Michigan taxes killing possibilities?
Berkley, MI · Member since 2013 · 27 posts · 0 votes
Michigan taxes killing possibilities?
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Investor · West Bloomfield, MI · Member since 2009 · 358 posts · 306 votes
12y
Originally posted by John Knappmann:
Your taxes are based on the assessed value and the rate. Some cities and townships assess more aggressively than others. Some have higher rates. I would suggest looking at other cities in that same area (Oakland County) and see if you find something that works better. If not, widen your search area out until you find something that works.
John's exactly right. In Berkley the problem is not the millage rate. It's the assessments which are (or should be) based on actual market value.
The non-homestead millage rate in Berkley is 54 mills. That's not crazy high, in fact for comparison (numbers are from 2012, vary somewhat depending on school district within the city):
Non-Homestead property tax rates
- Ferndale 72 mills
- Hazel Park 77 mills
- Clawson 69 mills
- Madison Heights 64 mills
- Oak Park 69 - 75 mills
- Pontiac 55 mills
- Royal Oak 54 - 58 mills
- Southfield 62 - 69 mills
- Eastpointe 67 mills
- Warren 66 - 72 mills
- Redford 70 - 73 mills
- Harper Woods 87 - 90 mills
- Detroit 85 mills
- Allen Park 60 - 67 mills
- Dearborn 65 - 72 mills
- River Rouge 102 mills
- Westland 52 - 59 mills
Berkley's millage rate is actually on the lower end. You get a lot less rent however for a each dollar of house in Berkley than in the lower priced areas. That's why people look at south Warren, Hazel Park, even Detroit despite the higher millage rate in those communities.
There's also the issue of how inflated the assessments are in a city. Some cities I know from experience are very close. Others are 200% - 300% too high. You tend to find the over-assessments in cities where the values have dropped like a rock. A combination of inertia and the need to generate a certain amount of taxes to run the city result in over-assessments compared to current market values.
Owning rentals in a nice area like Berkley is kind of like owning a blue-chip stock. You accept lower rental returns in exchange for better caliber tenants and potentially higher appreciation (not guaranteed). Berkley is an owner-occupied market. House prices are set by the market for owner-occupied houses. In other more rental-dominated markets you get higher rents as a percentage of the house value but house values are more tied to rental returns. You can see good appreciation if the area improves and becomes more of an owner-occupant area but that is of course speculative.
25 Replies
- SFR Investor · Southfield, MI · Member since 2012 · 70 posts · 19 votes12y
Berkley is just obscene. I have a 625 sq/ft 2/1 in Berkley with taxes at $2K. I see Berkley as more of a buy, demo, rebuild and sell. Seems to be a new house going up every few blocks. Thinking of doing it myself next year.
You may just want to look outside of Berkley for something that cashflows.
- Investor · Colorado Springs, CO · Member since 2013 · 643 posts · 280 votes12y
@Eric Reichelt Hello Eric. We currently live and invest in Colorado, but grew up in Ohio. So this summer when I was back in Ohio I looked around at real estate prices. The purchase prices were about the same as Colorado, but the taxes were 3 or 4 times higher. When I'm hoping for a unit to cash flow $200 or $300 per door, an extra $100 or $150 a month is a big deal! So for the moment, we're staying in the Colorado market. I close on a fourplex next week with $1950 in rents per months and I'll be paying $31 a month in taxes.
That being said, I recently asked on the BP forums if property tax rates had a big influence on people choosing markets. Most people said it was just another number to be factored in. You can find markets when the purchase prices and rents are so good, that the high taxes don't make a difference. Some areas of Cleveland are this way.
I recently heard someone say, "Live where you want to live, but invest where the numbers make sense." So if the numbers don't make sense in your area, I would be open to looking further away or even out of state. I've been overseas the last seven years and had two rental properties managed by a property management company. Overall I was very happy to give them the 10% to handle the tenants, repairs and vacancies. The challenge is getting to know a market where you don't live. But its very possible. At the moment I'm investing in a town 40 minutes away from where I live because the numbers are significantly better down there.
