Can taking a tax abatement be a mistake?

Question

If you are looking at a property and you could get a 10-15 year tax abatement (on the improvements you make), when can it be a bad idea? Assuming there are restrictions obviously, like you can only rent to 60% or 80% AMI tenants or some other rent cap. What about if the house may not rent for that much anyway? Like the rent cap is 1200 but the rent would probably be 1000, for example. I'm thinking you are risking losing out on future rent increases to over that limit, but you are getting the tax relief and certainty. Is it just a math question? Or can/will abatements hurt or help resale down the line? Thoughts?

Arn Cenedella · Answer

@Jeff Isaacs

There are lots of property tax abatement programs out there. And the details differ and the details matter. So be sure you know the specifics of the abatement.

That being said GENERALLY the affordable rent levels based on 60% of AMI 80% of AMI are adjusted every year.

So if your area is doing well, median household incomes going up then the affordable rents should increase every year as median incomes increase.

If the max allowed rent is $1200 and market rent is $1000, in addition to potential annual increases you would already have a built in buffer of $200 room to increase rents.

I think the other question to be considered is:

How much do you save with the abatement weighed against the additional paperwork and time it may require to comply with the program.

Hope this helps.

Arn

Jeff Isaacs · Answer

Thanks Arn, that makes a lot of sense