Assessment warning STL

15 Replies

A cautionary tale with actionable advice for STL specifically, and probably REI in general.

Advice: When looking at tax numbers for your investment model, make sure the property is assessed correctly when running the numbers.

Story:  We purchased our first 2-family in Sept. 2017.  Looking at city records, we expected to pay $900 for the property, which seems reasonable for the condition it was in (Its quite ugly and out of date).  I didn't think to look at what it was assessed at: $57K...  

St. Louis assesses properties every odd year, but must have overlooked this one for some years.  Our purchase must have put it on the radar, and it was reassessed at $120K with a tax bill of roughly $1900.

While it did not totally destroy our investment, it did derail a few things.

The numbers:

At Purchase: 8% CoC return, $275 monthly cashflow

After assessment: 5% CoC return, $190 monthly cashflow

After $10K to bring to market rents: 9% CoC return, $370 monthly cashflow

Not a stellar investment once fully upgraded, but not too shabby for our first swing.  We are also learning a boat load, so I'm not too mad.  I am still looking for a reasonable person at the assessors office to explain how this was missed for so long.  They are quite rude and not helpful, but ill keep calling.

Hey @Kyle Eckert , If your purchase price is less than the reassessed value, you could contest it with the assessor's office. Using both the purchase price and appraisal if you have one.

@Dan Hoehn   Nope its not, it assessed at $118k and we bought a bit above that.  The problem is it was assessed at $60k in 2016.  I couldn't get a straight explanation from the rude girl at the assessors office, so Ill call back tomorrow afternoon and hopefully talk to someone else.

If I can understand why it wasn't reassessed in 2015, I would feel a lot less like they were trying to rip me off.

@Kyle Eckert hey I'm sure you know this, but remember government workers (of any kind) are basically expecting rude people so they put up defenses and may seem rude to you. I suggest to be overly kind when you call, give them a reason to want to help you. works every time for me, I actually kind of enjoy talking to the city hall people.

@Kyle Eckert

If you are going to do this for a living go down to their offices and talk to them. Tell them you are trying to learn what they already know. Ask for help, don't demand it. 

These folks get these questions all of the time and they become pretty cynical after awhile but if you take the trouble to talk to them and get to know them, you'll find that they are pretty nice people.

@Kyle Eckert

Kyle, here is a great article from The Riverfront Times.

https://www.riverfronttimes.com/newsblog/2017/05/18/st-louis-property-assessments-are-way-up-heres-what-you-can-do-about-it

Thanks for sharing your pain. I was actually going through some Anthony Chara lessons last night and he specifically mentioned always double checking the assessment and even talking to the assessor during due diligence period, because this can happen after a sale and when it's apartments the effect Cana be multiplied.

Great note, @Kyle Eckert . A similar thing happened to us on our 4-family. We purchased in November 2016 and our cash flow estimates were based on the 2016 tax bill which was ~$2010. For 2017, the property taxes jumped 13% to ~$2270. A difference of $20/month didn't change our outlook dramatically, but it was still a wakeup call that we should have done more DD with the assessors office. I now run my numbers assuming a 10% increase in property taxes, especially since the city's m/o has been to fleece property owners in order to make up for reduced tax revenue. Don't even get me started on their shameful occupancy permit extortion scheme.

I have to call on local government offices fairly regularly for my day job and the level of customer service is generally abysmal. If you don't have the stomach to kill them with kindness, playing really dumb and asking for help seems to work well. If you act like you know it all, they tend to shut down. Frankly I find it absurd that a customer should have to butter up an employee in order for them to perform the responsibilities of their job, but that's the public sector for you.

Can you clarify if this is St. Louis City County or St. Louis County?

@Shari Peterson   This was in St. Louis city.  They assess every odd year, but apparently miss a lot of properties.  Buying in an odd year may put your property on the assessment list, so due diligence on the assessment price is key to avoiding surprises.

It's very possible the prior owner had a homestead exemption or something similar on the property that you don't get to enjoy after the purchase.  Usually values don't jump by that much.

I mentioned it earlier this year in stl related posts as i bought in april and june and had some city hall meetings to accurately assess properties owned (aka informal conference)

There is no homestead/homeowners exemption in stl that i know of.

Link to article back in May:

http://www.stltoday.com/business/local/the-tax-man...

"

Indeed, the city was under-assessed in the past, so much so that the state forced the assessor’s office to catch up, leading to increases in residential assessed values of 33 percent in 2005 and 22 percent two years later.

But the assessor’s office says sales data from last year and 2015 point to sharply rising values.

“It wasn’t really until the sales that started to occur in 2015 that those values started shooting up,” said Deputy St. Louis Assessor Shawn Ordway."

@Zach Stillman thanks for the article, its a good read and makes a lot of sense out of what I experienced.  

Moving forward, I plan to look at the assessment on the city site, check that it is somewhat reasonable, and run my numbers accordingly. 

A new purchase price will usually result in higher future assessments, both in the city and county, so I would be careful using current assessment when running your numbers.

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