I'm relatively new to the game, but that's my bit of input. Let me know if you have more questions or if I can be of assitance to you.
Mike
- Berkley, MI · Member since 2013 · 27 posts · 0 votes12y
As open as I am to areas around me, it's just such a great school district that the city will always be desired. This is why I wonder when you make the choice to sacrifice some cash flow for the assurance of great location. I'm trying hard to keep my emotion out of this, and yes the numbers need to make sense. That I totally agree on sir.
- Investor · Colorado Springs, CO · Member since 2013 · 643 posts · 280 votes12y
@Eric Reichelt If you really want to stay in the area, have you considered looking at foreclosures or short sales? If you can get a better deal on the purchase price, it might make you monthly cash flow numbers look better even with the high taxes.
Mike
- Landlord · Flat Rock, MI · Member since 2011 · 179 posts · 26 votes12y
Your taxes are based on the assessed value and the rate. Some cities and townships assess more aggressively than others. Some have higher rates. I would suggest looking at other cities in that same area (Oakland County) and see if you find something that works better. If not, widen your search area out until you find something that works.
- Investor · Chelsea, MI · Member since 2013 · 350 posts · 138 votes12yEric Reichelt , with regards to choosing to sacrifice cash flow, that's a personal decision. Some people would set a necessary cash flow number and be willing to deal with worse areas or other things you might consider a problem, but others like yourself might say large cash flow isn't as important as minimal headaches etc. You just need to determine your own plan and priorities.
- Investor · Southeast, MI · Member since 2012 · 2k+ posts · 1k+ votes12y
Even if the taxes were low and you bought a house for $110-140K and rented for $1,000-1,400, that is a terrible return.
I would suggest buying in a lower priced city (like Warren, Hazel Park, Madison Heights) or finding a killer deal in Berkley for cheap. Maybe something that needs a lot of work where you could build equity.
I don't think the taxes are your problem in Michigan, just in Berkley. Anytime you have a tiny city of only a few square miles, your taxes will be high due to the huge ratio of government bureaucracy.
- Real Estate Investor · Jenison, MI · Member since 2013 · 28 posts · 6 votes12y
Have you considered multi-family homes in your town that would cash flow better?
- Investor · West Bloomfield, MI · Member since 2009 · 358 posts · 306 votes12y
Originally posted by John Knappmann:
Your taxes are based on the assessed value and the rate. Some cities and townships assess more aggressively than others. Some have higher rates. I would suggest looking at other cities in that same area (Oakland County) and see if you find something that works better. If not, widen your search area out until you find something that works.John's exactly right. In Berkley the problem is not the millage rate. It's the assessments which are (or should be) based on actual market value.
The non-homestead millage rate in Berkley is 54 mills. That's not crazy high, in fact for comparison (numbers are from 2012, vary somewhat depending on school district within the city):
Non-Homestead property tax rates
- Ferndale 72 mills
- Hazel Park 77 mills
- Clawson 69 mills
- Madison Heights 64 mills
- Oak Park 69 - 75 mills
- Pontiac 55 mills
- Royal Oak 54 - 58 mills
- Southfield 62 - 69 mills
- Eastpointe 67 mills
- Warren 66 - 72 mills
- Redford 70 - 73 mills
- Harper Woods 87 - 90 mills
- Detroit 85 mills
- Allen Park 60 - 67 mills
- Dearborn 65 - 72 mills
- River Rouge 102 mills
- Westland 52 - 59 mills
Berkley's millage rate is actually on the lower end. You get a lot less rent however for a each dollar of house in Berkley than in the lower priced areas. That's why people look at south Warren, Hazel Park, even Detroit despite the higher millage rate in those communities.
There's also the issue of how inflated the assessments are in a city. Some cities I know from experience are very close. Others are 200% - 300% too high. You tend to find the over-assessments in cities where the values have dropped like a rock. A combination of inertia and the need to generate a certain amount of taxes to run the city result in over-assessments compared to current market values.
