Assessing Multifamily taxes

[Barri Griffiths]

Hello,

I'm currently actively searching for and underwriting deals.

I just went to see a 32 unit recently, and it's something that I might want to throw and LOI out on. But before I do I'm trying to dive a little deeper into the numbers. One line item is the taxes, and as I'll be paying higher taxes than previous years, what would be the best way to access what my taxes would be as this could make a substantial difference to the deal.

Thanks 

Barri 

[Brian Burke]

@Barri Griffiths the answer differs from state to state. Some states like California will immediately re-assess the property at the purchase price. Other states, like Texas, Georgia and a lot of others re-assess annually and the new assessed value is appraised by the assessor's office or appraisal district. The value may be less than the actual sales price so most buyers underwrite somewhere between 80 and 100% of the purchase price.  Some states, like Arizona, do not re-assess upon transfer so you just have to grow the existing assessed value by a multiplier (AZ law limits it to 5% annually).  Nevada's is unique--they assess the structures at replacement cost and the land at "market value", so I haven't exactly figured out how to predict future assessed values in Nevada (hopefully some Nevada folks will chime in?).

Once you figure out what the assessed value will be, the next step is to figure out the tax rate.   In some areas, this number can be different on opposite sides of the street so you have to look up the property on the county's website (or call the county) to get the tax rate specifically for the property you are underwriting. 

The next step is to multiply the assessed value by the tax rate.  In some states there is a multiplier in between, and some states express the rate as a percentage and others as a mil rate which is a number of dollars of tax per thousand dollars of property value. 

Finally, you have to search the tax records or the most recent tax bill for any special assessments or non-ad valorem taxes. These are fixed charges for things such as bonds, etc. You would add these taxes to the taxes you calculated in the previous step.  Don't forget to inflate the result each year, its likely that the taxes will increase annually so you want to attempt to forecast the taxes for each year of your intended hold period. 

Bottom line:  the answer to your question is best to come from the assessor's office and tax collector's office in the county in which the property is located.