Tax appeals on new investment property

Real Estate Agent · Member since 2020 · 139 posts · 103 votes

Hey Ryan,

I am not an accountant however you can always request a review on property taxes if you own the property. If you have reason to believe the property taxes are high, review the assessment, and get an independent appraisal. A great way to quickly assess is to look at comps in the area and gather a good case with plenty of data. This could be a great way to make a deal work for you.

If you have any questions I am always down to talk RE. Good luck!

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Mark AinleyBusiness Member

Property Manager · Roselle, IL (Chicago Suburb) · Member since 2013 · 2k+ posts · 1k+ votes

5y

@Karen Elizabeth Virgilio There is great power in understanding how the taxes work and where you have the ability to contest them or not. You can always contest taxes but you dont always get a reduction. I will send you a message for a podcast we recently did with one of Chicago's top tax contesting firms. Keep in mind tax contesting lawyers take a percentage of savings not an hourly rate so makes sense to utilize. You can contest taxes on your own with no cost other then your time but would advise you dont for the same reasons you dont change your own car brakes or replace your own roof.

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Joe Martella

Rental Property Investor · Cherry Hill, NJ · Member since 2015 · 626 posts · 495 votes

5y

@Karen Elizabeth Virgilio I invest in New Jersey - the land of high taxes. I have passed on many deals that the taxes killed it. Pursuing the deals with a hope that the taxes will be lowered by a municipality that is bankrupt, is too far of a stretch to make a deal happen.

I found and attorney that word on contingency and he applied to have taxes lowered on three of my properties. He was successful on two.

While I cannot speak specifically for Chicago, what I can tell you is that nothing moves quickly when it comes to courts and dealing with governments.

If the deal doesn't work with the current tax, I recommend that you pass on the deal for several reasons.

1. There is no guarantee that you will be successful getting the taxes lowered

2. Once the attorney starts the lengthy process the owner can sell the property to someone else. If the attorney is successful, you just paid his bill to have someone else's taxes lowered.

I recommend that if the numbers don't work, then walk away from the deal. The savings I received from each property is about $1,200 each per year, which is frozen for 3 years. I don't think that the local municipality will shoot the taxes up in 3 years, back where they were, but what about if they do? What happens if you are in that situation 3 years later? You now have a deal that isn't cashflowing anymore?

My advice would be to make a purchase price offer that would all you to cashflow with the taxes as is. If you get the deal, then you can apply to get the taxes lowered and that would be a bonus.

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Corby GoadeBusiness Member

Investor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes

5y

Contesting taxes, at least in most cases, is a waste of your time. Every municipality assesses properties differently, but taxes are around 1% of the property value annually in my market and they are reassessed every year. So- if you have a $500k property, you'll pay around $5k per year in taxes. Let's say you contest your value, and in turn your taxes, and the county agrees that you are correct and the property should only be assessed at a value of $475k- a $25k reduction in value. Now my taxes are $4750 per year, which works out to a savings of $20.83 per month. Hardly enough of a difference to make a deal work.

The time and energy you spend contesting those taxes could likely be much better spent finding another expense to reduce or small way to increase revenue.

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Joe Martella

Rental Property Investor · Cherry Hill, NJ · Member since 2015 · 626 posts · 495 votes

5y

@Corby Goade That may be true for lower tax areas. In other metro cities, $500k properties are being taxes at $10k - $15k. A $250k property in NJ is paying $6k - $9k in taxes. Reducing taxes may not make sense in ID, but in other areas, it is worth it. That is why there are attorneys that concentrate solely in this space and work on contingency. If there wasn't a business, the attorneys would be charging fees up front regardless of success.

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Karen Elizabeth Virgilio

OP

New to Real Estate · Member since 2020 · 3 posts · 2 votes

5y

Thanks all for the responses and excellent feedback!

@Mark Ainley I'll definitely check out the podcast. I've been listening to a few of them recently, so thanks for sharing that one.

@Joe Martella great feedback, I will take that as something to consider when offering on properties, but not something that will make or break the deal. Sound like it's just to risky to rely on a reduction in taxes.

Edit: I'm doing this on the mobile site and can't figure out how to actually tag someone. Sorry if this didn't tag correctly!

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Bryan HartlenPro Member

Investor · Phoenix, AZ · Member since 2018 · 317 posts · 159 votes

5y

We buy value add SFR properties in Birmingham, AL and in Terre Haute, IN. They are almost always overtaxed for their current condition. We always protest and have always had the property taxes lowered - at least for the first year while rehabbing. That said, the tax rates aren't anything like Chicago. And I wouldn't buy a property that only made sense if a tax appeal was successful. I would treat the reduction as a cherry on top of the value add process.

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John Warren

Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes

5y

@Karen Elizabeth Virgilio make sure you focus your attention on the local advice here. Everyone that responded is knowledgeable in their areas, but taxes in Illinois are super important to understand. The Straight Up Chicago Investor's Podcast that @Mark Ainley mentioned is excellent and helps you figure out where to start. You can also look up any property in Cook County at cookcountypropertyinfo.com. On the county website there is a tax calculator in the top right hand corner. You should ALWAYS run your taxes and look at what they would be based on the purchase price to see if they would go up in the future as well.

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Karen Elizabeth Virgilio

OP

New to Real Estate · Member since 2020 · 3 posts · 2 votes

5y

Originally posted by @John Warren:

@Karen Elizabeth Virgilio make sure you focus your attention on the local advice here. Everyone that responded is knowledgeable in their areas, but taxes in Illinois are super important to understand. The Straight Up Chicago Investor's Podcast that @Mark Ainley mentioned is excellent and helps you figure out where to start. You can also look up any property in Cook County at cookcountypropertyinfo.com. On the county website there is a tax calculator in the top right hand corner. You should ALWAYS run your taxes and look at what they would be based on the purchase price to see if they would go up in the future as well.

Thanks for the tip, John! I will be sure to look at each serious property through that site. I have been utilizing cookcountytreasurer.com to verify all the tax information so far, including exemptions and if it's been paid for the year or not. But the more resources the better.

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Crystal SmithPro Member

Moderator

Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes

5y

Originally posted by @Karen Elizabeth Virgilio:

Hi all!

My wife and I are just starting out with our real estate investment venture, looking to purchase our first 2-3 unit in Chicago. We have found several properties over the past few months that fit our criteria pretty well initially, and then are sunken with very high taxes. In the 8-10k range.

We are not looking for the highest cash flow we can get, especially to start, but these places that would work otherwise are then passed on due to the high taxes. So, moving forward, I am curious of the likely hood that we would be able to appeal the property taxes if we were to purchase one of these. Is this a strategy we could use to go after listings with high property taxes that most people will avoid? Or is that too much of a risk to take not knowing what we could do about the taxes?

Again, we are currently looking at properties in Chicago, mainly North / Northwest side where taxes aren't generally that high.

Thanks for any input!

IMO you should make a buying decision based on the worst-case scenario of not being able to get the taxes reduced. With that said once you purchase a property, you should hire a service to appeal your taxes yearly.

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Tax appeals on new investment property

Tax appeals on new investment property

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