specific multifamily deal on the table to see how you’d stress test the tax line.

Best, Chuck

Drew Sygit · Answer

Uncapping: depends how many sales in any given year as the more sales, the more likely they are to just use their models.

Variance: millage rates are 99% accurate. Can't think of one time they weren't.

Motivated Seller: it's all a numbers game. Some will, some won't - next!
FYI: I don't show them NOI as most won't really understand those numbers. Just show them the difference in the taxes and explain how the higher number will put you in the negative at their asking price. NOTE: the longer the porperty has been on the market, the more receptive they usually are.

DM me to schedule a chat if you'd like to go deeper:)

Drew Sygit · Answer

Been doing this 25+ years, but don't know everything!

1) Have never heard of this working

2) Yes, appeal if you feel you have a case, but understand it needs to be a strong case, as the system is built for you to fail.

3) We always offer a price that makes our numbers work. We even share them with the seller so they understand. Sometimes they care, usually they don't - today. We often follow up every 2-4 weeks and sometimes sellers get more motivated by time.

DM us if you have any other questions:)

Michigan "Uncapping" Strategy: How are you making cash flow work in Year 2?

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