New to investing and looking at properties in Washtenaw County, MI. Does anyone here invested in this area, are the areas safe for Outside of the MI investor? I heard the taxes are pretty high if it is a second home/investment property. Any insight is greatly appreciated.
Thank you in advance!
Welcome @Felix Daj to the BiggerPockets. Michigan is a great place to invest. I am not a specialist on Washtenaw County, but can say that the typical rent does increase when homes aren’t primary residents but not astronomical.
I personally invest in the Lansing region, but also manage properties in the Battle Creek, Jackson and Kalamazoo areas. If you have additional investor questions please let us know. Best of luck on your investing journey.
Michigan has some of the most complicated property taxes in the US.
First, Michigan uses the State Equalized Value (SEV) to determine INITIAL Taxable Value. The SEV is supposed to be 50% of the market value. Many people mistakenly believe the SEV is 50% of the purchase price, but it is supposed to be the market value.
Most cities have an Assessor that determines how much values have changed each year. Since they can't do each property individually, they use comparables to make broad generalizations to determine percent changes. Then these are applied to all properties in that city. Property owners get an annual update with their winter property tax bill.
Most Michigan properties receive TWO annual tax bills - one from the city and one from the county. Many banks handling tax escrow accounts for mortgages have mistakenly thought there was one tax due twice/year or totally missed one of the taxes.
Okay, so once you have your SEV, you then have to research your Taxable Value. Back in 1994(?) Michigan passed the Headlee Amendment (http://www.legislature.mi.gov/(S(k5m2va1uyfgwtbyjf4nqb1bx))/mileg.aspx?page=LoadVirtualDoc&BookmarkID=6536) that capped increases to the SEV annually to the lower of 5% or the state's Cost of Living increase. This was done to protect senior citizens on fixed incomes from being forced to sell their homes due to unaffordable property tax increases.
So now, the city assessor tracks the SEV, but homeowners are taxed based upon the Taxable Value. These two numbers diverge over time as market values increase, but tax increases are capped. The Taxable Value is uncapped and equated to the SEV upon a sale or other transfer of property ownership, with limited exceptions.
Once you know the Taxable Value, you can look up the property tax millage rates, which each city & county sets separately (with voter approval).
So, yes, it is very possible for property taxes to jump from $907 to $3200 if the seller has owned the property for quite some time.
You can use this tool to estimate your future taxes after they are uncapped: https://www.michigan.gov/taxes/0,4676,7-238-43535_43540---,00.html
You might want to read our series about “How to Screen a PMC Better than a Tenant”, since selecting the wrong PMC is usually more harmful than selecting a bad tenant:
@Felix Daj Washtenaw County is great. Ann Arbor, in particular, has one of the most stable real estate markets in the state (probably the most stable). There are a lot of high potential areas outside of Ann Arbor that are more affordable. Let me know if you have any specific questions.
I live and invest in Washtenaw County. It is a large county geographically and the housing types and markets vary depending where in the county you are looking. You have the full spectrum of urban to rural in the county.
Taxes are going to be 18 mils higher for a non owner occupied home and the previous poster did a good job of explaining how it is calculated. You absolutely must understand the change in taxes that will occur after a purchase otherwise you can easily see your expected cash flow disappear.
@Felix Daj Welcome to the journey to create income, wealth with unlimited possibilities to grow into a prosperous life.
Generally, the first handful of investments like fix-flips or rentals are good to keep within a 10-mile radius from where you live. This helps to manage better when you work full time and real estate is a part-time option. As you learn and adjust to the needs; then you can hire property managers or contractors for full management; as an option with benefits that comes with costs.
If you are in a position to drive then an extension of distance is fine.
There are many REIA groups that you can learn from through online or in-person sessions
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