Owning rentals in a nice area like Berkley is kind of like owning a blue-chip stock. You accept lower rental returns in exchange for better caliber tenants and potentially higher appreciation (not guaranteed). Berkley is an owner-occupied market. House prices are set by the market for owner-occupied houses. In other more rental-dominated markets you get higher rents as a percentage of the house value but house values are more tied to rental returns. You can see good appreciation if the area improves and becomes more of an owner-occupant area but that is of course speculative.
- Investor · West Bloomfield, MI · Member since 2009 · 358 posts · 306 votes12y
By the way, for anyone reading who's not familiar with Michigan property taxes, the way it works is you multiply the millage rate times the Taxable Value. The Taxable Value is supposed to 50% of the actual market value, although it can be lower than that because annual increases are limited to 5% or the rate of inflation, which ever is lower. That limit uncaps upon transfer of ownership.
Unfortunately, the TV can also be higher than 50% of actual market value, sometimes a lot higher, if the property has been over-assessed.
So taxes should be roughly (Actual Value/1000) x 50% x (Millage Rate).
Example: A house in Berkley is worth $120,000. Investor (non-homestead) property tax millage rate is 54 ($54 tax / $1000 taxable value).
($120,000/1000) x 50% x 54 = $3,240/year or $270/month.
There's a handy calculator on the Michigan website at
https://treas-secure.state.mi.us/ptestimator/PTEstimator.asp
There's a pdf file of all the millage rates in Michigan (2012) at
http://www.michigan.gov/documents/taxes/2012TotalMillageRates-EntireState_417267_7.pdf
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes12y
There are some states with no income tax but then the property taxes can be higher.
Muni's like to hold onto high assessments from years past as they are desperate for cash. Have you ever known almost any government to balance the budget??
So the tax assessors hope only a limited number of people will appeal high taxes and then they string it out for a few years with a retroactive credit. They borrow money for free on over assessed bills and return it later........ : )
We saw this in the heart of Atlanta, Georgia in Fulton. Crazy assessments of houses that were fraud flipped 4 to 5 years ago and now are selling for 20,000 when it used to be 200,000. The rent is low because of the areas but the property taxes are still highly inflated at 3,000 and up. So with the low rent there Is no way to cash flow. This is why the area of Atlanta MSA is 27 counties so many investors look at other counties that have higher rents, nicer areas, and lower property tax.
You have to remember some areas are really purchase to live areas and not rentals. Hoping for appreciation on the back end is a spec play and not a cash flow play. Some investors are fine with that as they plan for retirement and their tax write offs. They make a ton on income and do not care about the cash flow going in.
If you fit in the other category and need that money to work to the max for growth then you need to look probably in other areas where it makes sense for the cash flow TODAY.
- Berkley, MI · Member since 2013 · 27 posts · 0 votes12y
first, thanks to everyone for the help and guidance. It's given me much to think about. I'm very much the person who is bit concerned with maximum cash flow, just enough to be a logical decision. I think looking into short sales is a great idea, that's how I got into my home for so little. If I had 5 more, it'd be a happy man. With everything aside, are any investors here pro blue chip residental properties with minimal cash flow. I just know how great this city and it's community are for the residents. Heck, my brother in laws grandfather was the mayor and the love he has for this city is admirable. I guess my question becomes, what trade offs are investors to make for a lower return.
- Investor · West Bloomfield, MI · Member since 2009 · 358 posts · 306 votes12y
Berkley, to me, seems more like a place to flip rather than buy and hold. For rentals your money will go twice as far in the more typical rental areas, and I'm not talking about ghetto neighborhoods, just decent first ring suburban neighborhoods that are more rental oriented.
- Involved In Real Estate · Rochester Hills, MI · Member since 2010 · 812 posts · 178 votes12y
Originally posted by Rob K:
Even if the taxes were low and you bought a house for $110-140K and rented for $1,000-1,400, that is a terrible return.
I would suggest buying in a lower priced city (like Warren, Hazel Park, Madison Heights) or finding a killer deal in Berkley for cheap. Maybe something that needs a lot of work where you could build equity.
