Michigan taxes killing possibilities?

[Eric Reichelt]

I'm really looking for the solution to this problem. I live in Berkley which is just an average blue collar city with a small population. My home which is a 3/2 has a tax of 3k annual, which is the norm here as well as all of Oakland County. By running numbers based on average rent of 1000-1400 and purchase of 110-140 it just seems to thin on cash flow to make sense. I'm realizing quickly Michigan is very high on tax, and therefore curious if the obvious solution of investing elsewhere is my best option. For clarity, my goal is blue collar cities. I've read the %rules, and for where they work I have zero interest in looking. Thank you to everyone here, and I'm looking forward to hearing from you.

[Tom A.]

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.