Regarding Property Tax in Detroit

[Chad Novick]

Im am considering relocating to Detroit to invest in RE. The only thing giving me pause is the price:prop tax ratio. It seems that in many cases the prop tax is so high than the property is in effect worth less than zero...however, it seems that the prop tax is almost arbitrary with comparable houses having a wide range of tax rate (ive seen $800-$4000 spreads). So I have the following questions.

#1- After acquiring a property, what is the likelyhood of getting a reduction in prop tax? Are there any methods that result in a greater chance?

#2- How reliable is the previous year's tax in determining what the current years tax will be? I found the city site that breaks down the previous tax....but I am curious if the tax if reassessed after a new owner purchases the property.

#3- Do the larger multi unit properties generally have a lower tax:rent ratio than SFH? I am having trouble locating tax records for some of the larger multi units.

#4- Do you have any evidence that the tax rates will be changed or home values re-assessed? I read an article about a proposed prop tax freeze during years that RE prices decline, however im not sure what has happened with this bill.

Thanks in advance for taking the time to answer any of my questions.

[Scott M.]

Well to be honest with you this is a better discussion to have over the phone – a lot easier to go over taxes that way – I will take a “quick†stab at your answers – they will not be complete though – so feel free to email me and I am happy to give you some coaching over the phone – not a sales pitch mind you – but to answer your questions.

General comment: Yes – taxes “can†be high – they also can be not so high – you can cash flow according to the 50% / 2% rules you just have to buy right – quite frankly like in any city/area.

1. About 80% success rate if you use the right local people (and no I am not one of them) – there are certain appraisers / lawyers that focus on that – if your hooked up with them you’re going to do okay.
2. To determine 2009 taxes what you need to look at is the difference between the taxable value and the SEV – that is really the key. Quick math – Divide current SEV by the taxable value then multiply but the 2008 taxes (be sure to subtract out any water / sewer / garbage / special assessments before you do this). If the home is 100% homestead then add in 18%. Then because taxes went down by 13% in the city this year subtract out 13% - that will give you a good estimate of the 2009 taxes – but they will be out in 2 weeks anyway. If your taxable value and SEV are close – say one is $44K and the other is $43K then the taxes will barely change – if there is a huge difference then 2008 is not a reliable figure
3. All depends – no general rule to support your question though
4. Nothing happened with the bill as of yet. There are certain parts of the city that qualify for a 10 year tax moratorium – they will not go up or down – but in general you can find homes that work.