Question on Property Taxes

[Austin Bright]

I am a new investor. I'm looking at a property, asking price roughly 220K. The 2020 tax assessed value was 183K. If I buy this property at the asking price, will the 2021 taxed assessed value be 220K?

In general how do you factor in taxes into deal analysis. Do you look at the current year's tax assessed value plus a trend? Or do I need to budget in a 40K increased in the assessed value?

[David M.]

@Austin Bright

Depends. Differ t states do it differently. California for example has a fixed tax rate and sets the assessed value at the price the property was transferred. I think a minority of the states do this. Whereas in NJ, it’s a “ad valorem” system where the properties are valued. But, the tax rate is determined by what percentage of the sum all the assessed values in the municpality is needed to cover the budget.

So, I know some people get bent out of shape because they purchase a property more than the assessed value. Sure, you can do a tax appeal and appeal your assessed value (in NJ you need to show that’s it’s off by more than I think 15%). But, usually the difference isn’t big enough. Also, generally the whole municipality is low.

Take a look again on how I said the tax rate is figured. This means, for example, if the assessed values for all increased 10x, the tax rate would decrease by 10x. So, the only way to get out ahead is if your property decreases relative to the other properties in the neighborhood.

If the assessed value is “dragging,” it’s just the tax assessor not spending time to yearly adjust the municipality proportionally every year and/or a re-assessment (which costs money to do) hasn’t been done in a while.

As long as it’s consistent, then I see it as a “fair tax” in my opinion and don’t lose sleep over it. That’s just my two cents. Good luck in your endeavors