I don't think the taxes are your problem in Michigan, just in Berkley. Anytime you have a tiny city of only a few square miles, your taxes will be high due to the huge ratio of government bureaucracy.
I agree with Rob. You need to start looking in macomb or looking for a turd that can turn into gold. In my own opinion, I feel south oakland county is overvalued right now. Prices in berkley, Royal Oak, Ferndale, and even madison heights are out of control and have peaked, in my personal opinion. I'm really looking forward to the next couple real comp statistic releases to see if my "Boots on the ground" gut feeling holds true from a numbers stand point.
- Investor · Southeast, MI · Member since 2012 · 2k+ posts · 1k+ votes12y
Originally posted by Joe Delia:
I agree. I have tenants moving out of a house in Ferndale and I'm thinking about selling it. I can't believe how much it's comping out at. It's an old house in a seedy area.
If you look on the eastside at areas like Eastpointe and parts of Clinton Twp, you can still get a solid house for a reasonable price. They are well built and easy to rent. Warren has gone downhill so fast, that I would be very selective on what I bought there. So many of those houses are on dumpy foundations and city hall can be a nightmare to deal with.
- Investor · Macomb, MI · Member since 2013 · 654 posts · 115 votes12y
@Eric Reichelt just as @Rob K. said. Some areas of south warren are getting bad. Not only because of possible property deteriation but at van dyke and 8 mile has become the new 7 mile and van dyke.
I have a house ther and evwn 6 months ago was better. More recently there has been a dead body found behind one of the party stores. My tenant just the other week heard 7 gunshots and turned out to be a guy shooting at another guy over a girl. Police chases almost every week in the news papers, a rapist just caught a few weeks ago after raping a girl down there.
My tenant has installed a surveilance system because someone tried breakining in a couple times. the guy still periodically walks right up to the door and tries to get in. Everything being caught on camera. But the police cant identify him even though the video is clear as can be. Its like watching HD tv.
My tenant was supposed to buy the house from me and is now having secind thoughts. Good ole Detroit mentallity. Most people blame the politicians for Detroits demise but the citizens are who are responsible for their neighborhoods and home upkeep. If the citizens dont care then this is what the neighborhood becomes. 9 mile has become the new 8 mile in some areas. Its ashame how fast it happened too.
- Landlord · Flat Rock, MI · Member since 2011 · 179 posts · 26 votes12y
Originally posted by Tom A.:
(Long quote by me)
John's exactly right. ....
I had to call my wife over to the computer when I saw this and ask her when was the last time she said something like that! :)
- Landlord · Flat Rock, MI · Member since 2011 · 179 posts · 26 votes12y
Originally posted by Aaron Yates:
@Eric Reichelt just as @Rob K. said. Some areas of south warren are getting bad. Not only because of possible property deteriation but at van dyke and 8 mile has become the new 7 mile and van dyke.
I have a house ther and evwn 6 months ago was better. More recently there has been a dead body found behind one of the party stores. My tenant just the other week heard 7 gunshots and turned out to be a guy shooting at another guy over a girl. Police chases almost every week in the news papers, a rapist just caught a few weeks ago after raping a girl down there.
My tenant has installed a surveilance system because someone tried breakining in a couple times. the guy still periodically walks right up to the door and tries to get in. Everything being caught on camera. But the police cant identify him even though the video is clear as can be. Its like watching HD tv.
My tenant was supposed to buy the house from me and is now having secind thoughts. Good ole Detroit mentallity. Most people blame the politicians for Detroits demise but the citizens are who are responsible for their neighborhoods and home upkeep. If the citizens dont care then this is what the neighborhood becomes. 9 mile has become the new 8 mile in some areas. Its ashame how fast it happened too.
@Aaron, your typical lowlife targets a place either because he thinks it's an easy target or because he knows the person there and something he knows is motivating him. If your guy installed security and it is visible, than odds are something about your tenant is attracting his attention. Maybe it's a grudge, maybe he knows there is money or high-end electronics in the house, maybe the guy used to leave the door unlocked. I don't know. If he does not have an sign visible, then get him one You would think he'd move on down the block to steal something.
