I'm interest in purchasing some single family homes in Houston. Many of the homes that I am considering have property tax assessments far below the value that I would pay for them. AFor example this property is assessed at $30K, but the $130K seems like a reasonable purchase price. Woudl this low assessment stick around for a while after I purchased the property,or would the municipal government immediately re-assess the property?
It will likely be reassessed the following year. I would underwrite the deal with property taxes at 85% of projected purchase price times the tax rate.
Should stick around for this year as properties are supposed to be assessed for the value on Jan 1st. Additionally, Texas is a non disclosure state so sales prices are not readily available
@Greg H. is right about Texas being a non-disclosure state. However, I'm not sure how it is in other counties, but I went to a tax protest hearing for a client in Harris county last year and they pulled up sales comps straight from the MLS *during* the meeting.
Thanks all for the input, especially the 85% of sale price estimate. Why should it matter that TX is a nondisclosure state? Can't the city government look at asking prices of properties and see that they're selling (presumably at something close to the asking price) anyway? And I was able to get sales prices pretty easily by just asking my agent - I'd guess that it would be easy for the city government too. Is this incorrect?
@James Farrior Yes, that's all pretty much correct. You should definitely do your due diligence as if this property will be taxed at its market value or close to it. Being a non-disclosure state simply means the sales prices are not required to be reported to the government. But of course Realtors are required to post sales data on the MLS, and the government can get access to the MLS. If you buy a property not on the MLS, then the sales doesn't get reported, and the government won't know what you paid for it, but even then, it's not like they can't do their own comps. Also, as another person mentioned, the property values are appraised as of their condition on January 1st, but the local appraisal district won't send out a notice of what they think the property is worth until May. So whatever the appraisal district says the property is worth today is not the updated value that the government will post sometime around May.
I agree with @Mark Brown , in that you should underwrite as if it were taxed at market value. I have had the same experience and was glad I had accounted for the increase.
One thing to note if you are planning BRRRR. The appraised value when you refi is not as accessible, thus in the past when I have refinanced, the taxes have remained at the purchased market value with standard increases and have not seen that large increase to the new market value. Another reason to BRRRR in my opinion