How do you underwrite conservatively for tax reassessment in Connecticut

Question

Hi,

I am a new investor looking at several deals in the Hartford area, and many of them look promising. The one thing that continues to hang me up is the tax situation. It is my understanding that property tax assessments are not based on purchase price, but are calculated on a five-year reassessment cycle. In my case, the property is for sale at 650k and the current tax assessment is around 248k, with reassessment scheduled for 2028.

I am having a hard time seeing how any  deal works with this looming reassessment, which could potentially increase the annual tax bill by close to 10k. (I have no idea how they come to the assessment number) I would really appreciate advice on how to underwrite this properly and what is realistic to expect going forward.

Thanks!

Kevin Sobilo · Answer

@Martin Zitzelberger, a few thoughts:

1. I don't know that state's assessment laws, BUT I believe assessments need to have a consistent basis. By that I mean they must be the estimated value at a given time.

So, if you have 2 identical houses next to each other both assessed at $248k and a reassessment occurs. They can use the recent sale of one for $650k to value that property BUT they are also updating the value of the other property that did NOT sell and using comparable sales or other more general market appreciation statistics to do it.

So, in the end both properties should end up with a SIMILAR tax assessment even though both did not sell!

2. The 2nd piece of key information is how taxes are calculated! The millage isn't carried over from year to year it is just a calculated number based on the government budget.

Let's assume the 2 houses in #1 are the ONLY houses in a town! and that BOTH houses go from $248k to $650k valuations.

If the budget for the government remains the same as the previous year, how do you think the reassessment affects those properties?!? It doesn't! Despite the valuations going up HUGELY their taxes would be THE SAME!!!

The millage is calculated using the budget divided by the tax base (total of all assessed values) then that is used to calculate each property's tax. Do the math!

3. I suggest researching how they do their reassessments in more detail. They may use statistics to update values on properties that did NOT sell. So, if you look at those stats you might be able to get an idea if the property you are buying appreciated MORE, THE SAME, OR LESS than others in that area. That would give you a better indication for how a reassessment would affect you.

Bo Smith · Answer

Hartford's brutal with reassessments. I budget 80% of market value for CT taxes and plan rent bumps before 2028 hits. How are you modeling the rent growth to offset it?

Kevin Sobilo · Answer

One more comment. I have a property that just went through a reassessment. Assessments in this county had not been done since the 1960s!

So, my assessed value is going UP~1000%!!! Yes, you read that right!

However, it looks like my taxes will go DOWN about 33%!!!

Kevin Sobilo · Answer

You need to look deeper! Your assessed value could go WAY UP and still your property taxes could stay the same or go DOWN!

It looks like the assessed values are set at 70% of the fair market value. So, for you that would be $455k based on a $650k purchase price.

They will be reassessing ALL properties. So, how your property's taxes are affected is largely going to have to do with how other property values change. For example. if they all go up by a similar amount as yours then your taxes will remain about the same. Look at some market statistics to see how values have changed market wide over the last 5 years that will give you a rough indication.

Martin Zitzelberger · Answer

@Bo Smith  thanks for the response, so effectively if the property is reassessed at 80% this would kill all cashflowing. I actually am not modeling the growth to offset this. Do you have any suggestions on a method to do this?

Doug Smith · Answer

Try going to Hartford's Tax Collector Site. (Here's the link: https://www.mytaxbill.org/inet/bill/home.do?town=hartford Print out the tax info on the property and use the current assessment and tax paid (pay attention to whether its homesteaded or not). Then, apply that to the assumed purchase price to get an idea of where the tax might reset to. That might ge the quickest way. Unfortunately, we don't work in CT, so someone else on here might have a better method, but at least that is a start for you. Good luck.

How do you underwrite conservatively for tax reassessment in Connecticut

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