- Investor · Macomb, MI · Member since 2013 · 654 posts · 115 votes12y
@John Knappmann you are correct. The guy wants what my tenant has in his house. He appears to be watching the house. He shows up immediately when my tenant leaves according to the time stamps on the camera and the one time he did get in a winfmdow and triooed the alarm.
The house is almost fort knox now. If the guy does manage to get in a window again he will be trapped unless he climbs back out the window. Deadbolts are now double keyed.
My tenant runs his business from the house. Apparently this guy must have saw them moving things in back in June because its been going on since shortly after that.
Luckily my tenants are good people and have handled it all on there own. i wish ALL tenants had that ability. My life would be so much easier... ha ha ha...
- Investor · Southeast, MI · Member since 2012 · 2k+ posts · 1k+ votes12y
Originally posted by Aaron Yates:
Deadbolts are now double keyed.
This is a major no no. Double keyed locks are a safety violation. The city, fire department, and your insurance company will be all over you if the houses catches fire.
Your guy needs to have someone watch the house when he leaves and catch this crook red handed.
- Berkley, MI · Member since 2013 · 27 posts · 0 votes12y
so all this begs the question. What will you give up for less cash flow. I'm happy working, I prefer knowing I have that. This is why I'm leaning toward lower cash flow and much safer areas. In Berkley, my wife went to school the cops and the lead detective is a personal friend. Berkley has no crime, for the most part. I realize examples given are extremes, as is mine but I've lived in all those cities through my younger years, and it just does not appeal to me at all. With that aside, if you bought let's say a break even property here in Berkley and held it for years, what's the best and worst case scenerios. As much as it seems I'm looking for confirmation bias, I'm not. If so many people have used that model of break even and let's equity happen,then why act as if it's not a viable option?
- Involved In Real Estate · Rochester Hills, MI · Member since 2010 · 812 posts · 178 votes12y
Originally posted by Eric Reichelt:
so all this begs the question. What will you give up for less cash flow. I'm happy working, I prefer knowing I have that. This is why I'm leaning toward lower cash flow and much safer areas. In Berkley, my wife went to school the cops and the lead detective is a personal friend. Berkley has no crime, for the most part. I realize examples given are extremes, as is mine but I've lived in all those cities through my younger years, and it just does not appeal to me at all. With that aside, if you bought let's say a break even property here in Berkley and held it for years, what's the best and worst case scenerios. As much as it seems I'm looking for confirmation bias, I'm not. If so many people have used that model of break even and let's equity happen,then why act as if it's not a viable option?If you're set on berkley then buy in berkley. Each person has their own priorities when it comes to investing. If yours is low cash flow but looking for low crime then go with it.
- Involved In Real Estate · Rochester Hills, MI · Member since 2010 · 812 posts · 178 votes12y
Originally posted by Aaron Yates:
@John Knappmann you are correct. The guy wants what my tenant has in his house. He appears to be watching the house. He shows up immediately when my tenant leaves according to the time stamps on the camera and the one time he did get in a winfmdow and triooed the alarm.
The house is almost fort knox now. If the guy does manage to get in a window again he will be trapped unless he climbs back out the window. Deadbolts are now double keyed.
My tenant runs his business from the house. Apparently this guy must have saw them moving things in back in June because its been going on since shortly after that.
Luckily my tenants are good people and have handled it all on there own. i wish ALL tenants had that ability. My life would be so much easier... ha ha ha...
a friend that stays at home with a .44 after he walks out solves that issue quickly.
- Real estate investor · Las Vegas · Member since 2013 · 798 posts · 171 votes12y
those numbers can definately work. you have to make the decision of what the extra cash flow is worth. An area that doesnt have the same "numbers" in a professional area may cause less headaches and might be more profitable in the long run (turnover, damage, etc.) Just a thought to keep in mind.
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