Property Tax Increase After Acquisition
Hey there, I’m a new investor in the storage industry and I’m looking at a self storage facility in central PA. I’m hoping to acquire it early this year. I’m curious about if and how property tax increases will happen. What’ll cause them? How can I keep them low? When could they happen?
The Property is split into two tax parcels. One parcel has a duplex on it, fully occupied. In the basement, there are 8 climate controlled storage units. In the second parcel, there is an 18 unit storage warehouse with space for parking rental spaces. I plan to give it facelift (painting, lighting, security, branding). I also plan to raise rates and add the parking. Because there are two parcels with very different building on them, how could that affect property tax assessments? To anyone who knows about property taxes, please let me know what I should know about these potential increases. Also let me know if there’s something I should know but aren’t asking. Thank you so much for your help. What a great platform!
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@Ethan Young, I am also in PA. So, here are a few pieces of information:
1. Except for the oddball city, most assessments in PA are handled at the county level.
2. Often the assessed values are NOT updated very often, BUT this varies from county to county. So, find news articles in your county about assessments or simply call the assessors office to see what the outlook is on a county-wide assessment in the near future.
In my area NorthEast PA, the counties of Luzerne and Lackawanna were not reassessed since the 1960s! Luzerne finally did a reassessment in 2008 and Lackawanna just completed theirs this year.
3. Technically, if you improve a property they can reassess just that property. However, there are rules about that.
If I recall correctly, in order to trigger a reassessment you need to put something like $2k or more into your property in a given year. Your building permit is probably what's used to trigger it.
4. THIS IS A KEY POINT!!! Just because the $2k threshold from #3 exists in the law doesn't mean that county has to use that. I suspect that many/most use a HIGHER threshold, but they cannot use a smaller one by law.
In my area, I have NEVER seen a reassessment triggered by pulling building permits for even $20-30k!
In my area it seems that the things that trigger a reassessment would typically be adding a building like a house or a garage.
5. Keep in mind that whatever their criteria, it has to be CONSISTENT! They can't skip reassessing your neighbor who pulls a permit for $10k of work and reassess you when you pull a permit for $10k of work! That would be an illegal spot reassessment.
6. Talk to the assessor. Also talk to people who have worked on properties in the county to see what their experience is.
I suspect that most assessors offices may not have a formal written criteria they use for triggering a re-assessment even though they should but if you see how they operate and know the laws you can protect your interests no matter what happens.
7. Also! Understand that a re-assessment isn't as scary as you think. If you get re-assessed the value needs to be equalized back to the time of the last county wide reassessment.
For example:
- You have a parcel assessed at $100k and the last reassessment in the county was 1985.
- A reassessment is triggered and your new valuation is $250k. This SCARES YOU!!!
- However, the values within the county have risen A LOT since 1985 and the state comes out with a chart each year of Common Level Ratios to show how far off the values in the county are on average.
- So, let's say the rate for your county is 2.1. That means a 100k property in 1985 is worth on average $210k today. You apply that rate by using it in reverse (dividing).
- So, $250k/2.1 = $119,048 would be your new assessed value even though your property is actually worth $250k today.
8. Here is a link to the Common Level Ratios so you can see where your county stands and to make sense of the valuations you see on assessments: