Tax assessment impact - Planning to buy a rehabbed MFH

[MV Reddy]

Hi,

I'm planning to buy a property that has been rehabbed couple of years back. Here is the scenario -

1.  The property was initially purchased at $200K back in 2008. The property taxes at that point were around $3000.

2. It was completely rehabbed inside out (plumbing, electrical, floors, bathrooms, kitchen everything) in 2010. The property taxes increased from $3000 to $5000 in 2011.

3. The market price of this property as of today, based on the long rental history (since 2011) is around $800K.

My question is, will there be any impact on property tax assessment if I buy this property for $800K? There is a big jump in the value of the property from $200K to $800K, since its last sale. As of now, I'm only baking in $5000 in my calculations and I need guidance if I need to account for the bump (if any). This will be a deal breaker as it will impact the Cap rate. 

I'm planning to call the County office to get more details next week but wanted to tap on to the infinite intelligence (those who read Napoleon Hill, you know what I'm talking about) here at BP.

I will really appreciate your response.

Regards,

MV

[Peter B.]

@MV Reddy

Assesment law varies by state... With that in mind. What is the difference between (current) assesed value and purchase price?  You stated assesment in 2008 was 200k taxes were about 3000.. After substantial improvements the taxes jumped to 5000.. Doing the math backwards I'm guessing a current assesed value of 330-335ish? 

In my state they usually don't jump immediately unless there is a cluster of sales supporting the jump or if there is a revaluation to the area. But eventually they do catch up. The other thing to consider is the level of assesment.. If the assesments are not represnting full value then there may not be a substantial jump in taxes.  Sometimes assesors ignore outlier sales and do nothing at all. (They just think your a fool for over paying) I wouldn't count on this though.

There is a lot to consider. But I think understanding your states assesment laws is a great start. I get a chuckle on here everytime someone buys a foreclosure for 30k does a rehab for 20k now it's worth 100k, they have this awesome cashflowing assest... These folks fail to consider the new 100k value will have a 100k tax bill. Maybe not immediately but eventually it catches up..Most of these people have'nt been doing this long enough for this to occur. So they don't know what they don't know. I was a liscensed tax assesor at one point. Worst job ever!

Peter