When does Rehab/improvement trigger assessment?

Question

I am closing on a property in Austin. This property is being acquired for ~$200K and will require either $25K or $50K work (depending on which path I go down). $30K is new painting, flooring, landscaping, kitchen, baths, putting in HVAC. $50K is opening up some of the floorplan (knocking down walls -- not putting in new ones), moving furnace/HVAC to attic, higher-end finishes. Garage is already converted.

How can I tell whether any of the repairs will automatically trigger a higher assessment, and what the methodology will be?

Thanks in advance!

How can I tell whether any of the repairs will automatically trigger a higher assessment, and what the methodology will be?

Thanks in advance!

Arjun K. · Answer

Thank you everyone

Richard Sanderson · Answer

I have to strongly agree with Theresa K. and Pat L. about contacting your local assessor. It's better to know the full story now (or better yet, before you sign a purchase agreement) about your holding costs. I always advise property investors to make friends with the local assessor.  They have a huge amount of real estate information available. Most even survey income-producing properties for income and expense information.  They can't tell you specifics (it's confidential) but they may tell you what their survey indicates for multi-family apartments of less than 12 units, for example. Every assessor get a copy of any building permit issued.  They just don't act on some of them. For example a permit to re-roof a home won't trigger a visit by the assessor but a complete remodel will. Because some assessors have been burned when the applicant for a permit hasn't been honest (yes, it does happen) and finds a complete remodel when the permit says replace electrical panel,  some inspect all properties where a permit has been issued.   When you talk to the local assessor be sure to ask him or her why price paid isn't always the market value and why cost expenditures don't always contribute to market value (expect maybe California).

Pat L. · Answer

Check with your assessor. I bought a home for my 19 yr old daughter to own.
the assessor showed up with a camera as I was gutting it walls windows doors everything.
The assessor explained to me that the city had a program in place whereby the assessment for a home in need of extensive repair would be adjusted & a moratorium on tax increases would be good for 5 years. School taxes would however rise 5% but stay at that for the 5 years.
The home was assessed @ $159,900 & I got it from a bankrupt seller for $120,000.
Bottom line was she drop the assessment to $100,000. It blew me away but up here in NY it saved my daughter a lot in taxes. 
However, in a nearby city we bought a home assessed @ $24,000 for $20,000 @ a tax lien auction put $7500 into repairs & they reassessed it a year later for $78,000 although the neighboring homes were assessed in the $50's. Those we sold it to for $39K had to sell it as the taxes were too high to make it a viable rental.

Glenn Espinosa · Answer

Arjun K.  You have to look at your competitors and see what they are putting out and also what has sold recently.

I typically err on the side of over improving rather than not but never to the point where I price myself out of the market.

On the other hand, if the market is hot and lipstick rehabs are going for top dollar then it might be wiser to keep the rehab smaller.

Arjun K. · Answer

Thank you for these tips!

Andy Collins · Answer

I've pulled lots of permits without a problem, the only time I had an issue I was fighting the assessment, somehow they found out the garage had bee converted, and in the hearing they showed it to be 2200 sq.ft (which include conversion) instead of the 1800 ft.they had always showed,,,,no permit had been pulled (previous owner had done it, and done a nice job),,I'm still trying to figure out how they knew about the conversion

Theresa K. · Answer

Talk to the county assessor's office (or whatever entity issues the tax bill in your area).  Alterations that substantially improve the property to "like-new" condition may trigger reassessment.  Assessor usually finds out about it if permits have been pulled for certain items.

Ed O. · Answer

It has been my experience that when permits are pulled, regardless of the work, your value will go up. In one year, I had two nearly identical properties reassessed as it's done every 2 years in my state. They had the same starting value. The property, where of all things, I changed out the electric panel and made it a 200 amp service, saw the value rise higher than the property I did nothing with. It ended up costing me $100 more in taxes. Somehow, the assessor, form what I'm guessing, saw a permit was pulled and dinged me.

If you're terribly worried about getting clobbered with your assessment, consider working with a firm that handles RE property assessment appeals. I found one that is in my market and they are phenominal. I had to split the savings with them 50/50, but did no work and took no risk.