All Forum Posts by: Tony Kohnle

Thanks @Danny Radazzo. I am a commercial appraiser in a county assessor’s office so I’ve explained it a few thousand times. If you or any other posters want more detailed answers, just post or private message me. Things can get a little more complicated if there is construction or remodeling

Hi Jack, 

The 6% is for all non owner occupied properties, residential, commercial, in state owners, or out of state. Homeowners can apply for an exemption on their legal residence that lowers the assessment ratio to 4%, exempts them from paying for school operating expenses and gives them a few smaller credits. 

All properties taxable values are capped at a 15% increase between reassessments (every 5 years) so if you hold the property for a while you will very likely end up being below market value.

Buying a property though will trigger a reassesment to market value. If you bought a 6% property and keep it a 6% property, you can apply for up to a 25% exemption, but it can’t go below prior valuation and you have to apply by January 30th.

Had a neighbor in the military. He was moving to the next base and was trying to FSBO at the top of the market and with some very minor deferred maintenance. When he wasn’t getting his price, I offered him full price if he financed for a few years and no down payment. He was able to live off his housing allowance and bank the interest, and I Refi’ a couple years later with over 20% equity. Win/Win.

Congratulations!

Thanks for helping turn that part of town around.

I had to evict a young single woman once because she stoped paying rent for a couple months after having a baby. It was pretty tough emotionally because I have a family and my wife had recently had an extremely tough pregnancy including 3 months in the hospital. My conscience was helped immensely by the fact that she told me she had one kid on moving in and actually had 3 by different fathers living there on and off (it was a one bedroom apartment). And that she did little to find a solution when I tried to find a soft landing for her. She just assumed I or someone else should pay her debts. Heck of a learning experience for me. Glad she was my second tenant and not my first. Having said that, life is not all about the money, and as others have said, spending some time and effort to help another person experiencing a tragedy can be as rewarding to you as it is to them. Reasonable people will not expect you to hurt you or your family, but will appreciate whatever you can do for them, assuming they can see past their own pain.

Some good advise so far. Another small piece. Don’t get hung up on what the bank paid for it. They typically pay up to what they have loaned on it but will pay less if no one else bids on it. It might have had some title or legal issues on it that scared off earlier potential buyers.

If there are no sales to pull comps from you and the seller get to set the market. Figure out your potential gross income, then deduct for expected vacancies and collection losses. Then deduct your annual costs to operate. Management costs, utilities, insurance, taxes, etc. (not mortgage payments). That’s your Net Operating Income. Divide that by the basic return you want to make (cap rate). Then subtract the money you need to make the immediate improvements. If you have good support for the income and expenses and reasonable expectations on your cap rate, you should be able to make a deal work. Remember the cap rate is not your whole source of return on your investment. It’s equivalent to the dividend you would get for owning a stock. You also can get appreciation, future rent growth, and depreciation. Good luck and remember the devil is in the details when you are working the numbers.

@Mark Hughes is right, sometimes you have to let your gut call it. If you are going to get into being a landlord and rehaber you are going to have many more stories of repairs, delays, heartaches and other problems. This is just a learning experience and those are almost always uncomfortable. Can you turn it to your advantage? The old out of state sellers don’t want the hassle of repairs which is understandable. Will they pay you a grand or so to manage the contractors? You get the the work done the way you want it, and some experience running contractors, and still get paid for your time. They get the house off their back with little effort and just a bit less in their pocket.

You also want to consider the effect on local taxes if you are in an area that gives significant exemptions to owner occupied homes.

I’m an appraiser for an assessors office in S.C. So can probably answer some basic questions if you have them. By state law properties are assessed at 6% of market value unless you apply for and receive the exemption for an owner occupied house. Those properties are assessed at 4% ( a 33% reduction) and are exempt from paying school operating cost (about another 1/3 in savings. Don’t blame the Assessor, the politicians wrote the law and apparently tilted it towards people eligible to vote for them. Go figure. Generally, All properties are reassessed every 5 years with the value staying the same unless there is a physical change (construction/demolition/lot split) or an ownership change. If you own a property through a reassessment period your taxable value is capped at a 15% increase at each an every 5 year reassessment (not counting physical type changes). That is why there is a separate reassessment if the property sells, to bring it back to market value. There is another exception for rental properties though. If you buy a 6% property and keep it a 6% property you can apply for an exemption of up to 25%. It just can’t go below the prior years appraised value. Say you buy small apartment complex for $1M and apply for the exemption. If it was on the roll for 650k, your new taxable value would be 750k ( 1M-25%). If it was on the rolls for 800k, your taxable value would be 800k(Somewhat less than a 25% reduction). Be very aware however that even simple tax laws can become complex because different ones apply in different circumstances. For instance. The 25% exemption noted above is designed for relief from market appreciation not capital expenditures. If that $1M property was a dump and you $200k of renovation before the end of the year, that is going to effect both the market value and the exempted value. Call your assessor and ask. The are typically glad to walk you through your situation before had rather than deal with appeals later.