Huge Potential Tax Increase, West Warwick RI

[Nicholas Bolcon]

Are there any investors in West Warwick, RI that just received their new property evaluation?  I bought a duplex in December and just got a notice about the new assessed value.  They doubled the assessed value on the structure, an increase of about $70k.  Since I am paying the non-owner occupied rate, I am looking at a potential increase of about $2700 a year if the rates stay the same.  To me this is a huge increase, I know we should count on taxes to increase, but I was thinking in the neighborhood of maybe a $500 increase occasionally?

Based on my numbers it won't sink me (if my numbers are right) and I will still have positive cash-flow, but it really turns it from a seemingly decent first rental property to something not really worth the time and money I am putting into it.  Selling isn't really a good option right now since I think I over-paid a little because I underestimated the amount of work it needed (rookie mistake I know, I'm learning from it) so I haven't increased to value enough to cover my initial investment and paying a relator commission.  Any thoughts from people in similar situations?

[Anthony Thompson]

@Nicholas Bolcon I have a few friends who own in West Warwick and called me in the past week about the exact same issue, that their valuation jumped significantly.

However, because of how taxes are calculated (assessed value / 1000 x mill rate), assessed value is only one part of the equation. Many times towns will adjust assessed values upward but then adjust the mill rate downward, for a tax bill that only changes slightly.

So the question is, do you know if West Warwick has done that? If not, you could ask the tax assessor, though I imagine their phones are quite busy right about now. As always with cities and towns, if you're able to stop by in person you'll always do best that way (at least in my experience).

Assessed values are always a trailing number, so they are always "catching up" with the market; in a rising market they're generally a little under market value, and in a falling market they're generally a little over market value.

Since we've had a pretty good market run up in values over the past 6 years or so, it's not surprising at all that the assessed values would rise. At least in the case of the friends I've already spoken with, even their new value sounds like it's still below market value.

My understanding is that the town decides on a yearly basis how much is needed to run the town, and then uses assessed values relative to all other properties in the town as a way to determine each property's share of the taxes they'll be responsible for. Then they adjust the mill rate to ensure that the necessary amount is raised in total.

The salient point is, if everyone's value increases, then it doesn't necessarily mean your particular tax bill will increase, in fact (somewhat counter intuitively) it might actually decrease, if your value didn't increase as much as other properties did.

So that's why it's essentially to check out the other part of the equation and determine if the mill rate went down.

Individual towns do have financial challenges (e.g., pensions/entitlements) coming up, and let's not forget that Central Falls did declare bankruptcy in the last financial crisis. So it's not out of the realm of possibility that any particular town's taxes might increase a lot. But try to get the full picture before thinking that's necessarily what's happening in your town :)